Alternative banking solutions and disruptions financial technology (fintech) and telecommunications companies (telcoms) bring are now challenging African banks to go beyond their usual caution and show greater openness to technology-based solutions to diversify operations and enhance the customer experience.
According to the third edition of the African Banking Digital Transformation Report published by African Banker Magazine and Backbase, more than half - 51% - of the 153 banks surveyed across Africa consider digital transformation the most crucial factor in their growth strategy.
Among the various technology segments analysed, they say artificial intelligence or AI is the most critical element in banks' growth plans because AI can redefine traditional banking and drive innovation.
With telecommunications increasingly offering financial services, coupled with services from fintechs, mobile money services, agency banking, and digital-first banks, conventional banking is threatened.
And 43% of banks surveyed said the emergence of fintechs and related services significantly threaten the banking business.
In a quick twist, however, AI, initially seen as a threat to the sector, is now considered a vital tool for banks to deliver better services.
Banks that adopted AI early are already witnessing its gains, and 69% of surveyed banks say AI is "the most important technology trend this year." It suggests that banks might be more open to using AI-based models to enhance customer experience.
This represents a turnaround from the 2022 edition of the report that said cybersecurity represented the most influential year-round trendsetter in a similar survey.
This AI trend holds particular significance in Africa, where banks are using AI for customer engagement and "personal connections and interactions play a crucial role," according to the report.
Due to this, retail banking, which connects the bank to the customer and drives engagement, gains top priority, with 47% of banks intending to increase investments in retail banking.
Some banks have already turned to AI to improve the retail banking experience for customers. Nigeria's Zenith Bank, for instance, was an early adopter of AI-driven chatbots, opening its ZiVA chatbot in 2021.
The bank recently integrated chatbot with WhatsApp to enhance efficiency. The aim is to "deepen retail penetration," Ebenezer Onyeagwu, the Group MD, said.
Other Nigerian banks, including Fidelity Bank, First City Monument Bank, UBA Group, Access Bank, Heritage Bank, and Keystone Banks, have similarly taken to chatbots to engage with customers.
Several banks now focus on appealing to specific markets and function through AI-driven platforms, a deviation from the usual service.
The Mauritius Commercial Bank, for instance, developed a single digital platform mirrored to small and medium-sized enterprise (SME) customers.
This AI-based market-specific engagement platform was built in 11 months and now serves over 1,000 businesses. The platform's easy-to-use digital experiences have acted as an accelerator for the bank's digital transformation.
More so, new collaborative models involving partnerships with fintechs and challenger banks are emerging - a step ahead of the usual institution-centred model.
Recently, East Africa's KCB bank partnered with Sopra Banking Software, a fintech company, to build and integrate KCB savings and lending products into the KCB Vooma platform.
But caution is required. Head of the digital and e-commerce consumer and high net worth clients at Standard Bank, Belinda Rathogwa, stresses the need to plan carefully with AI.
"It is crucial to be clear about the intended goals and how success will be measured," she advised.