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Challenged by alternative banking solutions and disruptions posed by fintechs and telcos, African banks are shedding their caution and showing greater openness to tech solutions in order to diversify operations and enhance the customer experience. 

This is according to the third edition of the African Banking Digital Transformation Report, published by African Banker Magazine and Backbase. The report surveyed 153 banks across Africa.

Of those, more than half - 51% - consider digital transformation the most crucial factor in their growth strategy. 

Among the various technology segments, AI, with the potential to redefine traditional banking services and pave the way for financial innovation, stands out as a key element in banks' growth plans. 

The rise of telcos offering financial services, fintechs, mobile money, agency banking and digital-first banks collectively pose a threat to conventional banking. 

Not all - some 43% of banks in the report in fact - view the rise of fintechs and challenger banks as a significant threat to the banking business, however.

In an interesting twist, though, AI, which was initially seen as a threat to the sector, is now being considered as a vital solution for banks to provide more tailored services. 

Early adopters have already witnessed the benefits of AI in banking, but 69% of surveyed banks consider AI "the most important technology trend this year", suggesting that banks might be more open to exploring AI-supported models to leverage its vast capabilities and enhance the customer experience.

This marks a departure from the 2022 edition of the report, where cybersecurity was the most influential year-round trendsetter in a similar survey. 

The authors attribute the increased openness to AI in banking to engagement banking, a trend where banks utilize digital technology to build long-term relationships with customers. 

This trend holds particular significance in Africa, “where personal connections and interactions play a crucial role” according to the report.

As a result, retail banking, which connects the bank to the customer and facilitates customer engagement, is a major priority. This is evidenced by the fact that 47% of banks are considering increasing investments in the retail banking segment. 

A number of banks have already turned to AI to improve the retail banking experience for customers. For instance, Nigeria's Zenith Bank was an early adopter of chatbots, with its ZiVA chatbot operational since 2021. 

In a bid to increase efficiency, the bank recently integrated the AI-driven chatbot with WhatsApp, aiming to "deepen retail penetration," according to Ebenezer Onyeagwu, the Group MD.

Similar initiatives integrating chatbots into Meta platforms, have gained momentum, particularly in Nigeria. Fidelity Bank, First City Monument Bank, UBA Group, Access Bank, Heritage Bank, and Keystone Banks have all embraced chatbots to engage with customers.

Some banks are now moving beyond providing generic services and instead focusing on appealing to specific markets and functions through AI-driven platforms. 

The Mauritius Commercial Bank, for instance, has developed a single digital platform specifically tailored for small and medium-sized enterprise (SME) customers. 

This market-specific engagement platform, built with AI technology, was developed in 11 months and currently serves over 1,000 businesses. The platform's seamless digital experiences have acted as an accelerator for the bank's digital transformation.

In addition to institution-centred rollouts, new collaborative models are emerging that involve partnerships with fintechs and challenger banks. 

East Africa's KCB bank recently teamed up with Sopra Banking Software, a fintech company, to design, build, and integrate KCB savings and lending products into the KCB Vooma platform.

Some caution about moving too fast, however. Belinda Rathogwa, the head of digital and ecommerce consumer and high net worth clients at Standard Bank, emphasizes the importance of careful planning. 

She advises that before embarking on any initiative, “it is crucial to be clear about the intended goals and how success will be measured.” 

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