1. 14 Issue 137BThe Asian Banker
West Africa’s retail banking industry is
growing at a rapid pace, with grow-
ing competition in the once under-served
retail banking and SME spaces. Banks are
now leveraging technology to serve what
were once unprofitable market segments.
However, non-traditional competitors have
grown significantly, providing services
traditionally exclusive to banks. These de-
velopments require banks to have strategic
technology infrastructure in place coupled
with strong risk practices to grow a sustain-
able retail banking businesses.
In line with Central Bank of Nigeria’s
2020 vision to develop and modernise the
ments solutions companies and mobile
operators providing low-cost alternatives.
Customer service key
The African continent has very high
population growth rates, along with strong
structural and economic growth and robust
Banks face high costs of maintaining extensive
branch networks while having their market share
eroded by the ever-growing presence of payments
solutions companies and mobile operators
providing low-cost alternatives
By Farrah Brake
Democratisation of
banking services puts
focus on relationships
over products
internet and mobile penetration. West
Africa currently comprises 18 countries
with a total population of over 250 mil-
lion, more than half of whom are Nigerian.
While the banking industry in Nigeria has a
renewed focus on retail banking, especially
in the last few years, it is not as yet a very
profitable business. Banks still rely on their
corporate clients for business. Despite the
vast potential of the market, it is becoming
increasingly costly to run retail banking in
the region. The cost-to-income ratio for
an established retail bank in developed
markets can be about 30%. In Nigeria it
ranges between 40% to over 60%.
Democratisation of the banking business
means that the business is now defined by
customers and the competition and not just
the bank. The strongest competition in retail
banking is coming not from otherbanks,but
from non-bank service providers. The main
challenge in retail banking is to build lasting
customer relations and not simply focusing
on products. Today, most people change
banks because of customer service issues,
not because of technology or even safety.
West Africa’s banking sector recognises
the need for product innovation, stream-
country’s payments system, Nigeria’s finan-
cial services industry has put greater empha-
sis on the neglected unbanked population
through technology. Banks face the cost of
maintaining extensive branch networks
while having their market share encroached
upon by the ever-growing presence of pay-
retail banking

2. 15Issue 137B The Asian Banker
lined operations and strong customer
relationships. Banks in Nigeria and else-
where in West Africa will have to make
the strategic decision to look at deepening
the customer relationship through indi-
vidualised product offerings and pricing.
However, there is tremendous potential to
grow by tapping into the unbanked popu-
lation of over 50% that exists in most West
African nations.
Reaching the unbanked
In sub-Sahara Africa only 34% of the
population hold bank accounts as of 2014
according to the World Bank. Infrastruc-
ture and electronic processes within the
Nigerian banking system remain complex,
making brick-and-mortar solutions more
viable for reaching out to the unbanked.
However this solution is costly and banks
are looking to use agency banking and al-
ternate channels instead. Agency banking
has its own problems due to a general lack
of good agents as well as issues relating to
cost efficiency and security. In addition it
is hard for banks to make a cost-benefit
analysis as the agency maintains the rela-
tionship with the customer, not the bank.
As a result, agency banking has yet to take
off strongly in Nigeria.
Since agency banking is not gaining as
much traction in Nigeria, banks are look-
ing to mobile banking as a solution. The
Central Bank of Nigeria is working on a
bank verification number project where
a unique identity is given to clients. This
project would address issues surrounding
security and fraud in mobile banking.
While almost everyone has a mobile phone
in West Africa only a small percentage of
those phones are smartphones, making
mobile banking penetration extremely
low. The challenge is that the banking
system has not developed the function-
ality to capture non-smartphone users.
Telcos in Nigeria like elsewhere in Africa
have not been very successful in capturing
non-smartphone users due to strict regula-
tions from the central bank, providing an
opportunity for banks to come up with
innovative solutions.
Optimising customer data
As with technology disrupters today,
banking might soon become an asset
light business. Banks may earn more from
fees than their balance sheet. They need
to quicken their turnaround time, create
omni-channel support and enable real-time
decision-making. While banking opera-
tions have traditionally been hierarchical,
digitisation is changing this. In moving
from analogue to digital, operations are be-
coming more affordable, straightforward,
and accessible, resulting in an exponential
increase in uptake.
Banks have a lot of information about
customers but have not been able to
monetise or create value from it. Most
banks have yet to get a single view of the
customer, something that can only hap-
pen when the data is consolidated from
its current silos. Banks receive two types
of data—transaction data and relationship
data—which help create a profile of the
customer. Banks need to leverage this data
to empower front end operations to help
relationship managers serve customers bet-
ter, creating a seamless engagement across
all touch points. This coupled with a high
level of customer service will deepen client
relationships and wallet share.
Going forward, retail banks in West
Africa will need to decide if their strategy
is product or customer focused and build
their technology and staff skills around
it. How to reach the unbanked through
mobile and the role of the branch in the fu-
ture present huge opportunities for banks
that are able to compete and innovate in
this space. Mobile banking has pushed
digitisation across the bank and in order
to compete with non-industry players,
banks must capitalise on the amount of
customer data they have to turn it into a
value-added resource.
Ngozi Chidozie, associate director, management consulting, KPMG Nigeria, spoke
about current challenges and opportunities West African banks face
Delegates from First Bank at the West Africa
International Retail Banking Dialogue