Africa’s banking challenges are not unique - nor are they uniform across the continent. Like banks the world over, legacy technology is a drag on digital transformation. And because Africa is not a unified bloc, the diverse economic and regulatory backdrop also means the scale of the challenge varies by country.

Regulatory challenges

One of the chief regulatory challenges African financial institutions face as they seek to digitize their operations are rules around data residency and where that data is stored. Often new technologies result in data being transferred and stored outside of a bank’s domestic market, yet some jurisdictions such as Kenya demand that data centers are located inside the country.

“That means accessing third-party tech providers that make use of cloud services - digital onboarding, for instance - would only be possible if the service provider is set up in that country, potentially shrinking the pool of third parties banks can utilize,” says Victoria Martin, Head of Compliance and Regulatory Affairs at 10x Banking.

Harmonization of data rules across the continent - or at least within regional economic blocs - would help accelerate digital transformation efforts.

“If you look at the global landscape, the business models that have succeeded and the ideas that flourish are linked directly to which path the regulators take, so there is a huge opportunity in Africa to create a cloud-first connected environment,” says Leda Glyptis, Chief Client Officer at 10x Banking.

Enhancing the customer experience

As mobile penetration increases and internet connectivity improves, consumers expect banks to replicate the digital experience they receive elsewhere. The rise of embedded finance means savvy digital players can bundle up services that are already being offered in an analogue way (funeral packages, for instance). At the same time, mobile payments can reduce the reliance on cash and make commerce more convenient.

Technology is also making hyper-personalization possible by capturing transaction data and enabling banks to provide tailored financial services that customers want, delivered at the point of need. The emergence of AI and machine learning tech in the future will also enable banks to help customers before customers even know that help is needed.

All of these developments mean banks need to be ready to offer digital services as soon as the regulatory landscape permits. “It’s important that banks stay ahead of what those regulatory trends are and that they can implement those changes before they’ve actually landed,” says Martin.

Going cloud-native

All of this can be made possible through cloud-native core banking platforms that improve resilience and scalability while being more secure and less expensive than on premise tech.

“The reason why developers embrace the cloud is because it makes their life easier, and businesses like it because it reduces cost of ownership and it allows banks to scale at non-forbidding costs,” says Glyptis. “For a very long time the cloud came with a fear of the unknown, but that has changed. The shift to the cloud is happening universally enough that everyone will follow suit eventually because not moving won’t be an option, but that journey of understanding the benefits is yet to happen for quite a lot of the world, not just in Africa.”

The implications for banks that don’t embrace the cloud are three-fold. First, if banks aren’t cloud-enabled when that tipping point comes, they risk getting left behind. Second, running any system on the cloud is cheaper, meaning banks that resist will have higher overheads. And third, banks that have already migrated to the cloud can deploy new service offerings more rapidly, giving them a competitive advantage.

In other words, by being cloud-ready, African banks can ensure that they are serving their customers better while maintaining regulatory compliance.

This blog was originally published in the winter edition of RegTech Africa here.