Cornel Dixon: How to unlock more potential in Kenya’s digital finance

The world has changed forever, but as Africa gets used to the ‘new normal’, there are countless opportunities to innovate and seize a bright future. Digital banking is one of the most promising areas, for Kenya, a country regarded as one of Africa’s most potential drivers for the next revolution. Nation’s 4IR journalist Faustine Ngila caught up with Cornel Dixon, the Head of Africa at Backbase, a global company playing a key role in the digital banking scene.

1. Experts Say the ‘New Normal’ in 2025 Will Be Far More Tech-Driven, Presenting More Big Challenges but also opportunities. What are the upcoming challenges and which digital opportunities will banks need to take advantage of?

Banks have existed in one form or another for a very long time. This longevity has helped them survive wars, natural disasters and economic crises.

Their sheer scale has given them huge reach, and the ability to slowly adapt to different environments. But there is a cost to such scale - speed. And the world is faster than ever before.

In marketing, it used to take weeks to get through the design, approval and implementation of a banner campaign. Now a designer can get an ad in front of a customer on the same day. In the modern era, scale is no longer how many branches or agents one bank possesses.

These days, scale is measured in how fast products can adapt to customer preferences, how quickly they can be approved and how much this can be scaled on digital platforms. The biggest challenge that banks face is how to best use and adapt their existing scale.

And where to trim the proverbial fat. Many operate at a relatively bloated 60% (or higher!) Cost to Income Ratio. When compared to the sub-40 per cent of most digital players, that is a significant difference. Banks moving to digital can reduce this by at least 20 per cent.

There will be difficult conversations about how to best scale up and down the business and many banks will suffer from a critical symptom of scale and longevity - indecision. By the time decisions are made to move, the competition will already be ahead.

In the words of the ever-wise Peter Drucker: “It’s not the big fish that will eat the small fish. It’s the fast fish that will eat the slow fish.” Those banks that are able to quickly move and adapt, will find a world that is smarter, more open, modular and truly seamless.

 2. The World Health Organisation has encouraged the use of digital currencies to control the spread of the new coronavirus. What can Africa do better with regards to using cryptocurrencies?

Africa has always innovated. It has long been at the forefront of finding digital solutions to problems across the continent: less reliable infrastructure, reduced access to liquidity and difficulties with what we call “Know Your Client” (KYC).

But banks, which are heavily regulated, have struggled to adapt quickly to the ever-shifting digital landscape. So innovation in banking has come from outside banking - the mobile network Safaricom, insurance companies like Discovery and even local regulators.

I’d argue that Africans have already been using digital currencies like airtime or digital tokens like Bonga points for years.

Africa, with its banks and regulators, needs to find a way to ensure that any digital currency is as easy as airtime when it comes to sending, receiving and sharing.

This is the new normal that people expect now. Any so-called “solution” that creates additional friction will be doomed to failure.

3. Three of the top destination countries for startup investment — Kenya, Nigeria and South Africa — collectively surpassed Sh100 billion in investment for the first time in 2018, with fintech businesses currently receiving the bulk of the capital and dealflow. How can banks and fintech startups create stronger digital banking ecosystems?

Banks and fintechs are inherently linked now, and that’s the new normal. In fact, we need to stop seeing them as separate fields.

Specifically, banks need to accept that people will not accept anything short of a seamless digital experience, and fintech companies need to respect banks’ quest for financial security.

In Kenya, there is stiff competition from more than 50 digital credit providers, what advice would Backbase provide to the traditional banks not yet on digital transformation?

Kenya has innovated its way out of a major problem: that banking is difficult. At every point of the journey to open an account, to send or receive money, to update simple personal data, the customer is presented with obstacles.

With the likes of M-pesa, M-shwari or Fuliza, it’s as easy as getting a sim. Can we say the same for many of the bank offerings?

Many people have to go to a branch to make simple changes to their profile, or even to send and receive, because the banking systems are either unavailable or too complex to use.

Banks need to focus on making sure that all their features, products and services are available in the branch of the future - the mobile phone.

Kenyans lead the charge across East Africa for phone adoption with 80 per cent having one in their pocket. Today, success is measured not by physical presence. It’s by how many clicks it takes a customer to get their job done.

4. Kenya is already a leader in digital banking, with over 30 million people using mobile money services last year. The success of Safaricom’s M-Pesa solution has dramatically increased financial inclusion across the country, highlighting how banks must be innovative and highly digitalized to serve the needs of the population. Where else can digital transformation support its customers from your perspective?

How often have customers tried to send money and their bank app is down for maintenance? How often has a small business owner tried to open a business account to be met with a cascade of required documents?

For customers across Africa, not just Kenya, a bank simply isn’t there when needed. From a technology perspective, legacy systems continue to impact many banks’ ability to serve their customers.

The sheer cost and commitment to “keep the lights on” of legacy core-banking or infrastructure means that the focus of many CIOs and their teams is not on innovation or supporting the customer.

Instead, teams are shifted to make sure the operations are not impacted and that they fix any downtime – which can be often depending on the country.

Modern banks have unburdened themselves of this problem by changing their focus from core to channel platforms and by working with platform providers in the cloud. This allows them to focus not on running the technology but on tailoring it for their customers’ needs and experiences.

From a business perspective, too many digital teams in banks speak in acronyms that talk to their objectives and not their customers: Non-Performing Loan, Cost Income Ratio, Loan to Deposit.

These are important, of course! However banks that focus on key performance indicators that are relevant to the customers will succeed: Time to Complete, Net Promoter Score, Customer Lifetime Value.

By addressing the problems of the customer first, it means that we are creating immediate value for them as an industry.

 It doesn’t matter if you have the best interest rate if customers find onboarding impossibly difficult or boring. The institution that offers the path of least resistance (with enough KYC to cover the risk) will invariably capture the market.

5. A top priority in African Union Agenda 2063 is to prepare Africa’s workforce to embrace digital transformation. How can banks prepare for this transition and how can they attract the top talents?

Education, education, education.

In the short term, this means that banks need to educate their existing staff on what digital means and offer employees the opportunity to upskill or transition into this new world. For example, banks like ING or Siam Commercial Bank offered frontline staff facing redundancy a two year period to learn new skills such as coding and found new opportunities for them in the bank.

Furthermore, boards need to adapt to a new digital paradigm. If only 1 out of 10 board members has a background or expertise in technology, how can we expect banks to make “leap of faith” decisions?

How can someone reasonably invest in cloud infrastructure and required training if they don’t understand what it is?

We simply cannot and the only way this can be addressed is for board members to be exposed to the digital reality whether through individualised coaching and support, ensuring that members rotate seats in a technology board or that candidates are vetted with the equivalent of a “digital quotient” test.

In the medium to long term, banks need to realise that they aren’t competing amongst one another for talent. They are engaged in a talent war against technology companies.

Local or regional fintechs and the tech giants of the world are where many of the best and brightest want to land. Why? Because they can make an impact and do it quite quickly.

Banks can offer lucrative salaries, however many developers balk at the lack of freedom they are given as a result of compliance or risk. This is compounded by the fact that many banks simply suffer from an image problem.

6. When the measure of your worth is how quickly and efficiently you can code, what’s the use of a suit and tie?

Ultimately there are two choices: be digital or outsource. African banks that choose to create a digital-first culture in (with pessimistic glasses on) an inherently risk-averse, hierarchical and bureaucratic industry do not have it easy.

That’s why this is in the long term. It takes foresight, planning and trial and error to get it right. Many banks open up by way of hackathons or public sandboxes which is a great way of letting the outside in as it were. However it takes more than a hackathon to get it right.

On top of having the right technology, the following four points are critical to success:

• Executives need to set a north star vision behind which the board and shareholders can rally around
• •             The vision needs to be openly communicated and evangelised internally by leadership
•  New traits such as autonomy, agility, customer obsession and experimentation need to become a common language
• Structures need to support digital-first business models and business unit incentives should be harmonised around the customer (not treating each customer in isolation)

Those banks which choose to focus on banking and outsource the rest still need to be technologically savvy.

Stakeholders need to select the right technology that can enable a digital world driven by platforms and ecosystems. These technologies are often cloud-based which presents a regulatory challenge for which many banks are woefully unequipped today.

Furthermore bankers need to articulate customer needs to their technology partners that can quickly be implemented.

The bankers and leaders of tomorrow will be able to deftly understand and manoeuvre both regulations and technology to put in place a platform that will suit the needs of the customer