Across Africa, banking is being redesigned. Technology has emerged as a competitive weapon in driving operational excellence and superior service quality. While the banks compete among themselves, they face existential threats from amalgam of entities, not necessarily possessing bank licenses.

For example, from telecommunication companies to fintech entrepreneurs, African banking fees and commissions are under tremendous presure. M-PESA offers services that are dislocating the banking architecture of Kenya, and not even global banking giants have been spared. Nigeria’s Interswitch, a fintech, has been rumored to have a valuation of $1 billion, easily eclipsing most banks in the country. Through Paypal, Nigerians spent $610 million via their mobile phones on international shopping in 2015, depriving local banks forex fees. California-based Stripe has unveiled a solution to enable online entrepreneurs to run U.S. companies and bank accounts while living outside U.S., and African entrepreneurs are excited.

As most African economies continue to shrink due to commodities bust, the reliable public funds which provide the core deposit base for banks are disappearing. To mitigate the lost revenue, banks are redoubling efforts in retail and corporate banking. But banks cannot control the rules of engagement as they have in the past, since customers now have more choices and are more fragmented, and disintermediation by fintech is making it harder to earn fees. Legacy infrastructures, like banking branches, are doing lesser activities and continue to depress margins because customers have moved to new channels.

Indeed, the challenges ahead of African banks are enormous. To remain relevant, the banks must internally mutate, disrupting themselves to participate in modern banking. From my practice working with bank clients in the continent, here are a few suggestions to make that happen:

Restructure staff. Nothing has changed in most African banks in terms of structure, despite the avalanche of transformations in the market. Most still put marketing managers in nice cars to look for clients. While that is still relevant, the emerging digital economy has provided new channels to reach customers at better cost models. Banks need to close branches, cut manpower, and transition some employees into digital banking.

Within a decade, 80% of staff should be able to automate activities like customer onboarding, sales, support, and investment management. Because banking has since become a technology business, the future is for entities that offer top-grade personalized banking services to customers, largely driven by low-cost automation. Increasingly, executing that capability will be dependent on a new species of talent with deep technical skills to integrate local realities into products.

Besides, it is not always necessary for banks to sell their products with bankers; they can move some staff to wholly-owned new technology marketing ventures, repackage the products, and present them to the public with the vibes of dynamic technology start-ups. Such realignments could be catalytic in fending up the challenges from fintech competitors.

Data consolidation. In countries where governments rarely know their citizens because there are few trusted identification systems, most African banks built their businesses on top of shaky data infrastructures. As competition heats up and provision of personalized services becomes critical, banks need to consolidate disparate data sets scattered over decades of their operations.

Most banks still require their customers to have multiple accounts to access different products in their channels — different accounts for mortgages, loans, savings, and more. Consolidating these products under one database with one account access will improve customer experience. Banks should also require customers to update their records using citizen identification numbers (where available) and email addresses and phone numbers (which did not exist in the past), in order to link services they provide them more effectively.

Elevate digital banking. While the revenue from digital banking may not be dominant at the moment, it is growing faster than branch channels. Banks must realize that this is the future of banking and the habit of seeing digital banking as a channel for young people must evolve. In most banks, inexperienced young managers are asked to handle digital products. Time has come to put digital business under the care of senior executives who have the capacities to influence strategic decisions which will help the bank disrupt and transform internally. A director that reports directly to the CEO will be optimal.

Innovate ferociously. The old banking order is failing in Africa and central banks are losing their powers with all the disintermediation. Africa has to innovate — for example by building new credit models — to expand their businesses and make them more appealing.

The excuse is that credit system cannot work until African economies have identification architectures and the FICO-like model is a testament that African banks have not invested in local research to find alternatives based on local circumstances and possibilities. Banks should also explore partnerships and collaborations with outside organizations, as the rate of disruption is huge for a sequestered entity to overcome.

Banks need to build capabilities in automation and analytics to ensure it can compete as algorithmic banking evolves. Building the AI models for the African consumer cannot be optimally driven by Silicon Valley vendors; rather, African universities and research institutes who understand the nuances of being an African are better positioned for this task. This is critical because a future where blockchain usurps central banks by eliminating clearing houses and citizens do business locally but bank offshore, only innovation will guarantee survival.

Think about local needs. What works in U.S. may not work in Africa, so getting inspiration from around the globe can lead to misses. In the West, 30% of payments come from mobile devices; in Africa, it is 60%. They talk of mobile-first; in Africa, it is largely mobile-only in electronic commerce. Thinking local is strategic to appropriately examine competing business models. A typical African builds a house paying cash with no access to mortgage. Education loan is practically not in existence. Most economies in Africa have no companies that offer agriculture insurance to farmers. By considering the local environments, it will become evident that what is working for Wall Street banks may not be relevant locally, and African banks must adapt accordingly.

African banks, unlike their international counterparts, are more susceptible to disruptions largely because the newer alternatives are always preferable, owing to infrastructural challenges. Anyone will prefer internet banking to avoid dreaded Nairobi traffic, just as millions of Africans leapfrogged owing computers to buying smartphones. There is no requirement that unbanked Africans will first get bank accounts before adopting digital wallets as ecosystems converge making it possible for people to buy and sell without a bank. African banks must reinvent themselves to be part of the new banking sector.

(Contributing Source: hbr.org)