The Rise of Digital Banks: Opportunities and Challenges for African Consumers

At a time when the world is increasingly moving online, many businesses are looking to the emerging markets in Africa for new ways to do business. The world’s most diverse continent has a rich vein of creativity and entrepreneurial talent, but it also has a unique set of issues. 

Wealth inequality, geographical constraints, and fewer areas with robust infrastructure than other parts of the world all counteract much of the will of African consumers. The fascinating thing is that the digital age, something that relies almost solely on high-tech infrastructure, is already changing all that. 

What Is A Digital Bank? 

A digital bank is a financial institution that provides banking services online, whether that be in part or exclusively. While all of the world’s global banks and umbrella companies offer online services and mobile apps, there is a new class of online-only banks looking to disrupt the status quo in the market. It is these new entrants who are commonly referred to as digital banks, and it’s their range of services that provide a unique set of opportunities for African consumers. 

Greater Accessibility Levels 

The ability to be able to manage your finances anytime, regardless of where you are in Africa, is something that once seemed like it would be impossible. Remote areas, the sheer size of the investment needed for roads and transportation, and the willingness of banks to open more branches were all challenges. Jump ahead to 2025, and the overwhelming majority of people have access to a phone and an internet connection. 

Digital banks adopt models that use this global connection to be able to gain access to a whole new market of potential customers. Hundreds of millions of Africans with money to spend and savings to invest can do things like open a savings account or connect with a stock trading broker from the palm of their hand. The beauty of this is that it completely sidesteps the problem of physical infrastructure that has held back African consumers for too long. 

Access To Higher Interest Rates 

Digital banks operate models that tend to be lighter and leaner from a budgetary point of view than banks with a large amount of physical infrastructure. Leasing and staffing physical branches, higher staffing numbers, business rates, utilities, and various types of insurance can all be removed from the monthly operating budget of a digital bank. While this may sound like good news for the operators, customers will want to know that at least some of the good news is going to be passed on. 

A digital bank can use its lower running costs to offer higher interest rates on savings deposited with it. The key point here is that, as they are newer and may have less brand recognition, they need to stand out by offering something that established banks cannot. Savvy African consumers have woken up to this new reality and are increasingly making the switch to digital banking. There is also the potential for significantly lower fees, something which will also catch the eye of discerning consumers who want to know that they are getting the best possible deal. 

Advanced Budgeting Tools 

Operating an online savings account or a direct deposit account is something that many African consumers are embracing for the first time. One of the key points to note is that financial literacy levels differ to a large degree across the general population. Some will be signing up for a digital bank account for the convenience it offers over their existing bank, while others may have only ever used cash. There are also young people and graduates who are entering the workforce and gaining disposable income for the first time in their lives. 

One of the potential downsides of online banking for those who are completely unfamiliar with it is the ease with which you can spend money and get into debt. Online scams, security breaches, and one-click purchasing within freemium apps can all take some consumers by surprise. Digital banks are increasingly seeing this as their problem to fix by providing their customers with a range of budgeting tools and educational resources. 

The key thing to note here is that banks that are able to educate and engage their audience are the ones who will be able to safeguard their long-term financial health. Banks with a large number of debt-free account holders who make regular deposits and take out loans or savings plans are the banks that will succeed in Africa. 

Faster Speed Of Operation 

At a time when being first is often about being fast, it’s never been more important for African consumers and entrepreneurs to be able to hit the ground running. Being able to open new accounts and make deposits with nothing more than a smartphone means that time-consuming trips from isolated areas are now a thing of the past. Africans looking to the future no longer have to travel to branches that can often be several hours away and work around their restricted opening hours. And the change in the way things are being done doesn’t stop with regular banking. 

Savvy African consumers are increasingly looking for ways to make their money go further by putting it to work. Some are looking at high-interest savings plans, while others are looking at the potential of entering the financial markets for their own gain. Equipped with nothing more than a smartphone and a willingness to learn, an aspiring African investor can now access an MT5 download and start trading a range of different financial assets. This is something that would have been simply impossible before smartphones and WiFi became ubiquitous. 

The Need For Reliable Connections 

In the interests of balance, we think it only right to finish by highlighting the key challenge for African consumers: reliability. For digital banks to become the norm and then remain so, internet connections need to improve in terms of their reliability. Speed is rarely an issue as banking requires much less bandwidth than streaming or playing games, but reliability is clearly more important. It’s also important to note that major advances in internet speed seem to be easier to achieve. 

African consumers deserve the same level of consistent access as people in other parts of the world take for granted, and this will only come with investment in infrastructure. Continual investment in future-proofing and strengthening the network is going to be crucial here. The geography makes this more difficult than in many other places, but there are emerging technologies that look to be solving this. Starlink is one such example, and one that is already proving to be far cheaper to roll out than ground-based hardware. 

The future is certainly bright for African consumers, and it will be fascinating to see how things continue to evolve in the second half of the decade.