Did COVID-19 Accelerate Digital Transformation To African Banks?

The surge in digital payments and e-commerce transactions in financial institutions and the scramble to offer businesses and consumers contactless ways of spending, borrowing, and lending, and making payments in Africa has been associated with the spread of the COVID-19 pandemic.

Cashless solutions like mobile lending and digital payments were already growing rapidly on the continent even before the pandemic struck. Now, we could see a scenario where the effects of COVID-19 on our society will create permanent changes in the way we use digital payments, cards, and cash, creating both opportunities and challenges for financial institutions, said Billy Owino, CEO at TransUnion Kenya.

“Even in 2020, millions of people across sub-Saharan Africa still pay their bills and send money each month in cash – physically going to a retailer or a bank to make payments or to receive grant payments. Now, their safety concerns mean they don’t want to make physical payments anymore, which means banks and FinTechs will have to rapidly roll out safer, contact-free payment methods,” said Owino.

As markets prepare for life beyond the pandemic, digital transformation is becoming a key strategic initiative for financial institutions across both digital and traditional channels. Financial services providers will need to focus on offering payment and lending solutions including onboarding customers digitally in a seamless, easy, and secure manner.

They are increasingly being supported by economic policy changes from regulators and national banks to further the national digitisation agendas. The Central Bank of Kenya has put in place a range of measures, including zero charges on money transfers for amounts Ksh.1,000 and below for individual transfers using mobile money wallets. bank transfer costs to mobile wallets have also been waivered by the regulator.

As growing numbers of consumers and businesses transact online, one of the biggest obstacles to the mass uptake of digital solutions will be security, says Owino. TransUnion’s quarterly analysis of global online fraud trends found that the percentage of suspected fraudulent digital transactions against businesses worldwide had decreased by 9 percent from the beginning of the pandemic to when businesses began reopening.

By contrast, TransUnion’s Consumer Financial Hardship surveys found reports that consumers targeted by digital COVID-19 schemes had increased 10 percent at this time. So, while fraudsters might be targeting businesses less, they are going after the businesses’ customers more.

This will mean banks and businesses will need to deploy robust identity verification and fraud detection tools to manage their risks and avoid losses at a time when demand for credit is growing. At the same time, they must ensure a smooth customer experience that does not alienate the customer before they have even onboarded.

“Now that even more transactions have shifted online, fraudsters are trying to take advantage and companies must adapt. Lenders and businesses need to know exactly who they are dealing with, and how to protect their genuine customers from fraudulent activities. The businesses that come out on top will be those leveraging fraud prevention tools that provide great detection rates and providing the ability to open accounts online in an easy, personalised way,” Owino added.

Rather than asking customers to manually enter their personal information, for example, ID documents can be validated online, and the information used to pre-fill an application. Once the ID is established, the next step is effective ID authentication to detect and prevent fraud. Digital transactions carry an increased risk of fraud that businesses need to address through a multi-layered fraud strategy including assessing risk of digital signals like device, email, phone, and behaviour.

After ID management and fraud risk and prevention steps are taken, the final steps in a seamless onboarding experience include assessing the consumer’s ability to pay, based on actual or estimated income and credit history.

“COVID-19 has put immense pressure on African financial institutions to transform digitally, and to do this, they will need access to the most comprehensive set of offline and online data assets. Providing a truly seamless onboarding process requires up-to-date data sourced from credible data sources like credit agencies, government agencies, telcos, and utility providers. This is where information providers like TransUnion are playing an increasing role in driving digital transformation, access to credit and financial inclusion,” concluded Owino.

Continuous sharing of data in the market as a strategy to mitigate against fraud and risk management will be of great importance going forward.