Trends & challenges – future of digital banking security in Africa

The African banking industry is finally undergoing a major digital disruption. Financial institutions are digitizing their services and are developing new customer-driven digital services due to heightened consumer demands for more efficient ways to access banking records and complete financial transactions outside of local branches.

Africa has the 2^nd fastest emerging banking sector and the 2^nd most profitable market globally. The biggest push for online or digital banking is coming from tech-savvy young population who prefer digital banking – online deposits, mobile apps, and e-bill payments to become the norm.

Additionally, the increased consumer demand for digital banking services has on the other hand given rise to numerous technological advancements within financial institutions — with artificial intelligence (AI) at the core of these transformations.

Below, we break down the future of digital banking security in Africa as well as trends and challenges being faced by the African banking sector.

Digital Banking Security 

In 2018, Standard Charted rolled out its 2^nd phase of digital retail banking across Africa. As a result, customers in Tanzania, Uganda, Kenya, Ghana, Botswana, Zimbabwe as well as Zambia can now use more than seventy banking services, such as opening bank accounts without physically visiting a bank.

Apart from this, an increased number of customers are now carrying out financial management related activities either through their mobile phones or online. This clearly implies that in order to differentiate themselves banks in Africa must look at refining their mobile and online services. But, what this also means is that banks must also consider surmounting the security risks aside to guaranteeing an equally convenient and safe experience for these digital platforms.

Challenges in the Banking Sector

Even though digital channels have transformed the banking sector in Africa, it is facing its own set of challenges. While some markets face infrastructure challenges, poor connectivity as well as low penetration of the internet, the development of a digital ecosystem is a bigger challenge in other markets. Aside from a few exceptions, regulators must support the development and advancement of the digital banking environment. Trust is yet another challenge in view of the fact that Africa still heavily relies on cash. Thus, banks in Africa need to make their customers feel secure and safe at the time of using online banking services.

On the other hand, the increased adoption of digital channels and technology has made African banks susceptible to fraudulent practices and cyber-attacks. Criminals are using cyber tools as well as channels for phishing or sending fake and fraudulent emails in their attempt to acquire user information. Also, Mule operations, Trojan horses, and other security threats are some of the other areas that banks need to be taken into consideration to provide smooth digital banking services.

The above situation has prompted the African banks to become proactive and efficient in the manner that they handle data protection as well as cybersecurity threats. In the past couple of years, digital banking in Africa has provided the same amount of protection or safety as compared to the traditional banks.

Trends in the Banking Market

– Development of Compliance and Security Systems

Given that customer data has become a product for almost every bank today, there is an increased need for gathering advanced insights through Artificial Intelligence aside to improving security. In fact, more and more banks in Africa are looking to make the most of the two factors to differentiate themselves from customer trust and compliance perspective. This is further resulting in reduced costs as well as growth of banking business in the country. The massive growth of unstructured and structured data, increased regulation, availability of latest technologies like machine learning and cloud computing, increased customer expectations as well as increased pressures from new competition is encouraging banks to make use of AI to offer best-in-class financial services to their customers.

– Open banking

Around 15 years ago, over half of the banking transactions took place within a bank’s branch itself. Today, that figure has dropped below 10 percent and by 2022 a minimum of one in every two transactions will occur through digital channels, FinTechs as well as other 3^rd party interfaces with help from Open Banking. Thus, African banks are quickly realizing as well as responding to such changes and innovating well to deliver customer value to emerge as winners.

In Africa, open banking is driving digital banking transformation and simultaneously empowering the customers to own as well as share their important data while enabling banks to leverage all the data to provide enhanced financial services. Even as East Africa is embracing Open Banking, it is the right time for financial services and banks to work in tandem and approach the regulators to place regulations that benefits the entire ecosystem. Banks in Africa are also considering uniform API standards, security as well as authentication to ensure successful Open Banking adoption.

It must be noted that security as well as authentication are crucial components of the Open Banking structure. Together, they ensure that all the digital transactions are appropriately authenticated to reduce as well as to detect frauds. Besides, they are also crucial for providing express consent for sharing consumers’ data within the ecosystem.

Increased Investment in Security Tools, Expertise & Talent

Another trend being witnessed in the African banking sector is visible in the form of increased investments in the area of security tools, expertise, and talent. This is allowing banks to improve their digital security controls and combat threats coming from evolved hacking methods and procedures.

Data Ethics and Privacy

While banks in Africa are navigating the challenges associated with sharing customer data and safeguarding customer interests, they are also looking to facilitate secure and safe exchange of consumer data with 3^rd party companies.