The technological bet of Barclays Africa

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The technological bet of Barclays Africa

5:09 CAT | 30 May 2017

Bloomberg (File photo) / The deconsolidation process will facilitate Barclays Africa's transformational process into a global pan-African technological group, specialised in banking services.

Since March last year, when Barclays Plc, based in London, announced that it would reduce over time its ownership of its African business (Barclays Africa) from 62.3% to a minority shareholding, Barclays Africa has intensified its communication campaign in order to reassure all its partners, namely its clients, its shareholders and the regulators, who might consider such deconsolidation as potentially problematic.

Last week, during a four-day media trip to Johannesburg, at Barclays Africa’s invitation, Club of Mozambique had the opportunity to sense, on the ground, why such partners may not have to worry too much about the new and full independence of the African financial services group. “Barclays Plc is not leaving because Africa is toxic”, insists Maria Ramos, Barclays Africa’s CEO, during a press conference at the institution’s headquarters in Johannesburg last Thursday.

Regulatory factors, instead, explains the UK-based decision to depart from the African continent. The comprehensive set of reform measures developed by the Basel Committee on Banking Supervision (Basel III), after the 2008 global financial crisis, aims at strengthening the regulation, supervision and risk management of the banking sector.

Such set of measures notably consists in improving the banking sector’s ability to absorb shocks arising from financial and economic stress. In other words, Barclays Plc needs cash now to strengthen its capital. It therefore has to sell assets, even those which generate higher rates of return, albeit with limited liquidity by international standards.

Also, in an attempt to more specifically reassure the various African regulators, Barclays Africa underscored that the new ownership structure will not be followed by an over-cyclical strategy. Conservative liquidity and capital ratios should continue to reflect the prudent stance of the bank, which does not want to pose an unsustainable systemic risk in markets in which it operates (from Kenya to Mauritius, including Mozambique, Ghana, Botswana and Zambia, to name a few).

This can be seen through its Mozambican operations, for instance, where Barclays Mozambique displays a solvency ratio of 22.5%, more than the double of the regulatory capital requirements (8%) and largely higher than the industry average. Such conservatism, as reflected notably by a strategic focus on higher-margin segments such as corporate banking, has not prevented the bank, run by the charismatic CEO Rui Barros, to generate a return on equity of 13.8% last year, amid an extremely strained macroeconomic environment.

“We are now systemically significant in each country in Africa”, underlines Maria Ramos. At the same time, the chief executive, a former director-general of the South African National Treasury, wants the institution she leads “to be in the top three in each country” and generate the bulk of its revenues from those countries, customizing its services according to each market rather than being an inward-looking South African bank.

What makes Africa attractive, in the long term, is the combination of extremely low penetration rate of financial and banking services and the ongoing development of new technologies. Technologies may indeed improve the risk/return profile of African banking assets by facilitating access to products and services for millions of people, especially in rural areas, who up until now never ever transacted in a formal (and secure) way.

Barclays Africa states that to be able to remain focused on “embedding customer and client-centricity”, it must deliver its solutions through an enhanced multi-channel approach in each market. It must thus ensure an efficient integration of the digital (mobile and web) and physical (branch) channels.

“Contrary to innovation which is taking place in developed markets, African innovation is driven by necessity”, explains Ashley Veasey, chief information officer at Barclays Africa. And as such, the rapid integration of new technologies could make of the African banking industry a frontrunner, leapfrogging traditional banking models and, eventually, setting a new global reference in banking practices.

“Once we clearly understand the customer’s approach to banking services, technology will then solve practical problems related to the delivery of our solutions”, says Ashley Veasey. For instance, small sized companies operate in a very different environment compared to that of large caps. Their banking needs should thus be responded to in a very specific manner, thanks to technology, by providing, for instance, faster evaluation processes of loan requests.

While in the retail space, the largely dominant youth that characterizes the African demography will put mobile devices and the web at the centre of banking services. Design, speed of opening or creation of an account through social media and apps will be critical for revenue growth, whereas the customer’s experience through the web must translate into conversion rates.

Finally, the deconsolidation process will facilitate this transformational process of Barclays Africa into a global pan-African technological group, which happens to be specialized in banking services. “We’re in charge of our destiny”, insists Maria Ramos.

While praising the critical commitment and contribution of London-based Barclays Plc during all those years, Maria Ramos underscores the operational advantage of not having to systematically get approvals from a physically distant company in the Europe in order to decide what’s best for their African operations.

It is all the more crucial that banks may indeed rapidly exploit the advantage they have over telecommunications groups entering the banking industry through alliances with fintech companies. Financial institutions have huge distribution networks as wells as banking licences, of which telcos and the Silicon Valley are deprived.

It is easier to turn itself into a tech company, be it by simply acquiring them or recruiting their talents, than becoming a bank, that is, a risk manager in essence and the one of the most regulated industry. A bank such as Barclays Africa just has to enhance already existing capabilities by extending its core banking platform, while a tech company has to create, from scratch, new banking capabilities.

By Levy Sergio Mutemba