The Rise of Digital During and After COVID – FBNQuest

By Gregory Kronsten

In one of our earlier columns, we noted, citing its central bank, that the volume of digital payments in Ghana increased by 81 per cent in Q1 2020. The lockdown in response to COVID-19 was the main factor although we should also mention the judicious waiving of fees on mobile money transfers. From a webinar on digitalization this week, we have learnt about the impact of COVID-19 and the broader direction of the process.

A senior employee at a Pan-African Bank stated that COVID-19 had brought a major shift in customer behavior and noted a steep increase in the use of the ‘chat’ facility for the asking of questions. The sale of products on digital had also picked up.

We learnt from a fintech company which provides business loans for small and micro enterprises via mobile money in East Africa, that it had stepped up its lending during lockdown. It dropped its prices by 10 per cent and offered health insurance with COVID-19 cover. Its rate of collections on due date did not suffer. To bring us down to earth, the moderator referred to a survey his firm had conducted at the height of lockdown across the continent: this showed, inter alia, that 70 per cent of African banks do not onboard new customers digitally from end to end.

Looking before COVID-19 and (hopefully) to life after, we picked up some positive trends for the role of digital in financial services. The founder of a Lagos-based Investment company said that recent years, which had seen investment of about US$500m in the niche, had brought a sharp rise in trust in fintech solutions. For the most part, those solutions were still the low-hanging fruit of payments and loans.

She also noted a “democratization of access” to investment products, which had involved a widening of the client base from the traditional high net worth individuals to the broader middle class. These new investors were no longer content with the returns from savings accounts and were introduced to Nigerian T-bills (NTBs). Fintech companies were providing platforms for investors to enjoy these better yields. (The story has since moved on with the crashing of NTB returns, and those same investors will be looking at other FGN paper.)

For a positive story on the ground, we return to 4G. In Kenya cellphones are only available on the presentation of a national identity number. This simplifies the process of KYC and helps to explain why 4G achieves 96 per cent of collections on due date. The company has a hybrid approach to its lending business and employs a small number of relationship managers on the ground to cement its relationship with borrowers. It is now working with the Mastercard Foundation and selected NGOs to boost its lending business.

Finally, the co-founder of a payment service provider in Africa, said that the continent has become a great source of talent for digital operators. All four participants on the webinar were confident, even enthusiastic, about the capacity of the niche to create wealth and jobs. We broadly share their optimism because the discussion was about the application of digital to one specific industry (financial services). The moderator properly asked about constraints and challenges, so we heard about poor regulation in some jurisdictions, poor security and gaps in the hard infrastructure.

Gregory Kronsten, is Head, Macroeconomic and Fixed Income Research, FBNQuest

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