Economies south of the Sahara are poised to experience a boost in economic growth between now and 2020. This builds on the real GDP growth of 6.5% between 2004 and 2008. Most of sub-Saharan Africa has bounced back from the global economic crisis, with growth rivaling the high levels during the mid-2000s, according to a regional economic outlook study published by the International Monetary Fund. Growth is expected to average 6% in 2012 throughout sub-Saharan Africa.
Banks that focus on a customer-centric approach become market leaders.
Yet the financial system in Africa -- though stable and well-capitalized -- lacks sufficient complexity. Retail banks mainly focus on short-term transactions, which is hardly conducive to true economic development. The authors of Financing Africa: Through the Crisis and Beyond, a study published by the Partnership for Making Finance Work for Africa, argue that banking services are expensive and limit households' access to basic financial services, with bank branches per capita well below the world average.
Currently, 24% of adults in sub-Saharan Africa say they have an account with a formal financial institution, according to recent research conducted by Gallup in association with the Bill & Melinda Gates Foundation and the World Bank. Even among economies with similar income levels and in the same region, significant differences in account penetration persist. For example, 29% of adults in Ghana have an account, while 10% do in Benin. Both countries have a GDP per capita of about $560 (U.S.).
Know thy customers
"Know thyself" -- an ancient Greek aphorism -- was inscribed in the forecourt of the Temple of Apollo at Delphi. The equivalent of this adage for retail banks should be "Know thy customers." The single most important denominator differentiating top-performing banks from all others is whether they possess valuable insight into their customers' financial needs. Insufficient information limits banks' opportunities, making it virtually impossible to cross-sell. Cross-sell ratios are an excellent indicator of customer retention, referral generation, and -- most importantly -- deposit growth, the single most stable source of funds in retail banking.
Against the backdrop of higher GDP growth rates, fast-growing populations, and a rising middle class, retail banks in sub-Saharan Africa have the chance to grow significantly. A recent Economist Intelligence Unit report, "Banking in Sub-Saharan Africa to 2020," notes that the three main drivers of this development are: high rates of economic growth; penetration of financial products to fulfill extensive unmet needs for basic financial services; and new technologies, particularly mobile.
Top-performing banks develop a segmentation strategy that helps them clearly define who their customers are. These banks understand where financial needs are being met and where gaps exist. Banks that focus on a customer-centric approach to product and service development become market leaders. They lead in both revenue generation and service excellence, creating the type of unique brand that engages customers for a lifetime.
The same Economist Intelligence Unit report considers two scenarios for the growth of the African banking sector. In the conservative scenario, driven exclusively by economic expansion, the report projects that by 2020, the banking industry in 16 key African economies will boost its financial assets by 178% to $980 billion (U.S.). In the more likely scenario, driven by economic growth and financial development, assets could expand by 248% to $1.37 trillion (U.S.).
Banks in sub-Saharan Africa will face increasing competition to capture wallet share from the subcontinent's newly wealthy middle class. With this growth, the need for targeted segmentation is imperative. Given that many banking products are commodities vulnerable to significant price competition and replication, cross-selling strategies based on customer relationships trump a product-centric approach to selling. Strategic customer insights and a well-developed segmentation strategy create a significant competitive advantage.
A bird's-eye view of the economic developments shaping the future of African banking can distract the observer from significant challenges at the micro level. Companies that prepare themselves for this expected growth and commit to fully satisfying each customer's financial needs will be the ones to establish themselves as the truly great banks in Africa -- and the world in general.
A version of this article appeared in African Banker magazine, 3rd Quarter 2012, issue 21. The London-based magazine is published by IC Publications and is a leading publication on the African financial sector. Editor Anver Versi, firstname.lastname@example.org. Reprinted with permission.