Financial services companies must build trust to conquer African markets
Globally, the financial services industry has seen high levels of digital disruption. There is fierce competition for customers and it’s coming from myriad alternative providers: Fintech, Insurtech, BigTech, challenger banks, digital-only banks and alternative payment providers.
Financial services in Africa, are faced with specific challenges that they must overcome to earn a share in the massive potential the continent represents.
According to research released by the world bank in 2018, as much as 63% of the population in Africa is said to be “unbanked”.
For legacy financial services providers, Africa seems like a risky play. But to disruptors, this has been fertile ground to apply out-of-the-box thinking and innovative technology.
How should financial services companies approach African markets?
Our expert’s view:
The first point to realize is that Africa is not a single economy or a homogenous culture. Each region – North, West, East, and Sub-Saharan – has distinct characteristics, opportunities and challenges. The countries within these regions must also be treated as individual markets that need to be understood.
Having said that, there are some commonalities in African markets:
- A large portion of the economy is engaged in the informal sector
- Significant parts of the population are unbanked
- Some are financially illiterate
- There is often a lack of physical infrastructure
- There is typically an absence of strict financial regulations
- For most of the population, their only connection to services is via a basic mobile device
Mobile money and payments – an African success story
Not surprisingly, it’s the mobile network providers that have stepped up and filled one of the largest gaps left open by traditional financial services companies. The likes of Vodacom, Safaricom, MTN, and Orange have overcome infrastructural and political challenges to create (and supply) enormous demand for mobile money and payment services.
According to an article by Forbes, Africa’s flagship mobile money provider, M-Pesa, processes over 1.7-billion transactions a year, which accounts for more than 50% of Kenya’s GDP value. In addition, M-Pesa’s recent partnering with PayPal and Western Union further increases their reach, enabling M-Pesa users to transact with “Western Union’s 500,000 global agents in over 200 countries.”
Interestingly, mobile money services did not find the same fertile ground in South Africa. In fact, MTN shut down its mobile money offering in SA in 2016, just 4 years after launch. It now plans to relaunch with its mobile wallet, Mowali, in partnership with Orange.
Addressing the lack of trust in financial services
In addition to all of the challenges listed above, companies must overcome another one: lack of trust in the financial system.
For many reasons, some outside of a business’s control, there is a low level of trust in companies providing financial services. To succeed in Africa, companies must focus on building a trust relationship with consumers.
One way to do this is to provide relevant and useful information that will help each individual get the best out of the services they are currently using. And entice them to consider additional services.
In a mostly text-based ecosystem, the opportunity to build trust is reliant on short, concise text interactions. And the opportunity to build a customer profile is limited to engagement via text-based services.
This may seem like an insurmountable challenge, but there are success stories and the opportunities are massive.
Chief Experience Officer, Africa