African finance has what it takes to fill the void left by foreign banks

The major shift in African banking is no longer a secret. With foreign banks continuing to reduce their presence, local players must step up and continue the task of bringing modern, resilient financial services to the people of Africa. 

The opportunity is not limited to traditional banks but offers the chance for homegrown players in all corners of the financial world to rise to the occasion. 

But there is still a major obstacle to elevating the African financial world. The lack of proper payment infrastructure, a topic often overlooked, is in fact at the very centre of all plans for African finance. 

Foreign flight, local might

In 2023, 3.3 million new bank accounts were opened in Morocco. With more than 36 million accounts in total, and more than half of the adult population enjoying banking services, Morocco is spearheading the efforts to expand access to banking in Africa. Many of the first-time clients were either young or female, or both, a clear sign that financial institutions are finding success away from their traditional demographic. 

These numbers are among the reasons why, despite the mass exodus of international banks in recent years, the African banking scene has reason to be hopeful. It’s not only Morocco, either. Invigorating stories coming from the world of African fintech and mobile pay in recent years show us that true homegrown success is possible across the continent. 

In fact, it can be said that Africans would be better served by local financial institutions than international ones. For one, local players have a better understanding of the needs and problems faced by African consumers. Copy-pasting strategies that are successful in Europe, Asia and North America are not a sure bet when it comes to the African market, as some international institutions have already found at their cost. 

More importantly, the commitment of local players to developing the African banking sector is generally perceived as being more genuine, as it would allow these companies to continue to grow on home turf. 

Without having the luxury of being able to divest from one area of the globe and expand into another, African banks will have to focus on developing the financial sector on the continent through good times as well as bad. 

Local banks will need to adopt growth strategies that run deep, rather than wide, and banking the unbanked would be a more pressing need for homegrown players than foreign ones. Attracting new users from the local pool makes more sense than competing over the same established clients. 

Local players will also have to step out of their corporate finance roles and not restrict themselves to traditional corporate financing. Finance is more and more transactional and payment is at the centre of it.

Long-term plans

History has brought about huge leaps in the way we are able to move money. From the shells and pebbles of prehistory to the cryptocurrency and instant transfers of today, innovation has always been at the heart of payment methods. But while the modern world offers cutting-edge solutions for this purpose, many places around the world, including much of Africa, are lagging behind due to a lack of payment infrastructure. 

Better payment infrastructure is needed to spread banking across Africa and to make financial services more accessible. It is also a vital prerequisite for the ambitious goal of increasing intra-African trade from 18% to 50% by 2030, in line with the scope of the African Continental Free Trade Area. 

To boost trade among African nations, there has to be a sharp increase in the amount of goods being moved, but to move goods across the continent, one also needs to be able to move money. Simply put, commerce across the continent is being held back by a lack of modern payment methods.

But here is where local banks have an advantage. Because of the very nature of international investment, foreign companies are less likely to invest in robust infrastructure knowing that they might cease operations in the area at any time. 

Payment systems, industry standards and other critical pieces of financial infrastructure cannot be properly implemented with a rose-tinted, short-term view of the market. Rather, the groundwork for a healthy banking system must be set up so that it remains functional despite natural disasters, geopolitical shocks and tumbling markets. 

African banks can do more than fill the void left by departing international players. They can accelerate the process that has seen the continent make impressive leaps in financial access in the 21st century. 

Rather than try to play catch-up with international banks, local players should tend their own garden and make a big push for easier payments, digital solutions and maybe even come up with innovative approaches specifically tailored for the African market. 

Abdeslam Alaoui is the chief executive of HPS, a Moroccan company providing global electronic payment solutions.