SaaS as a Financial Inclusion Driver in Africa

The growing mobile penetration in Africa, coupled with expanding tech-savvy millennials and the Gen Z population, has created fertile ground for the banking sector to thrive digitally.

African neobanks and challenger banks such as TymeBank, Kuda, Mpesa, Bank Zero, Discovery Bank, and Better Finance have taken the continent by storm, transforming banking for millions of people and disrupting traditional banking models big time. For years only the privileged few in Africa were able to access a bank account. However, with the advent of digital banking, 57% of Africans who are currently unbanked have the opportunity to become part of the financial ecosystem, according to a 2018 study.  

African Banks, FinTechs, telcos, and other financial / non-financial institutions are focusing their efforts to partner, innovate and disrupt to collectively help bank a greater percentage of the unbanked and underbanked in the region.  

In this blog, we’ll focus on how banks can leverage the benefits of SaaS to get to market quickly with increased capabilities for innovation and how this is driving financial inclusion across the continent. 

A Quick Primer on Software-as-a-Service (SaaS) 

Software-as-a-Service vendors build and host software so that businesses looking for similar software don’t have to build from scratch. As a component of Cloud Computing, SaaS saves businesses the time, resources, and friction they could have encountered building and deploying on-premise software.  

One of the biggest challenges for banks in successful digital transformation is core banking replacement, and according to McKinsey, over 66% of digital transformation projects fail because of this. Core banking replacements are costly, time-consuming, and complex endeavors that can be discouraging for legacy banks looking to digitize. However, in today’s market, financial institutions have access to a range of SaaS, BaaS, IaaS solutions that can help them circumvent challenging core banking replacement. 

BaaS provides backend functionalities that businesses can integrate with their frontend to support front-to-back features. On the other hand, IaaS companies rent cloud servers to provide users with computing, storage, and networking resources on an as-needed basis. 

A typical example of SaaS innovations is our Digibanc™ SaaS platform. It’s tailored for neobanks, challenger banks, legacy banks wanting to deploy a digital arm, FinTech disruptors, as well as financial inclusion programs. The solution features a range of propositions for digital customer onboarding, digital wealth management, instant digital lending, BNPL, regulatory reporting, wallets, core, and more, all available via software-as-a-service deployment. 

How Is SAAS Promoting Financial Inclusion in Africa? 

Low Upfront Investment Costs for Financial Institutions 

The biggest benefit SaaS offers banks and other financial institutions are cutting down the Capital Expenditure (CapEx) for entering a new venture to scale their ROI. For instance, digital lending has been a hot topic across Africa, especially during the pandemic. Kenya alone has over 120 digital lending platforms, according to a GeoPoll case study. The report, which investigates the popularity of digital lending in the country, shows that these solutions have increased financial inclusion by more than 50%.

Financial institutions looking to extend the offering to their customers would typically have to invest heavily in building on-prem solutions from scratch. However, with solutions such as Digibanc™ SaaS, banks can just use the software on a pay-as-you-go model to save CapEx. Ultimately, this amounts to more affordable products for end-users, not to mention increased speed to market, promoting financial inclusion.  

Highly Scalable Infrastructure 

Financial institutions are evolving at an unprecedented rate towards customer-centricity, risk mitigation, ensuring transparency, ethical practices, etc. As they grow, the complexity of these operations also expands, calling for more functionalities, resources, and performance capabilities to adequately function.  

Financial institutions and regulators across Africa need to take the lead by adopting cloud migration strategies as this will help break the already existing limits data-wise, hence driving inclusivity. 

From a regulatory standpoint, businesses have no control over policies but are expected to comply. To remain within the confines of new regulations, they can adopt products such as Digibanc™ SaaS, which includes a regulatory reporting component that is flexible and adaptable to existing and emerging regulations, so they don’t have to worry about future policies. This scalability contributes to a reliable banking experience for customers and ensures banks are compliant with local and international regulations, hence building trust and credibility. 

Quicker To Deploy 

Businesses that decide to go down the on-prem path have to develop and test on different operating systems, hardware, applications, etc. However, with cloud software, the deployment is done once in the developer-controlled environment, allowing faster debugging and client support. With a SaaS approach, banks can focus on their business while the technology partner ensures the software is consistently updated, upgraded, and maintained. 

A good illustration of this would be our recent partnership with Interswitch Group. Using our Digibanc™ SaaS, we provided Interswitch’s customers with front-to-back SaaS capabilities that can be rapidly deployed and continuously supported. Institutions adopting a SaaS approach can remove the timely and costly headache of testing and reviewing updates across multiple systems before deployment.  

Better Data Security 

In a data-centric banking ecosystem, the biggest fear institutions have is exposing their customer data to cyberattacks. Talking about SaaS piques the question, “can the cloud be more secure than on-premise data centers?” Institutions also want to know-how available and durable cloud storage is for convenient access and reliability. 

In all these cases, SaaS beats on-premise. Most banks typically have two data centers, one of which serves as a backup for retrieval in case of network or server failure. However, with cloud storage, copies of data are stored redundantly in multiple parts of the world, allowing for zero downtime.

The cloud synchronizes the backups automatically to ensure they are all up to date, which ensures reliability and availability. This provides significant benefits to the consumers ensuring that the financial providers they engage with have services available 24/7. 

It’s exciting to see partnerships like Chinese Huawei, China Telecom, and ZTE with African companies thriving as this is helping boost Africa’s digital infrastructure, which is the foundation of data security. 

Innovative Customer Experiences 

After onboarding, excellent customer experience is the strongest factor that retains customers and maintains their loyalty. SaaS models address this from different perspectives, for instance, using the concept of “wisdom of crowds”. A good example of this is Google Gmail’s spam filter. When one user flags an email as spam, and it’s verified, Gmail automatically moves the email to the spam folder for all other users, allowing for a crowd-sourcing approach.  

SaaS banking infrastructures leverage the power of different technologies and industry best practices such as infrastructure management, automation and DevOps, optimization and transparency, cyber security, risk and compliance, and service management to build a cohesive user experience on their devices and leverage those in an economy of scale method. 

In Africa, this is important since multiple customer segments exist, each with their own desires, lifestyle, and requirements. The ability to build and manage multiple customer journeys and personalize financial offerings builds financial inclusion along with customer retention. 

Promoting Collaboration Between Financial Institutions 

In the quest for innovative customer experiences, a collaboration between industry participants is key. SaaS comes in as a significant driver of open banking, which involves sharing customer data electronically but securely and within the conditions that customers agree on. Sharing data and resources helps institutions create feature-rich products and tap into the increasingly growing set of digital offerings in Africa using the “New Gold” – data. 

The Benefits of SaaS in Financial Inclusion are Mutual 

As is evident, SaaS benefits cut across all stakeholders in the financial space. However, the journey starts as a boardroom agenda for all partners involved. At Codebase Technologies, we are committed to ensuring financial institutions across Africa have a smooth transition from their legacy systems to the cloud-native SaaS.  

We have partnered with some great institutions across Africa, including Interswitch and Remcash, to drive innovation in the market and help bank the unbanked and underbanked. Our Digibanc™ SaaS solution offers agility, enhanced security, core compatibility and empowers any organization with modern functionalities.

The result is not only the ability to introduce new products quickly but, as in the case of our partners, to offer SaaS/BaaS services to start-ups and fintechs. This is helping drive entrepreneurship on the continent by lowering entry barriers in terms of time and cost of starting a new fintech venture. 

Beyond the benefits to financial institutions, the African community reaps the benefits through product and service innovation which drives financial inclusion and education!