Allied with other technological advances, it is granting millions of people access to payment and even credit services for the first time. Banks that already offer digital savings and payment services are adding loan applications and other new functions in the face of growing competition and although the picture is mixed, it appears that the density of physical bank branches has already begun to fall.

African banks are generally driven to invest in digital platforms by a desire to meet customer demand, the savings available and the potential of new technology to increase market share. The cost of constructing, maintaining and having expertise in digital banking is far from insignificant, but it is less expensive than maintaining branch networks and their staff. Specific savings can be achieved and operational efficiency improved by digitising back-office operations and by automating onboarding and credit applications. 

Lowering costs allows banks to market their services to a broader spread of the population, revolutionising a sector that focused on the wealthy and large corporations in the past at the expense of the wider population in many African markets. Banking apps also generate a huge amount of data that can be used by banks to offer additional products and services to their customers but mainstream banks must learn to use this data in as efficient a manner as digital-only banks. Nigeria was the first African country to allow banks to share data with fintech firms but other jurisdictions are now following suit.

Digital platforms offer customers benefits in terms of speed and convenience, so a growing proportion of Africans now expect user-friendly mobile apps and streamlined processes. They can also be attracted by being able to access financial services in their own language, so banks are now offering apps in a range of different languages. Completing financial processes digitally can be hugely more convenient for customers, and it can often be the only way they can access such services if they are without a local branch of any kind. Many people in rural areas have no local bank branch, even in mature banking markets, such as Morocco or South Africa.

The convenience of mobile app and internet banking is becoming apparent to a growing proportion of the population and is no longer mainly favoured by the most digitally-savvy customers in each market. The mobile telecoms boom and the growing affordability of smartphones are paving the way for a boom in digital banking, mainly via mobile apps rather than internet banking because of the growing uptake of smartphones. Indeed, mobile phones now account for about three quarters of all online traffic in Africa.

Market competition

Established banks view fintechs, digital-first banks and telecoms companies as big threats to their dominant position in the financial services market, although cooperation with fintech firms is a growing trend. Fintech is the financial technology used to improve the delivery and consumption of financial services, including by speeding it up and automating it, mainly via the use of new software and algorithms. 

Telecom firms offer competition in the form of mobile money services, such as Safaricom’s M-Pesa, or by launching their own digital bank, as French company Orange has already done with the creation of Orange Bank Africa. The relationship between the mobile telecoms revolution and mobile access to financial services makes it no surprise that telecoms companies have expanded into the provision of financial services. 

With large user numbers in place, telecoms firms now hope to increase their average revenue per user (ARPU), for example by marketing financial services to them. Some countries offer scope for expansion even in the highly successful mobile money sector, including Egypt, where there were just 46,500 mobile wallet users at the last count. Reforms passed last year should see that country’s mobile money and digital banking markets take off.

Although they are still relatively few in number, digital-first and digital-only banks, also known as neobanks, have the potential to disrupt the established banking landscape. These neobanks lack the brand recognition of the biggest players in each market but also do not have the expense of converting existing systems or maintaining expensive branch networks. 

They are concentrated in the two biggest economies on the continent, South Africa and Nigeria, but it seems likely that they will eat into market share in more countries over the next few years. Given that it is home to most of the continent’s big banks, it is interesting that digital banks such as Bettr Bank, Discovery Bank and Tyme Bank, are making headway in South Africa. Nigerian neobanks include Kuda, Opay and Vbank, while a few have also been launched in North Africa, including Dopay in Egypt.

Coupled with the rise of micro-finance and agency banking initiatives, the arrival of so many new players in African financial services is injecting a great deal more competition into the sector. Whether a list of the biggest African banks will be the same in 2030 as in 2020 may depend on how well established banks are able to adopt the new technology and fend off competition from the newcomers. 

The pace of change

The Covid-19 pandemic and associated restrictions on accessing bank branches prompted increased take-up of digital banking services, encouraged by the suspension of digital transaction charges by some banks. In 2022, 69% of African banks told us that they had increased the pace of digital banking development as a result of the pandemic, while another 18% said that the crisis had forced them to implement plans that they had not previously expected to introduce at all. 

Yet it is important not to exaggerate the impact of this. Covid-19 perhaps accelerated the transformation by a few years, but the long-term impact will be limited, and there is still some way to go to encourage a large proportion of existing bank customers to change how they carry out financial transactions. It is important that banks do not leave those customers behind who are perhaps less open to digital technology.

However, the number of bank branches has already begun to fall, at least in relation to population size. According to World Bank data, the number of branches per 100,000 adults in sub-Saharan Africa increased rapidly from 1.6 in 2006 to a high of 4.5 in 2015 but has begun to slowly fall since then as mobile money and digital banking have begun to take off, reaching 4.1 in 2021, the latest year for which figures are available. 

The situation will continue to vary across the continent depending on the strategies of individual banks and the needs of specific markets. For example, the focus of Kenya’s KCB on mortgage lending has seen it build a new branch ecosystem in Tanzania as it expands in the neighbouring country because of limited opportunities for growth within Kenya itself. It already has 16 branches in Tanzania and plans to add another six in the near future. 

In the longer term, the number of bank branches on the continent looks likely to shrink as it is certainly cheaper to scale technology to reach more people than to expand branch networks. However, face-to-face service provision may continue where necessary, perhaps with physical premises used to offer advice and to sell products, with all but the biggest transactions carried out digitally.

Leapfrogging from cash to digital

Digital banking offers an opportunity for African economies to leapfrog technologies, in much the same way as most countries on the continent have leapfrogged over landline technology straight to mobile phones for most communication needs, and there is a realistic prospect of African countries leapfrogging thermal power plants to solar power and other renewable energy sources to meet their electrification goals. 

The vast majority of Africans currently rely on cash to complete transactions, with banknotes and coins used in about 90% of financial transactions, while there is limited use of cheques, debit cards, credit cards and point-of-sale networks. Debit cards are used by just 2% of the population of Senegal, for example (according to the 2022  BPC and Fincog report). They could therefore bypass these other options by moving straight to digital payments, helping to overcome problems with counterfeit banknotes in the process. A majority of banknotes in Somalia, for instance, are actually counterfeit.

It is particularly important to build smooth systems for onboarding – or setting up a bank account in the first place – as this is the first digital point of contact that a customer has with their bank. While it could take days or even weeks in the past to check a new customer’s identity, this process can now be completed digitally within minutes, as users can upload photographs to be automatically analysed to confirm their identity and prevent fraud, protecting the bank itself while complying with international regulations on tax evasion and money laundering.

Basic services, such as checking balances and making payments, originally dominated the market but a growing proportion of banks now offer digital lending, with digital platforms automating assessments of applicants’ ability to pay, so that credit applications can be submitted and approved within minutes. 

This is obviously beneficial for customers but banks benefit by greatly reducing the amount of labour needed to assess and process such applications. Growth is also likely in digital self-service customer support, which could cut customer service costs, while the use of digital platforms to access investment products is likely to take off in the longer term, even if the number of potential customers remains limited for the foreseeable future.

Long-term thinking

There is huge potential for growth in the provision of digital banking services in Africa, more than anywhere else in the world. Almost half of the continent’s population has no access to any form of bank account, including about 60% of all women, so banks have plenty of scope to attract more customers. 

At the same time, the population of Africa is growing quickly, from 819m in 2000 to 1.49bn in 2024, and a forecast 2.49bn by 2050 and 3.92bn in 2100, so the number of potential customers is rocketing. Moreover, of the just over 50% of Africans with a bank account, most still do not use digital banking, offering more room for growth, while the range of services available to digital banking customers is still growing.

It will be a lot cheaper to provide more services to more people via digital platforms than via physical bank networks, so it makes sense to invest in – and optimise – those platforms now. Customers who begin to use the digital services of one bank are more likely to opt for the same bank for business accounts and services if they are in a position to do so as an SME owner.

Many other aspects of the African digital banking landscape are similar to those in the rest of the world. For instance, African digital-first banks are following the pattern of their counterparts based in other regions, including in the US and UK: despite the segment’s rapid growth, most of them continue to lose money. 

Until recently, it appears that very few if any African neobanks had managed to make a profit. Research by BCG Consulting found that only 13 out of 249 digital banks worldwide were profitable in 2021, with ten of those being in the Asia-Pacific and none in Africa. Aside from the cost of setting up and building their operations, neobanks have to contend with the same challenges as any other banks, including with regard to bad debt.

However, South Africa’s TymeBank, which had 8.5m customers at the last count, did declare that it had made a monthly profit for the first time in December 2023. Although it is yet to be seen whether this is a long-term trend, it is at least a start. The pace at which African digital-first banks have moved into lending may partly be driven by a desire to generate more revenue, following the strategy of their counterparts elsewhere in the world, such as the UK’s Starling Bank.

This pattern of successive years of generating losses early in a business’s life is common to some other relatively new sectors, particularly online and with mobile apps, and so is not a direct reflection of the likelihood of long-term success. Yet this period does give established banks more time to build up their own digital offerings to confront the competition provided by the newcomers.