Sumesh Rahavendra of DHL Express SSA says that the continent’s growing economy, increased political stability and willingness to trade with international partners presents a significant opportunity for financial service entities to expand their customer base and derive revenue from traditional banking products.
DHL sees a robust growth from their financial services customers in Africa and while the banking sector continues to play a significant role in economic development for the continent, the sector also fueled DHL’s expansion into Africa in 1978 when global banks needed to get documentation to Africa.
Rahavendra says that the retail banking, in particular, is a key focus for both international and regional banks, and requires these entities to extend their footprint and make financial services products available in regions previously unexplored.
According to KPMG’s 2014 Financial Services in Africa report, retail banking in Sub-Saharan Africa (SSA) is projected to grow at a compound annual rate of 15 per cent between now and 2020, bringing the sector’s contribution to the continent’s collective GDP to 19 per cent from an estimated 11 per cent in 2009.
Opportunities for financial service companies
According to Rahavendra, opportunities for financial service companies moving into Africa include trade finance for corporate customers and retail banking for private individuals, which appear to be the most immediate needs in the region.
“Retail banking in particular is a key opportunity, as the demand for formal banking services that enable the provision of credit and loans for vehicles and homes are growing. This can be attributed to the burgeoning middle class in Africa, which according to the African Development Bank, has tripled over the past three decades to 355 million or more than 34 per cent of the continent’s population. Whilst interest rates remain high in most countries across the continent, having access to structured banking products, and credit in particular, enables economic growth,” says Rahavendra.
“There is also a trend where multinational banking institutions partner with local entities who are familiar with the region, which allows them to meet the needs of their customers across diverse regions. Similarly, having access to partners that are familiar with the continent is the key to success for many banks expanding into the region. It is necessary to partner with suppliers that have the security, flexibility and reliability to offer quality and reliable service, despite the many challenges that the region may present.”
“Being open to opportunities in historically unattractive countries is also key to success in Africa. Whilst perceived risks may be high, the rewards are equally so since Africans are discerning consumers and readily pay for quality products and services.”
Challenges for financial service companies
Rahavendra explains that despite the many opportunities, financial service providers are also likely to experience challenges in the region. “Customs clearance can present challenges in some markets, with varying regulations and tariffs that may impact the movement of physical goods such as IT equipment, marketing material and bank cards. Understanding these regulations, anticipating the impact of customs clearance and the related customs charges such as VAT and duties will assist the sometimes difficult processes.”
“Despite new technology to enable document transmission, real document shipment numbers within the region continue to grow year-on-year. The financial services industry therefore continues to make a significant contribution to our overall shipment volumes, and investment in innovative solutions for this sector remains a priority for DHL Express across Sub-Saharan Africa and across the world,” concludes Rahavendra.