The following case study overviews the steps followed to develop the first Digital Bank in Africa. Following a case study method, the crucial decisions made over a 2-year period is analyzed. The challenges of each different phase are described, as well as the outcomes and the impact they had in the bank's digital transformation journey. The case study is accompanied by illustrative strategy tools used during development to make the reader more familiar with the decision made. The case study concludes by highlighting success and failures in digital transformation and lessons for other banks.
TopIntroduction
The banking industry is under an accelerated digital transformation route globally, despite being a relative laggard in this area. Whilst a large number of industries went digital starting from the 1990s as it can be seen from diagram 1, the banks have been able to resist. As Bill Gates quoted in the 1990s1, banks are like ‘dinosaurs’: They are powerful, and somehow slow moving, so they are still able to resist to technological change. This however changed in the last decade: The global Financial crisis of 2009 resulted on diminished trust to the banks from the customers (Lane and Feretti, 2018). Simultaneously, the expansion of internet users, and the technological developments, enabled start ups to focus on providing services that only the banks had previously offered. The regulators viewed these development quite positively, which altogether resulted in the creation of the so-called ‘FinTech’ industry.
Figure 1. Waves of digital disruption
These developments have obliged banks from both emerging and developed economies to realize the imperative for Digital Transformation (Malar, Arvidsson, and Holmstrom, 2011). And, contrary to what would be expected, banks from emerging markets seem to have some strategic ‘wins’ in this sector, compared to banks from developed countries (Govindarajan and Ramamurti, 2011). Specific examples include the dominance of M-Pesa in Mobile Money (Foster and Heeks, 2013) firstly developed in Kenya, the highest number of digital banks per capita in the United Arab Emirates, and the worlds first traditional bank turned to fully Digital Bank from Singapore2. Within this environment, the oldest indigenous bank in Nigeria, WEMA Bank, decided to pursue a brave Digital Strategy in 2016, aiming to digitalize its operations and change its overall business model, while at the same time strengthening its retail presence.
TopStrategic Choices In The Wake Of Digital Banking
As mentioned earlier, WEMA bank had been the longest surviving bank in Nigeria. Its situation back in 2015 wasn’t the best however: Profits were heavily affected from the depreciation of the oil price, the IT infrastructure was quite old, and the word on the street was that ‘this is a bank that our grandfathers were using and it has remained old itself’. The 250% depreciation of the Nigerian currency had created further performance issues, resulting on the regulator calling all banks of the country to transform their operations3.
The engagement in a digital transformation journey had 4 strategic implications for the bank. Firstly, the bank should aim to decrease its operational costs. Back in 2015, the bank had the highest cost to income ration in the industry within Nigeria. The pressure to cut down costs was clear. The lower profits of this year, because of the oil price drop, had brought in the spotlight of the regulator the operational inefficiencies of the bank.
Furthermore, the bank was an urgent need of cultural change. As a previously regional bank, which had been state owned for a large number of years4, a large number of employees had ‘’public sector’’ attitude, ignoring the digital wave, and the renewed importance of the customer, in a world dominated by FinTechs. As a resulted, the bank was constantly ranking among the lowest in KPMGs’ customer perception surveys (KPMG, 2018). All these facts where highlighting the urgent need for a cultural change.
In addition, the bank was in urgent need for new sources of revenue. The traditional revnue source for all Nigerian banks had been the corporate loans, where they had been able to charge 40-50% interest rates, allowing them to remain profitable without focusing on offering other products and services. This had resulted in a very large number of individuals without access to finance: as per diagram 2 below, in 2015, out of a population of 200 mn, there were almost 80 million Nigerians who were unbanked (and around 40 million underbanked), making the country with the highest number of unbanked persons in the world (Mathieu, Pani, Chen and Maino, 2019). This meant that an expansion to retail operations could potentially be a good opportunity, in order to create new revenue channels and hopefully increase revenues and profits
Figure 2. Unbanked population in Nigeria (Data from World Bank)