4.3 African Banking Landscape
4.3.1 KPMG & PwC African Banking 2016 surveys
4.3.1.1 KPMG 2016 Africa Banking Customer Satisfaction Survey
According to KPMG (2016), to succeed in today’s banking environment, bank executives need to understand their customers, especially their preferences, their channel usage, and their needs and what creates customer satisfaction. KPMG talked with more than 33,000 retail banking customers spread across 18 different African markets. Customers were asked:
• What was important to them in a banking relationship?
• What channels they currently use?
• What channels they would like to use? and
• How their current banks compared to their expectations?
According to KPMG (2016:2), much has changed across Africa’s banking industry in the past three years. In 2013, when the company published the first edition of the Africa Banking Industry Customer Satisfaction Survey, it reported that retail customers were most concerned about the financial stability of their banks. Fast forward to 2016 and the rules of the game had changed. The report added that customers were still concerned about financial stability, but were primarily interested in improved high- quality service, more innovation and greater convenience.
One of the KPMG survey findings is that new entrants and non-traditional players are gaining a foothold in many markets, further intensifying competition and creating disruption. At the same time, these new players have widened financial literacy amongst Africans and in many cases changed expectations of how traditional banks should operate. In countries such as Kenya, M-Pesa (“M” stands for “mobile” and pesa is Swahili for “money”), which is a mobile phone-based money transfer service launched by Vodafone and Mobile Operator Safaricom, has changed the financial transaction landscape. Although M-Pesa is very successful in East Africa, it has failed to disrupt traditional banking in South Africa and was shut down in 2016 by Vodafone South Africa’s subsidiary, Vodacom.
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KPMG (2016) believes that the data in the 2016 survey report provide valuable benchmarks and important indicators for Africa’s banking executives. But the company recognises that the data on its own are insufficient and for this reason sought the views and opinions of banking leaders from across the continent regarding some of the big issues facing Africa’s banks today. These viewpoints provide actionable advice on and insightful perspectives of Africa’s banking industry. For the 2016 survey (and their previous report in 2013), KPMG used its Customer Service Index (CSI) methodology to determine customer satisfaction. The CSI is a weighted score that reflects the relationship between the importance rating allocated by customers to certain measures and their satisfaction with the same measures. The CSI ranks importance and satisfaction across six key measures: Convenience; Executional excellence;
Branding value for money; Products and services; and Customer care. Figure 4.2 indicates the six measures used by KPMG during the 2016 survey.
Figure 4. 2: The six key measures used by KPMG during the 2016 survey Source: KPMG (2016:2).
Figure 4.2 presents the six measurements used by KPMG in its 2016 Africa Banking Customer Satisfaction Survey with a concomitant description of each measurement.
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4.3.1.2 PwC African Banking Survey 2016 – Banking in Africa Matters
The annual Africa Banking Survey is carried out by PwC, with the 13 editions prior to 2016 focusing exclusively on South Africa. The 2016 edition, which was carried out from March to June 2016 and launched in October of that year, had an expanded focus and included African countries. The survey was developed by PwC South Africa in conjunction with PwC Market Research based in Luxembourg. The survey collected the opinions of top executives, such as CEOs, CFOs and CROs of banks operating in South Africa, Kenya and Nigeria, with face-to-face interviews supplementing the online questionnaire for CEOs of South African banks (PricewaterhouseCoopers, 2016a:4).
According to the PwC Banking in Africa Matters – Africa Banking Survey 2016, the top Sub-Saharan banks ranked by Tier 1 capital are: Standard Bank; FirstRand; Barclays Africa; Nedbank; and Ecobank. Figure 4.3 depicts the top Sub-Saharan banks ranked by Tier 1 capital.
Figure 4. 3: Top Sub-Saharan banks ranked by Tier 1 capital Source: PricewaterhouseCoopers (2016a:10).
Standard Bank Group is the largest banking group in Sub-Saharan Africa as judged by Tier 1 capital. Tier 1 capital is the core measure of a bank’s financial health or
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strength from a central bank or regulator’s point of view. Tier 1 capital is made up of core capital, which consists mainly of ordinary share capital and reserves and may include non-redeemable non-cumulative preferred shares.
4.3.1.3 State of the industry and competition
According to PricewaterhouseCoopers (2016a:10), the South African banking sector is the most mature in Africa and ranks sixth in the world on the Global Competitiveness Index in the category availability of financial services. The report states that Nigeria’s banking sector remains loan driven, with the weakening of the oil sector due to low oil prices putting stress on corporate balance sheets and on the banking system. The report finds Kenya’s banking sector to be growing, driven by a stable domestic currency, local economic growth and demand for more diversified products by middle- class customers. The report added that three unspecified smaller banks had recently failed and no reasons were proffered.
4.3.1.4 Risks and regulation
The PwC African Banking Survey mentions that “the impact of the global regulatory agenda remains uncertain; CEOs are worried that their long-term strategic objectives will be derailed by short-term regulatory requirements and timelines”
PricewaterhouseCoopers (2016a:12). The survey adds that misaligned speed of regulatory change across Africa was a concern to the respondents. The survey found South Africa to be the only country in Africa that has implemented Basel III. Zimbabwe and Namibia have implemented Basel II and other countries are considering Basel II/III.
4.3.1.5 Immediate challenges for African banks
According to PricewaterhouseCoopers (2016a:14), when CEOs were asked to rate the most pressing issues on their agendas, the results showed a striking difference between South African banks and those operating in Kenya and Nigeria, hereafter referred to as “banks outside South Africa”. Figure 4.4 depicts the most pressing issues in a comparison by bank types and over time. For the banks outside South Africa, capital management was reported as the top pressing issue. For South African banks, this was risk of sovereign downgrade in South Africa. South African CEOs
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justifiably rated cyber security as a pressing issue and the researcher found it surprising that the banks outside South Africa did not list this among their top five issues.
Figure 4. 4: Immediate challenges for African banks Source: PricewaterhouseCoopers (2016a:14).
Figure 4.4 presents immediate challenges for African banks. As can be seen, immediate challenges of South African banks vis-à-vis banks outside South Africa differ.
To demonstrate the importance of cyber security in the South African banking landscape, in August 2016 the South African online news ‘Business Day Live’ (bdlive) reported that the South African Reserve Bank (SARB) was taking action to fend off sustained cyberattacks. The SARB Governor, Lesetja Kganyago, (cited by Bisseker, 2016), “urged the financial sector to give prominence to greater deterrence, early detection, regular penetration testing, and quicker response times”. It was revealed that the SARB had established a special forum of all major financial institutions to put together contingency measures to protect South Africa’s critical financial infrastructure from a prolonged cyberattack. The SARB Governor further stated that, “In a highly interconnected world, SA cyber-defences would only be as strong as the weakest link.”
He continued by stating that it was imperative for the private sector and public sector to work together on this issue.
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In 2016 the Standard Bank Group was a victim of a well-planned cyber fraud. Strydom et al. (2016), reporting for the global media group Reuters, stated that: “The criminal gang made 14,000 withdrawals in just three hours from bank machines at 7-Eleven convenience stores across Japan on May 15, withdrawing 1.4 billion yen ($13 million), according to a source familiar with the matter.” The article continued by stating that South Africa's Central Bank “urged lenders to be vigilant against fraud involving cards.
Central bank deputy governor Kuben Naidoo confirmed that Standard Bank would shoulder the losses.”
South African banks’ IT spend is massive. TechCentral IT website in September 2016 published an article entitled: ‘How much SA’s Big Banks Spend on IT’. According to Hilton Tarrant, a TechCentral reporter, “IT spending by the South African big four banks tops R30bn/year, with Standard Bank spending as much as FirstRand and Barclays Africa combined” (Tarrant, 2016).
4.3.1.6 Urban vs rural population in Sub-Saharan Africa
PricewaterhouseCoopers (2016a:27) states that, in 2015, Sub-Saharan Africa’s rural population represented 62.1% of its total population, while its urban population accounted for 37.9%. The report predicts that in the next three-and-a-half decades, these trends will reverse. The report estimates that by 2050, the urban population will have risen to 54.8%, bringing 780 million new city dwellers to African metropolises.
The report predicts that the magnitude of this transformation will bring with it immense challenges with regard to environmental sustainability and food security. All banks need to heed these important statistics and start planning for the future. Figure 4.5 depicts urban vs rural population trends in Sub-Saharan Africa.
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Figure 4.5: Urban vs rural population in Sub-Saharan Africa (million inhabitants) from 2000 to 2050
Source: PricewaterhouseCoopers (2016a:27).
Figure 4.5 above presents urban versus rural population trends in Sub-Saharan Africa from 2000 to 2050. As can be deduced, in the year 2000, 69.2% of the population was based in rural areas compared to 30.8%, which represents the urban population. The picture is expected to drastically change in 2050, by which time the urban population will have increased to 54.8% compared to rural population of 45.2%. This information is important and needs to be factored into future product and service design(s) by banks.
4.3.1.7 Change in consumer behaviour – The “digital natives”
In addition to being affected by rural to urban migration, banks are also confronted by the new generation, whose needs are different from the older banking customers. It is well known that the new generation prefers to use technology rather than the old ways of banking such as queuing in banking malls. According to the PwC survey, over the next 10 years, a new generation will emerge. Figure 4.6 depicts the growth in world population vs the growth in connected devices between the years 2003 and 2020.
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Figure 4.6: World population vs connected devices, billion, 2003–2020 Source: PricewaterhouseCoopers (2016a:28).
Figure 4.6 presents the world population vs connected devices between the years 2003 and 2020. It is interesting to note that in 2003 the world population was estimated to be 6.3 billion and had access to only 0.5 billion devices. Conversely, in 2020 the world population is projected at 7.6 billion with a whopping 50 billion devices.
The “digital natives” were born after 1990 and are beginning to enter universities and the workplace. The PwC report correctly states that the digital natives will transform the world as we know it; by 2020, they will make up 47% of the global population. The report adds: “Empowered by the technology and connected 24/7, this generation will have new expectations and new powers” (PricewaterhouseCoopers, 2016a:28).
The KPMG banking survey, under the heading: ‘Encouraging the shift to internet and mobile banking: A Nigerian perspective’, estimates Nigeria to have over 148 million mobile telephone subscribers, with at least 92 million of these subscribers having internet data services on their devices. The report sees internet penetration and usage growing as around one-third of Nigeria’s population is currently younger than 24 years old and the middle-class population is growing (KPMG, 2016:10).
The German software company SAP Africa has urged banks to go digital or brace for tough times. This is according to an article by Brian Ngugi published in the Eastern
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African Newspaper ‘Business Daily Africa’ (Ngugi, 2016). The article further states that the software company advised banks in the region to embrace digital technologies to counter disruptions from financial innovations. Failure to do so may, according to SAP Africa, expose them to a tough future marked by thin profits.
4.3.1.8 Impact on megatrends
Over the last five years, PwC has been identifying and following megatrends that have the potential to profoundly transform and disrupt economic sectors globally. Figure 4.7 depicts the impact of the megatrends as perceived by banking CEOs. As part of their African banking survey, PwC asked CEOs how they perceived the following megatrends and how prepared their organisations were to face them: technological change; demographic change; social and behavioural change; rise and interconnectivity of emerging markets; and war over natural resources.
Figure 4.7: Impact of the megatrends
Source: (PricewaterhouseCoopers, 2016a:30).
It is clear from Figure 4.7 that the CEOs interviewed were of the view that technological change would have the highest impact whilst a war over natural resources would have the least impact on their organisations.
In the keynote address by SARB Deputy Governor Francois Groepe at the GIBS Conference on 29 September 2015 entitled: ‘Game Changers in Financial Markets:
Regulation, Innovation and Cybersecurity’, the Deputy Governor elucidated the
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downside of disruptive innovations. For him, while disruptive innovation can bring about productivity gains, it also brings problems, such as risks of contagion, associated with the greater degree of interconnectedness (Groepe, 2015:2).
4.3.1.9 Organisation-centric vs customer-centric models
One of the biggest shortcomings of banks is their inability to gain a customer-centric view of their customers. Different product sections in banks operate in silos. As an example, when a customer applies for a home loan, he or she has to complete in a long application form. When the same customer applies for vehicle or asset finance soon thereafter, he or she again must furnish the bank with more or less the same details as provided in the home loan application form. Customers do not understand this. Most Tech companies such as Amazon only require a customer to fill in their details once. Also, companies such as Apple capture a new customer’s biographical details and credit card details once and from then on as purchases are made, the credit card is automatically debited. Fortunately, banks are beginning to listen to customers’ complaints regarding this issue and the buzz word in the banking world is now “customer centricity”. Figure 4.8 depicts the organisation-centric vs customer centric models.
Figure 4.8: Organisation-centric vs customer-centric models Source: (PricewaterhouseCoopers, 2016a:33).
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According to the PwC survey, “The number one discussion topic this year, when conducting face-to-face interviews with CEOs for our survey, was customer-centricity”
(PricewaterhouseCoopers, 2016a:33). The report correctly adds that “Over the past decades, innovations in banking – especially retail banking – have been typically launched and maintained in silos, each with its own sales and distribution model, technology, and operational structure. In the current competitive and regulatory environment, banks have to adopt a helicopter view of their customers.” Banks that continue to run according to an organisation-centric model as opposed to a customer- centric model run the risk of alienating customers. For example, while one division such as the Home Loans Unit is suing a customer for non-payment another division such as the Credit Card Unit is contacting the same customer to offer them an increased credit card limit. This occurs as a result of the bank’s system not interfacing to allow users to have a ‘helicopter view’ of customers’ accounts.