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[August 13, 2014]
Banking the unbanked continent - with Paul Drawbridge [Bizcommunity (South Africa)]
(Bizcommunity (South Africa) Via Acquire Media NewsEdge) As Africa continues to grow at a staggering rate, one industry that is about to be massively disrupted is financial services, says Paul Drawbridge, Yellowwood's business lead in Nairobi...How is the financial services industry changing in Africa? First of all, it's important to acknowledge that the banking sector is still in its infancy in many parts of Africa. It is not uncommon to find people (especially in rural areas) who would rather keep their money hidden in their homes than entrust a bank with it. There is a general feeling of mistrust with financial and insurance companies as a whole - a view that has been exacerbated by certain institutions folding, resulting in people losing the little assets they had stored there. Additionally, there is still a perception that the banks are for the 'upper classes' rather than the average person. Crossing the threshold of a banking hall can be an intimidating experience.
Long-term planning remains uncommon - few plan for the future, with the majority living more on a day to day basis. Committing even a modest sum to a savings plan each month is a huge ask for the average person when in fact that sum could be used for a daily need or even utility.
These views, however, are very much the average person's. What is driving the interest for financial institutions in Africa is the emerging middle class.
And because of that, there is a huge amount of interest in African expansion from the world's financial hubs. I regularly get calls from London about it, and there is appetite from Kenyan banks for regional expansion too. Prudential bought an insurance player in Ghana last year. The former head of Barclays, Bob Diamond, has just launched Atlas Mara with a Ugandan billionaire. It's a curious thing that this African bank was massively over-subscribed at its IPO in London - it speaks volumes for the global interest in Africa right now. Banks are either buying up African banks or launching their own, and even those who haven't done it yet are sniffing around. The industry is going to look very different in five years' time.
One of the greatest changes is the convergence and consolidation of telecommunications and banking. In the West, traditional banking channels are a handicap to innovation. In Africa, the branch infrastructure is tiny and most people are unbanked. There has been a huge amount of innovation in terms of mobile payment systems. The most famous is Safaricom's M-Pesa, but Airtel has Money as well. There is an arms race between banks and telcos, who are both trying to lock the customer in. I think the telcos will become the owners of the platforms, but banks will innovate off those platforms. Regulation will follow when mobile payments go truly pan-African.
Penetration of banking is still relatively low and will increase massively. Internet banking is only just starting up in Africa. Insurance is an enormous growth area - it's hugely underdeveloped and very few people are currently insured. All of this is about to change. Who is doing banking well? There are essentially three tiers of financial services providers setting up shop across the continent. There is the Champion's League of large, serious global players such as Standard Chartered and Barclays. There is the Premier League of pan-African banks. These are largely South African-based but have a serious continental footprint. And there is the Championship of regional players - the larger Nigerian and Kenyan banks, for example. How are they going about expansion and what would you say is the best way to do it? A few banks are expanding so quickly that they are putting strain on their infrastructure and experiencing some serious growing pains. You often find that customer service is badly affected and this negatively impacts on the brand, with serious long-term implications.
Brands need to adopt a phased approach to African growth. Because the continent is so diverse, we recommend phasing African brand expansion based on market similarities. By looking for commonalities in economic development, infrastructure and consumer dynamics it's possible to group and cluster markets. At Yellowwood we give priority to consumer needs in these clustering exercises - creating strategies for markets with similar consumer needs and characteristics. Brands can then adopt short-term / quick win strategies, medium term strategies for the more difficult markets, and long-term strategies for their expansion in Africa. This stops brands from stretching themselves too thin too quickly, or trying to tackle very different markets and dynamics in one go. What are the biggest challenges for financial service providers in Africa? Many are really struggling to communicate effectively. There is very little understanding of the more complex areas of services and functionalities - both in external communication and in the training of staff. Often staff in one branch will tell you something completely different, and contradictory to what you were told in another branch. And advertising is highly tactical. It talks about winning free tickets and price promotions but there is very little long-term brand campaigning. This is where the global players are doing things differently, although I'm not sure if the market doesn't respond better to instant benefit communication than brand communication. As consumers become more accustomed to the sophisticated marketing of the global banks, this may well change.
There are also serious customer service issues. In my experience, staff have done things they were not authorised to do. There are archaic, paper-based and complex processes and getting service right will become an important factor in brand switching. What would you say are the biggest drivers of reputation in African financial services? Consumer expectations have been low. Because most participants in the financial services sector are new, they have had very little information with which to benchmark and judge brands. But now that consumers are getting more choice, banks are going to have to start delivering on their promises. Customer service will become increasingly important. And customers are starting to look for the right fees and the best product range. In the very early days of the industry, banks had to work to convince customers that they can be trusted with their money and that they wouldn't run away with it. Now that the reputation of trust for the sector is becoming more established, consumers will become more open to switching and banks will have to work harder to maintain their customer loyalty. Any predictions? Expect more consolidation, certainly more M&As from both global banks or financial institutions, but also the larger African players. I also know that regional banks are looking at continental expansion, so I'd expect to see a lot of new market entries in the short to medium term. And keep an eye on Bob Diamond and Atlas Mara, after all their presence here is representative of the global interest and huge potential that exists in Africa right now.
For more information, visit www.ywood.co.za. Paul DrawbridgeBusiness Lead, Yellowwood East Africa Paul has extensive experience in both the client and agency side of marketing. He spent time in brand management and planning at Premier Foods in the UK, before moving to global marketing capability agency Brand Learning and Haines McGregor, a boutique London-based brand development agency. Paul has worked on brands across Western and Eastern Europe, such as Diageo, Bacardi, Pepsi, Unilever and Vodafone.
Paul decided to leave the big smoke of London for the sheer adventure of East Africa and joined Yellowwood in November 2013. He helped Yellowwood establish a permanent presence in East Africa and is in charge of growing Yellowwood's footprint and client base in the region. While at Yellowwood he has worked on pan-African marketing strategy projects for clients in financial services and telecommunications.
Paul is based in Nairobi, but you'll often find him out exploring the region, climbing, or heading to the mountains.
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