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Banking behavior to shift post-Covid

Here’s how African banks can adapt to shifts in consumer behavior

| THE INDEPENDENT | A new report by McKinsey & Company says in order to stay relevant and responsive to consumer needs, banks will need to consider both short-term expectations and long-term post-COVID-19 shifts in consumers’ preferences and behaviors.

According to the international management consulting firm, despite the challenges of the COVID-19 crisis, banks will be a critical role player in the support and recovery of African economies and livelihoods.

“Africa needs its banks more than ever,” the report says, “African banking leaders can advance structural reforms to improve competitiveness and sustainability in the aftermath of the crisis—and bolster their role in Africa’s resilience and recovery.”

To weather this storm, banking leaders need to take bold action to manage risk and capital, streamline resources and cost, and adapt to changing consumer behaviors. Recent accelerated adoption of remote services by customers will require banks to upscale their digital capabilities, McKinsey & Company says.

In its latest report titled `African Banking after the crisis’ released on June 29, the firm says banks can capitalise on changes in consumer preferences and accelerate digital transformation by launching propositions that cater to crisis-related demand.

The banks can consider new value propositions to address needs that have emerged from the COVID-19 crisis, and anchor product innovations around addressing them. Banks can include relevant products and tools in their portfolio such as, for example, financial planning, and protection and investment schemes for consumers.

In addition, banks can offer business analytics (such as cash-flow forecasting) to troubled entrepreneurs or income-smoothing overdraft facilities for gig-economy workers. Banks could also step up their skills and capabilities in infrastructure projects to prepare for the rise in infrastructure spending that is likely to occur post-crisis.

Another short-term intervention by banks would be anticipating a significant shift in channel usage. McKinsey & Company say, according to their Africa Consumer Sentiment Survey of May 8, 2020, customers have reported a 30 to 40 percent increase in their usage of online banking, mobile banking and mobile payments during COVID.

“This is linked to the imperative of physical distancing,” their report says. They predict that going forward; once “normal life” resumes, 30 to 40 percent of consumers expect to increase their use of digital channels, while 30 percent expect to reduce their branch visits.

McKinsey & Company say, as digital financial services evolve, banks will face mounting competition from three main nonbanking competitors: (i) telcos that are expanding their activities into payments (via mobile finance and beyond), (ii) major global technology players, such as Alibaba and Tencent, which have already developed a strong activity in financial services outside Africa and who are now showing increasing interest in the continent, and (iii) digital attackers such as FinTechs, which have made inroads both in the consumer services and in corporate services spaces .

“This competition from non-banking players will be enabled by regulation and technology to enable payment-service providers, mostly telcos, to provide payment services,” they say.

They caution that banks that do not embrace mobile finance and integrate it seamlessly into their banking activity face the threat of losing market share to these nonbanking competitors.

According to them, to adapt successfully to the long-term shift to digital, banks need to accelerate their digital transformation.

To achieve that, the banks need to cover 100 percent of simple sales and servicing with digital, and especially mobile, solutions.

“In other words, rapidly digitise the customer journey,” they say.

In the short-term, banks also need to mature digital sales to match assisted channels, simplify the consumer and commercial product catalogue to broaden the scope of “simple” and make the digital channel easier to navigate. Banks can also drive adoption programs across SME and all consumer segments to cement in the COVID-19-linked shift in customer behavior and raise the bar on cyber security and technological resilience.

These short-term interventions could involve developing the performance of digital channels to become equal or surpass branches and call centers in terms of conversion rates, cross-selling, and ticket sizes. Investment and lending propositions could be given a no-frills simplicity, and customers who have historically not favored digital channels could be targeted. Banks could also have zero tolerance for outages of ATMs or mobile platforms.

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