Africa’s banking markets are among the most exciting in the world. The continent’s overall banking market is the second-fastest-growing and second most profitable of any global region, and a hotbed of innovation, according to the “Roaring to life: Growth and innovation in African retail banking” report by McKinsey Global Banking practice.
The report says, nearly 300 million Africans are banked today, a number that could rise to 450 million in 5 years. The report illustrates four segments of African markets – from the advanced markets like South Africa and Egypt to fast-growing transition markets such as Kenya, Ghana and Cote D’Ivoire, to sleeping giants like Algeria, Nigeria and Angola, to nascent banking markets like DRC and Ethiopia.
The report finds that Africa’s top quintile banks – the so-called “winners” - are simultaneously 4 times more profitable and over 2 times faster growing than bottom quintile banks. The report’s key findings are that these “winners” are defined by employing one or more of five winning practices:
About 65 percent of African banks’ profitability (measured by RoE) and 94 percent of their revenue growth are attributable to their geographic footprint. Importantly, the report highlights a shift in exchange-rate-adjusted revenue pools to North Africa, East Africa and West Africa, and away from South Africa.
Right segments compelling offers. We find that 70 percent of revenue pool growth will occur in the middle segments, defined as earning between $ 6,000 and$ 36,000 in annual income. The mass market – individuals earning less than $6,000 per annum – accounts for 13 percent of the growth but is the fastest growing segment.
Whichever segment banks choose, having the right proposition is key. Our survey of 2,500 banking customers in 6 African countries finds that 25 percent of customers choose price as the most important factors in choosing banks. Equally important is convenience, also cited by 25 percent of customers. Service is the third most important factor, selected by 12 percent of customers. We also find huge cross-sell opportunities – while 95 percent of Africans have transaction products, fewer than 20 percent have lending, insurance, investment or deposit products.
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