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The new age of digital banking in Africa

As Africa’s fintech sector is growing rapidly, we discussed with Roy Zakka in order to learn more about the digital transformation roadmap and the trends that are shaping this sector

What are the biggest trends in fintech in Africa and what are the most promising areas of fintech (SaaS, Cloud, BaaS)?

Africa’s fintech sector is growing rapidly with more startups launching than ever before. Digital platforms like Layer are offering a variety of financial and non-financial services to a broad range of clients. Furthermore, fintech investment and acquisitions are taking place at an unprecedented pace.

The move from on-premise deployments to cloud hosting is a big trend that is becoming the norm. In Europe, the cloud is now the default choice. In Africa, banks and regulators are slowly changing their views on cloud hosting. And with reason. By moving to the cloud, we are putting banks in control of their business models and innovation cycles, giving them the agility and speed to build great customer products and profitable businesses. With our SaaS solution, we are allowing banks to digitally transform and scale faster. And we are talking to more and more banks in Africa looking to do the same thing.

Another area where we are seeing huge demand is embedded finance. With platforms like ours, non-financial brands can now offer financial services to their customers. This means that alongside their usual products and services, these brands can offer debit cards, credit cards, or loans etc. It opens up a massive revenue stream for these businesses that could, in time, be the main source of revenue for them.

We believe that in the short to medium term, lots of consumer brands will be offering some sort of financial product or service.

How do Africa-based banks approach digitalisation, should they be partnering with fintechs, investing in fintechs, mobile-first approach etc?

As we have seen in Europe, banks building their in-house tech hasn’t worked out too well. It simply takes too long and is delayed due to internal politics within the legacy institutions. Added to that, I think the Fintech versus Traditional finance narrative has completely changed. Banks have realised that their core skill set is not to build what the fintechs are building, but to focus on designing and building customer products and services, so now, they are partnering with fintechs rather than competing with them.

Financial institutions are now willing and motivated to work with fintechs because they are not dependent upon or hampered by legacy systems. Our layered approach to digital transformation with UBA is evidence of this.

The biggest digital transformation challenge for a bank is replacing the core banking system. According to McKinsey, over 66% of core banking transformations fail because of this.

While it is true that some banks have made progress in this regard, their approach to modernising banking software has been slow. This is largely attributed to the fact that all software within these legacy systems is deeply integrated, and consequently, any change requires an overhaul of the whole infrastructure.

So what is the solution? Coreless banking.

Coreless banking means each banking function operates as a single business function, independent from all other functions and as such silos are eliminated. In other words, the functionality, products, processes etc. can be updated or changed without having to touch the main core system.

This new way of digital transformation, powered by API-based microservices, allows banks to fully digitalise their entire bank without ever replacing the core system. Ultimately, the core acts like a dummy ledger and all the transactions and logic are done on a platform like Layer’s. The core becomes just another module that can be swapped out if deemed necessary.

This new approach to banking presents many advantages that include:

  • Lower cost (thousands not millions)

  • Faster digital transformation (4-6 months)

  • Upgrading different components of the system independently of other components

  • Future-proof

  • Increased flexibility

  • Plug-and-play functionality

How has COVID affected the digital transformation roadmap in Africa?

The fintech environment was impacted by the pandemic. As consumers avoided touching cash or point of sale devices, digital payment usage increased dramatically and continues to do so. Payments are really at the heart of any financial business. So we see that COVID has made traditional banks realise that the world is changing. And fast. To keep pace with the digital world, you need a digital-first platform.

We are seeing a huge surge in interest from Africa-based banks looking to accelerate their digital transformation projects. There is an urgency now that I have never seen before. And Layer, having years of experience in Africa, is privileged to be in the right place at the right time to offer our platform as the solution to any bank that wants to go fully digital.

What must be done to further develop financial services innovation in Africa and the fintech sector as a result?

When people can participate in the financial system, they are better able to support their family, start a business, invest in education, and plan for the future. This makes society better as people are able to discount the present and look to the future with positivity. Unfortunately, over half the population of Africa are still unbanked. But this is where fintech and financial innovation can really help.

With the help of governments via funding, education, and mentorship, fintechs can help accelerate financial inclusion across the continent. A buzzing fintech scene can really be a catalyst for unprecedented future growth. We’ve seen this work tremendously in Europe, particularly in Ireland (where we have our HQ).

This would help kick-start the fintech boom in Africa.

Layer recently partnered with UBA. What does this entail and how can fintechs benefit banks through partnerships?

What UBA just launched is a new digital banking platform for its customers that transcends just a mobile app. First of all, you will experience frictionless and rapid onboarding onto the platform and since it is more than an app, you will be able to start a transaction on one platform and complete it on another. With its in-built personalisation features, every customer will get the experience they need not just in terms of features and functionality but also look and feel. This means you will not have an app cultured with features you would not use. The layout and theme will not be generic but customised to your liking. Your everyday tasks will be automatically populated for quick access in two steps. New services and products that fit your lifestyle will appear when you need them and it will be friction-free to consume them. And on top of all of this, you can choose among four languages for the platform to display in. But the real differentiator is not about today’s features.

Fintechs can benefit banks through digital transformation and bringing them up to speed with today’s financial sector. One of the reasons our platform reduces risks and lowers operating costs is that we do not rip and replace. Instead, we layer new innovative, agile, and digital technologies on top of existing infrastructure which allows our customers to continue operating with no risk of disruption to legacy systems but at the same time enables them to roll out new customised and desirable products and services.

About Roy Zakka

Roy is a serial entrepreneur with many successful ventures, including double-digit valuation exits. He worked for SLAC and SRI in Silicon Valley. Roy has spent 25 years in the wireless and mobile sectors, and the last 10 years in financial services.