Beyond the hype: One Somali bank’s tech revolution strives to narrow Africa’s digital gap

As phone apps take over day-to-day global banking, the bank says that its cloud-based apps make majority of their daily banking traffic through which customers can get instant advice, resolve certain account issues or deal with credit and checks, making them key drivers of its profitable growth in Somalia, an impoverished nation which largely remains underbanked.

By Mohamed Abdi

MOGADISHU – In the midst of chaos and subsequent terror attacks, solving local issues rather than setting out to tackle global ones remains a major challenge for Somalia’s banking groups, a reality which experts say lags them behind their African competitors in this digital age.

But, In view of the large number of the young people opting for digital modes of banking primarily because of convenience, one Somali bank’s practice for tech-based banking innovation proves that no country or region is immune to the disruption of digital transformation.

According to the Salaam Somali Bank’s executives, their high-tech banking blueprint has been fueled by necessity rather than demands.

Founded in 2009, the bank, a subsidiary of Hormuud Telecom, Somalia’s largest telecommunication company knew that pressure to incorporate new technology would be the most effective solution to grow beyond their local market left very far behind in a race for the always-on connected consumer lifestyles and time effectiveness of digital banking

Introducing their digital transformation banking model which has been in the making for years, they had to deploy customer-focused channels to effectively reach their customers by integrating technology across apps, web portals, ATMs and physical locations to tap into the market.

As phone apps take over day-to-day global banking, the bank says that its cloud-based apps make majority of their daily banking traffic through which customers can get instant advice, resolve certain account issues or deal with credit and checks, making them key drivers of its profitable growth in Somalia, an impoverished nation which largely remains underbanked.

TRADITIONAL BANKING VS FINTECHS

Despite the significant advantage that the traditional banks already have, considering the vast amount of cross-border money they moved over decades, yet the growing popularity and adoption of the new digital banking industry which creates more customized and personalized customer experience continues to undo their legacy, thus threatening to push them out of market as years pass by.

Leveraging its technology and user-friendly databases, it’s keen to challenge traditional banks by offering banking services to retail customers and small businesses beyond Somalia’s borders, an untested path to profitability.

Targeting millennial and businesses looking for efficient corporate and individual banking services, Salaam Bank’s initial phased roll out offered services such as overseas cash withdrawals for free, with no requirement for minimum balance or monthly charges.

“It’s the startup’s business model that determines its prospects or demise,” said Mahad Jama, a business analyst based in Nairobi.

“It’s what affects the way investors and customers looked at the newcomers – but the bank’s non-profit market approach made it the wallets of the young and tech savvy.” he said of the bank’s ground-breaking market entry that helped it instantly grow its customer base.

It’s disruptive technology also allows customers to process all their banking transactions online through their mobile devices across the world, thus cutting the security risk involving going to the bank’s physical touch points and carrying wads of money across the long-chaotic horn of Africa nation.

The bank’s arrival into the unpredictable market dominated by outmoded remittance firms came at cost and opened a rare challenge to the old guard, thus prompting some to partially digitalize their services to keep up with the market touch.

“Its a phenomenal difference. A money that usually takes to collect or withdraw for a considerable time of travels to a physical bank’s branch can be now done in just minutes on your mobile,” says Mohamed Ahmed, an economist, based in Mogadishu of the difference between the old-fashioned traditional banking and the new digital banking systems.

Somalia’s banking sector, which is overwhelmingly privately-owned, has been hobbled by the country’s long-running conflicts and tainted by allegations of terrorism finance channels, an allegation, a challenge that experts believe could be overcome with the implementation of the more transparent digital banking by financial institutions.

Unlike their competitors who employed various but more challenging marketing strategies to woo customers, the rapid growth of SSB Bank may not surprise many, thanks to the growing acceptance of online services and digital payments they offer.

An early market entry and investment and loan opportunities meant a better chance and accelerated profitability for the bank. Similar ventures in the markets are tardily making inroads.

“I found them to be a more convenient alternative than others since my mobile phone is all I need to access my bank account.” said Sahra Yusuf, a 26-years old university student in Mogadishu.

Across Somalia, many banks are losing traction as innovative digital competitors continue to overtake them.

“Investing and practicing in digital enablement mechanism is a key for today’s banking sector – so the old guard have no choice but to do what they are already doing, just slightly better.” Mr. Ahmed warned.

Despite lacking sufficient IT-skilled talents, the growing uptake in smart phones use and low-priced communication services fueled the rise of innovative technology startups and mobile banking users, thanks to the mobile infrastructure advances.

The ease with which a customer can check accounts, make payments online and transfer money between accounts has made this fresh mode of banking hugely popular among Somalis.

The evolution in the sector comes at a time when mobile internet adoption in Africa continued to grow rapidly, with the number of mobile internet subscribers increasing three-fold in the last six years to over 300m unique users, according to the mobile operators’ trade body GSMA. An additional 250m subscribers are expected by 2020.

CHALLENGES VS RISKS

However, the existence of a digital talent gap is one major problem facing the industry which

lacks enough employees with the right tech skills to get the job done in Somalia, a reality which forces Salaam Bank, whose systems were built with the help of foreign engineers to start proactive training programs for its current staffers in the areas that matter most.

Creating new opportunities for defensive strategies to deal with the dynamic evolution of the financial fraud keep their massive banking data safe remains a major challenge for the global banking industry, however, SSB’s executives asserted that they have advanced anti-fraud systems that can provide critical strengths in its fight against fraud.

But, it’s long-term ambitious goal in narrowing Africa’s digital banking gap is reigniting the energy in the relatively new ecosystem in Somalia, a country with one of the of the world’s lowest internet penetration rates in the world.

But the thriving use of the online banking system and more internet providers, have given rise to new online customers and businesses.

“The evolving technology makes this industry’s end goal like moving target.” says Joseph Odula, a Kenyan banker as well as financial analyst in an email interview.

“While the majority of customers are satisfied with their current digital services, that doesn’t mean banks can rest on their laurels.”

According to Somalia’s Ministry of Posts, Telecommunications and Technology, just 1.88 percent of Somalis used the internet as of 2016.

STABILIZATION THROUGH FINANCIAL ACCESS

For many in the impoverished horn of Africa nation, access to finances remains to be an infeasible goal as traditional bank loans were very difficult to obtain, forcing them to rely on local moneylenders who charged prohibitively high interest rates.

To help fill this credit gap, Salaam Bank started providing loans via directly financing for people seeking financest to develop their own businesses including SMEs with the goal of promoting the economic reconstruction and stabilization of .the post-war Somalia.

Since the inception of the bank’s new microfinance scheme in 2016 – it helped provide equal access to financial services for underserved groups like women entrepreneurs, youth and people with disabilities,

Addressing the financial gaps in the credit market, the bank also provides small- and medium-sized loans to Somali entrepreneurs and homeowners, a critical support for many which contributed to the establishment of many new thriving businesses across the country.

“ I’m completely attributing my current success to the loans I received from Salam bank.” says Nurto Ahmed, a single mother of four who secured an initial loan which she used to open a well-decorated salon designed to a look more inviting to clients.

With her increased profits, she was able to make sure her her three eldest children go to school. She no longer sees herself as housewife, but as a successful, thriving businesswoman, thanks to the business finances provided by the bank which invests in various other projects including the real estate and international banking system via the TT wire funds.

Expanding its new microfinance scheme, the bank is also helping businesses to pay their payroll services to fill a much-needed gap in addition to it’s services tailored specifically to small businesses and low-income households in Somalia that are unable to access financing through traditional banks.