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The future of African banking

Three key digital trends that are shaping banking in Africa, and how Absa CIB is working with fintechs to co-create that future

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The future of banking is digital, and Absa CIB is working closely with financial technology (fintech) companies to shape that future. The relationship makes sense, says Robert Cousins, Head of Global Markets Digital Product at Absa Corporate and Investment Banking (CIB).

"Fintechs come with a niche set of capabilities, while as a large bank, we tend to take a more broad-based approach,” he says. “We know that we can’t build the capabilities for every new solution ourselves, so we partner with fintechs to develop those niche solutions.”

A few fintechs have caught Absa’s attention in the foreign exchange (forex, or FX) space – and while the tech often has application in corporate and investment banking, Cousins says that it usually starts out as a consumer solution.

Remittance solutions

“A lot of fintechs are producing diaspora solutions around cross-border remittances, which drive FX flows in Africa,” he says. “They typically don’t have banking licences, so they look to partner with banks to further the reach of their product. We provide them with FX liquidity, which they convert from developed market currencies into African currencies. We also help them with the ‘last mile’ remittance into the beneficiary account – whether it’s a bank account, a mobile money wallet or even a cash pickup in one of our branches.”

Cross-border remittances play a key role in FX liquidity, he adds. Foreign currency flows are boosted as euros, pounds and US dollars come into the continent from people who are sending money “home” to Africa.

“This is a very busy space, and as Absa CIB we have a strong appetite to work with remittance fintechs, because it gives us that FX liquidity,” he explains. “For example, if we have an importer client in Kenya who needs US dollars, we have to get those dollars before we can provide them to him. If we don’t have those FX flows coming in, we can’t service the other side of our business.”

The cross-border theme extends into cryptocurrencies and digital assets, where several fintechs are looking to disrupt Africa’s traditional remittance market. “And again, it starts off in the consumer space, before leading into CIB,” says Cousins.

Data Analytics

That’s not to say that fintechs aren’t active in corporate banking, though. Cousins points to a wide range of digital platforms that are helping corporate treasurers to better manage their FX.

“Among larger corporates, we’re seeing more and more data-driven solutions that help our clients to manage their risk,” he says. “For example, we’re working with a platform which captures the client’s full book of imports, exports and other FX flows and provides a whole suite of analytics. This gives them a risk management view and lets them look at alternatives to how they hedge and manage their risk.”

Another example is a fintech that helps the bank manage its own client base and risk management. “The value-add there is a whole bunch of analytics and insights that would take us ages to build ourselves,” Cousins says.

Solutions for Africa

While Africa has a number of tech hubs (Johannesburg, Cape Town, Nairobi and Lagos being chief among them), Cousins says that the biggest fintech developments are coming from global companies aiming to access the continent’s largely untapped markets.

“One example is a UK-based company that provides cross-border payment solutions to tier one banks that cater for Africa’s exotic corridors,” he says. “Then on the digital asset side, a good example is a distributed platform that largely uses dollar stablecoin (USDC) to facilitate FX flows from the US and UK into Africa.”

Sub-Saharan African currencies tend to be so illiquid that they are classified as “exotic” currencies. African markets are complex, and fintechs in developed markets are looking for partners who can navigate the local landscape for them, rather than having to build the capabilities themselves to manage those complexities. That’s why Absa is quite attractive. Our Pan-African footprint means we can help global fintechs reach into Sub-Saharan Africa.”

- by Robert Cousins, Head of Global Markets Digital Product Absa CIB

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