How African Banks Need to Reimagine Their Payments Operating Model to Withstand Disruption

A new report by Boston Consulting Group has found that in light of the current disruptive payments landscape in Africa, banks need to create suitable operating structures and partnerships to fortify their retail payments positioning and create the conditions for lasting success.

The rising demand for electronic payments is creating fundamental shifts across Africa and making significant inroads in promoting financial inclusion. A rapidly changing landscape and disruptions mean that incumbent banks need to take radical and concerted action to step up to the competitive challenge, according to a new report by Boston Consulting Group (BCG).

The report, Reimagining the payments operating model to withstand disruption in Africa, shows that African payments volumes have seen solid growth over the past decade. While cash remains the primary means of payment, digital is growing fast and will continue to gain traction. The report dives into the three drivers behind this shift: the continuing adoption and product deepening of mobile money, new payment competitors entering Africa, and the gaining traction of new payment technologies such as Central Bank Digital Currencies (CBDCs) and account-to-account (A2A) technologies.

With the imminent launch of the South African A2A system, known as PayShap, these disruptions are on the banks’ doorstep and, according to the report, South African banks may need to prepare for disruptions to their profitable card businesses.

Considering payment operating models to tackle uncertainty

 Faced with disruptions from all sides, banks must ensure they have suitable structures, processes, and partnerships to thrive amidst uncertainty. “Many banks are already beginning these shifts and are reorganising and strengthening their payments infrastructures. In our experience from numerous client engagements, there are four key payment operating models to consider: decentralised, centres of operational excellence, product verticals, and business verticals,” says Yann Sénant, Managing Director and Senior Partner, and Global Head of Payments for BCG.

“In developed markets, where customer needs are relatively similar across operating countries, we have seen a trend of banks taking the bold move to centralise their operating models. In emerging markets, however, banks are taking differing approaches to account for the wide range of consumer and legislative expectations across operating geographies. Selecting the right operating model is highly dependent on the individual bank and their unique goals and ambitions,” says Nadeem Kola, Project Leader in BCG’s Johannesburg office.

The report finds that these disruptions make effective payment partnerships a priority regardless of the chosen organisational structure. Globally, the rate of partnerships between banks and specialised payment service providers (PSPs) is increasing. PSPs tend to operate at a greater scale than traditional banks, enabling them to achieve lower costs. In partnering, banks can also access innovation budgets, people, expertise, and technology solutions that may not be available in-house and refocus their time and efforts on core activities. “To remain competitive in payments, partnering with PSPs is no longer an option; it is a necessity,” says Frédéric Boutet, Managing Director and Partner in BCG’s Johannesburg office.

 Download a copy of the report here.

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