COVID-19: African Banks Under Pressure to Accelerate Digital Transformation

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

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 Africans use cards and cash, creating both opportunities and challenges for financial institutions, said Rodgers Lungu, CEO at TransUnion Malawi.

“Even in 2020, millions of people across sub-Saharan Africa still pay their bills and send money each month by drawing cash and physically going to a retailer or a bank to make payment 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 Lungu.

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, and 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 Reserve Bank of Malawi has put in place a range of measures, including zero charges on certain types of transfers and contactless point-of-sale transactions, and a three-fold increase from MWK 750,000 to MWK 1,500,000 in the daily limit for individual transfers using mobile money wallets.

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 Lungu.

TransUnion’s quarterly analysis of global online fraud trends found that the telecommunications, e-commerce and financial services industries have been increasingly targeted by online fraud, with the number of suspected fraudulent digital transactions increasing by 5% comparing the periods Jan. 1-March 10 and March 11-April 28 (March 11, the mid-date, was the date the World Health Organization (WHO) declared the coronavirus (COVID-19) a global pandemic).

TransUnion identified more than 100 million suspected fraudulent transactions globally from March 11-April 28 alone.

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,” said Lungu.

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 ID is established, the next step is effective ID Verification 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,” said Lungu.

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