- According to the International Finance, Corporation, the financial inclusion rate in Africa stood at an all-time low of 23% in 2011.
- A KYC system heavily processes customer data simplifying most processes within traditional banking and providing a layer of security.
- Ecobank Group has partnered with AMA Academy to develop customized fintech training modules for businesses, finance and journalists worldwide.
When developers isolated the basic functionality of digital currency from Bitcoin, it completely redefined the concept of finance systems and the internet. Blockchain technology brought about the idea of true decentralization, and its revolutionary concept inspired many. When Gavin Wood coined the term web3, many within Web2 and traditional banking systems saw this as a direct threat. Initially, all Central African Banks, apart from a few, rejected the notion of crypto in Banks. Many thought blockchain technology would end traditional banks, but this was not the case.
Several African banks have proved that despite the opposite nature blockchain stands for, there is still room for co-existence. They have shown that despite both advocating for different systems, Africa has enough space for both systems to co-exist as the continent transitions into a new age of digital transformation.
Blockchain Technology redefines the finance system.
The first iteration of blockchain technology came in the form of digital currency back in 2009. Many could not appreciate Bitcoin’s sophistication at the time, and many thought it was “money from the sky.” As a result, many African Banks thought of crypto in banks as an absurd dream since they didn’t believe that Bitcoin would ever gain any value.
Unfortunately, many within the industry were severely wrong. As Bitcoin grew in fame, so did its demand and soon came along multiple altcoins. By the time 2021 came in, Bitcoin had hit an all-time high of $64,000 while leaving a trail of numerous altcoins flooding the crypto market. What was once a pipe dream soon became a nightmare for traditional banking.
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Initially, blockchain technology focuses on decentralization and building a network where the users are in control. This fundamentally rocks the foundation of African Banks due to their numerous centralized and manual operations. According to the International Finance, Corporation, the financial inclusion rate in Africa stood at an all-time low of 23% in 2011.
This meant that in every group of 10 African, only 2 had access to banking systems. Remember that Africa is the second largest continent, housing over 1.08 billion at the time. Unfortunately, due to the population distribution, the need for digital knowledge, and the lengthy procedures of African Banks, citizens could not acquire the needed financial services.
Thus, Blockchain technology presented a solution that African Banks needed help to keep up with.
Advantages of Blockchain Technology over African Banks
Despite African Banks initially rejecting the concept of decentralized payment systems, the provenance of blockchain technology outpaced their expectations. Developers and Entrepreneurs took the opportunity to improve the progress of blockchain technology further.
First and foremost, blockchain technology introduced a new approach to financial systems. The use of smart contracts brought about autonomy while its decentralization enabled its highest quality cross-border payments. The concept of Cross-border payments led to the fame of Yellow Card, Flutterwave Luno and multiple fintech industries in Africa.
Providing a means for even the most remote community to have access to financial services bolstered its dating and demand. Additionally, cross-border payments offer lower remittance costs requiring users to pay a smaller fee than they would through African Banks.
Decentralized payment systems have the second most comprehensible advantage over traditional banking is faster clearance, settlement and availability. Regarding Africa’s demography, most of the population resides in rural areas. With this in mind, such communities heavily contribute to Africa’s Agricultural produce.
Unfortunately, most African Banks are situated in urban areas and thus only accommodate a small number of a country’s citizens. Catering to the majority of the rural group is why African fintech organizations have capitalized on this. In addition, blockchain technology offers less cumbersome procedures increasing transaction speed through different parties.
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Traditional banking facilitates any transaction, and it undergoes complex processes and bypasses intermediaries such as custodial services before reaching its destination. Fortunately, this is a non-issue with blockchain technology, given it is a direct link between sender and receiver.
Blockchain technology also incorporates a unique identification system, the KYC system. A KYC system heavily processes customer data simplifying most processes within traditional banking and providing a layer of security. Decentralized payment systems develop databases that can automatically update, and when incorporating a KYC system, it can flag any suspicious activities foreign to its target customer.
African Banks that chose co-existence
With the rapid growth of independent and central African fintech systems, it became clear that traditional banking was a fading concept. This heavily inspired several African Banks hose to take the first step and see whether blockchain technology could improve their fading systems.
Fortunately, these blockchain developers have successfully adapted the technology to co-exist with traditional banking systems. However, decentralized systems are steadily becoming more mainstream.
The Standard Bank is a well-known African Bank that traces its roots as one of the earliest banks in the continent. One of its headquarters located in South Africa recently announced its systems would be shifting to a more decentralized network. Its team revealed it would keep up with Africa’s digital transformation by launching a private permissioned decentralized payment offering.
This new blockchain system aims to increase international payments’ efficiency, transparency and speed. In addition, this African Bank also stated that its records would be shifted to a cloud-based server that would enable easy retrieval and storage of information.
Also, Read Africa: Redefining financial inclusion through decentralized finance (DeFi).
Richard de Roos, Head of Foreign Exchange, stated that this new blockchain project also incorporates its foreign currency trading app Shyft. He noted that the decentralized payments system would offer clients fully integrated end-to-end blockchain solutions s that would dramatically mitigate trading failures and improve liquidity visibility.
The African Bank has led several expeditions to explore the digital currency world. The bank partnered with Paxful, ushering in a new age of crypto in Banks. Its customers could buy and sell Bitcoin using their bank accounts. The partnership made it easier for South Africans to access crypto in banks and showcased that traditional banking can upgrade its services through technology.
EcoBank Group, the leading Pan-African banking group, is committed to developing new decentralized payment systems and thus has heavily contributed to Africa’s fintech industry. This African Bank has partnered with AMA Academy to develop customized fintech training modules for businesses, finance and journalists worldwide.
Through this initiative, EcoBank is directly dealing with the main hindrance to blockchain adoption, the need for knowledge. They have developed a five-module curriculum that industry experts will teach online. Doing so gradually increases the awareness of decentralized payment systems and digital currency.
Furthermore, to incorporate crypto in Banks, EcoBank partnered with TerraPay to allow customers to buy and sell digital currencies using their bank accounts. Both these initiatives are an indication that other banking can not only incorporate blockchain technology but also improve it.
United Bank of Africa(UBA)
The UBA is among the few prominent African Banks that have sought improvement within their directives. On one occasion, it partnered with Cellutant, a leading Pan-African Payments Company. This partnership could extend payment services for merchants and consumers through blockchain technology, and Cellutant’s Payment Gateway Tinggs is available to many merchants within the content.
The decentralized payments system would be open to 19 countries and across the total gross value payments of $15 billion in Africa. According to Aksgar Grover, Group CEO at Cellutant, partnering with the UBA has aided in the growth of Africa’s fintech industry.
Furthermore, the UBA has embraced the concept of crypto in banks by partnering with Binance. This partnership lets customers buy and sell digital currency using their bank accounts.
As one of the leading African Banks, Barclay’s Bank once played an integral role in traditional banking within the continent. Fortunately, since the bank noted Africa’s digital transformation, it soon became apparent that decentralized payment systems were the next step for Africans.
Dr Lee Braine, the bank’s expert on DLT, elaborated on the bank’s strategic approach to blockchain technology. He stated they had witnessed the accelerated pace of fintech innovation worldwide and within the continent. Furthermore, he noted that Brclays had had its sights on blockchain technology, distributed ledger systems and smart contracts in 2014. 2016 Barclays partnered with an Israel-based start-up company to launch the world’s first trade transaction using blockchain technology.
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This African Bank has established its urge to launch a decentralized payments system for some time now. Barclays Bank partnered with cryptocurrency exchange Circle to enable crypto in banks for the continent. The bank also announced the creation of a Utility Settlement Coin. They will implement these digital cash instruments on distributed ledger technology and sonnets commercial bank one-to-central bank money.
Although blockchain technology initially threatened traditional banking systems, many have taken a different approach. For several decades now, other banking systems have created the backbone of financial services within the country. Unfortunately, due to the world’s digital transformation, more is needed.
These African Banks have taken the next step to developing a decentralized payments system and interacting with crypto in banks. The current plans are still in their initial phase but have formed gradually, and we might see the entire interaction of blockchain in banks.