The exponential growth of digital banking in Ghana, with Felix Duku
Poor infrastructure was an insurmountable hurdle for the traditional banking model in many developing markets. Branches were too expensive to instal and then often too hard to reach for many. The first waves of digital banking helped to alleviate some of this pain, but only for the lucky few who had access to a stable internet supply - so typically the wealthier folk in the bigger cities.
And then came cell phones. Not smartphones, hardy Nokia’s that could take a beating and last a week on a single charge. Safaricom and M-Pesa were probably the biggest name in this game, using SMS technology to provide basic banking on the cheap, initially in East Africa but then through large parts of the continent.
This was a godsend, but the global applicability was limited since much of the value came in its ability to work around bad infrastructure. In the developed world, where this was not a problem, consumers were looking for a customer experience that could not be delivered by SMS.
That’s what makes the latest wave of African fintech much more interesting, built as they are on smartphone apps that cater to digital consumers just as discerning as those in the rest of the world. So, by leapfrogging internet banking, African digital banking is now a hotbed of mobile banking innovation.
To put this fast-tracked growth in context, I speak to Felix Duku, one of the drivers of digital banking in Ghana over the last thirty years. Using his own career as a backdrop, we talk about the stable goal of delivering a great customer experience and how he looked to deliver this through consecutive waves of technological innovation.
If you have any feedback, questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.
Regards,
Brendan
The full transcript with timestamps is below:
Felix Duku 0:00
A funny thing, I was looking at i,t was a personal development course that I did - I think it was around 2000 - where, after we talked a lot about personal development and all of that, one of the final things that we did in that class was for us to take a look at the next 10/ 15/ 20 years of our lives, and say to ourselves, where we would like to be, what we would like to be doing, and picture ourselves writing a letter to that person. So let me tell you what I wrote, I actually saw the letter I was looking through some stuff, I said, "Dear Felix, I hope by now your dream of becoming a consultant has materialised, and that you are consulting to a lot more banks and doing a lot more things, rather than working for one bank. I hope you are exploring new technologies, creating new relationships, trying to solve the world's problems but in a sensible way".
And this is something that I wrote 20 years ago, and I I looked at the letter I said, wow, you know, that is exactly what I'm doing today. I mean, I was the lead consultant in setting up the national switch Ghana interbank payments, services and gifts, is one of the more innovative central bank/ inter-bank switches that we have in Africa; I was the lead consultant in setting up automated trading system for the Ghana Stock Exchange, something which is still in use today; I was one of the consultants in setting up our network of rural banks, links up all the route banks within Ghana, to run off one core banking system, therefore saving the country a lot of money and stuff like that, for for many banking projects, many, many banking projects, including the central bank itself.
Was it 2008 or 2007? Of course, I'm sure you'll probably remember a bit of that, I was involved in helping one of the local banks set up its loan origination system - the first of its kind in this country, which enabled the bank to be able to offer consumer loan in 24 hours, it was a trailblazer because in a few years, we had reduced the level of non performing loans from the 20s in that bank to something between 3%and 5%.
Brendan Le Grange 2:42
Is that the project that I worked on with you, (yes). Welcome back to How to Lend Money to Strangers. Today I'm speaking to Felix Duku of Duku Consulting about the exponential growth of digital banking in Ghana. I first met Felix when we worked together on a scorecard roll-out about a decade ago now. I'd been based in Denmark at the time, but jumped on the chance to work on a from-the-ground-up project, and I left Ghana with some great memories, some elephant bookends I still have, and one of my favourite airport anecdotes: you see, of my visits a battered an already planned ski holiday and so I arrived in a 40 degree Accra with a suitcase packed full of heavy winter gear mutch to the amusement of the baggage crew. But that's not why we're here. I called Felix because he has 30 years of experience delivering multiple waves of banking innovation.
Thank you so much for joining the show. I was reading your LinkedIn profile and I saw that 20 years ago already, you were in a role at Ecobank that tasked you with 'developing, marketing, and deploying innovative banking products'. So it's obviously safe to say that banking innovation and digital banking is not a field that you're new to. Could you maybe kick off by introducing yourself and the work that you've been doing over the last 20 years in Ghanian and West African banking.
Felix Duku 4:31
Thanks a lot, Brendan, and thanks for having me on the show. Yes, I've been in the space that you're talking about for actually a little more than 30 years, because my technology banking career started in 1991 when I joined Ecobank as the head of IT. Ecobank is probably the largest bank in Africa, and in something like 26 or 27 countries, if not more, at the moment. Well, this was a time when we were only in 4 or 5 countries. The main bits and pieces of technology were the IBM PC, the XTs and the ATs, we had mainframes and all of that. But very little in terms of core banking applications. And certainly nothing along the lines of digital. The technology stack we're using was really very basic. We had one small bit of software doing the general ledger, and another small bit of software during the customer accounts. And that was all we had.
Well, let me paint a picture of the banking landscape at that time, the banking landscape in the 90s in Ghana, West Africa, we were just beginning to wake up to the advantages that digitization could bring in terms of transforming from manual processes to technology based processes. And more of automating the manual process, rather than looking at the processes end-to-end and transforming them. Very, very basic accounting, very basic bookkeeping, and all of that. And nothing really digital as we know it today, because still if you wanted a banking service, you had to go to the bank physically, all that really had to change was that we're able to do a lot of transactions in a shorter period of time. And our books were more accurate. But by the mid 1990s, I had started getting a little adventurous with what we could do with the technology stack that we had. The internet was yet to really infiltrate into our region, however, we are starting to see improvements in the telco space. I don't know if you all remember a little gadget that was our first introduction to modems - the US Robotics. And what these modems were able to do was that they were able to provide connectivity between remote places and a centralised processing facility. And that about one would be able to do would be to access the data within the central processing facility. So I started getting ideas about, oh, what if we extended that ability to some of our customers, where we put a dumb terminal, a workstation that doesn't have any processing power and gets all its processing capability from the centralised processor. So I thought about, could we set up systems in a way where our clients would be able to have access to banking information, their account movements and the account balances by virtue of placing terminals in their offices?
On the back of that, this must not be '96/ '97, we experimented and we were able to provide connectivity for a few of our blue chip clients to have real time online access to their core banking data. This was unprecedented at that time. For all intents and purposes, there was nothing like digital banking, there was nothing like online banking. It separated Ecobank from the rest of the banks. And indeed, especially in Ghana, we we're able to win some of the larger accounts because we could walk into any customer's office and say to them 'look, do you know that we can give you instantaneous access to your accounting information so that you don't have to call up the bank every morning and over a phone take down the account balances of all of your accounts, or wait for a dispatch rider to bring you an account statement? We can do that on a computer'.
Brendan Le Grange 8:33
Like internet banking via a local network before before people have really thought of the capabilities.
Felix Duku 9:18
Absolutely, you can call it internet banking on leased lines without the internet sitting in the middle. And this got the market excited. That really was the first wave of "digital banking" as we know it.
You know, towards the end of the 1990s, of course, the internet had become more prolific, and we had to do some innovative things to keep our customers happy. We're actually not providing internet banking so to speak, because the core banking system didn't have any interfaces to be able to provide internet banking. So we provided a package, which meant that for our customers, our blue chip clients, who were now getting used to the internet, and getting used to email, and all of that. Essentially what we became was an internet services provider, we would provide the internet backbone to be able to send email instructions to the bank, whilst giving them internet capability at the same time through the leased lines - so give them the ability to query the systems and give an indication of what account movements had happened. Really, if you look at it, it was providing the same sorts of services that we are providing now, but in a very crude way, based on using the technology that was available at the time, in an appropriate manner.
Brendan Le Grange 10:56
Yeah, like we've been working towards the same goal for a while, but the technology has been catching up, and you've you found ways to to bring that to the consumers. You can definitely see in that, echoes of the modern systems. And even by giving the free internet, you've taken away the risks and the concerns that now modern apps will be thinking the same way, like how do I get a consumer to try something new? OK, I'm gonna have to do it free, I'm gonna have to put everything in one place. And you were doing that just in, in technology, which is only 25 years old - so it's not actually all that all that already seems sort of very much of a different time.
Felix Duku 11:34
Precisely. So you're right, it was only 25 years ago but it seems like centuries ago. And your primary interest was how do I keep my customers happy? How do I protect my customers from being pulled away by the big boys in the banking space. So we have to be innovative to be able to protect our turf. And I guess that was one of the motivating factors then, and it's still a motivating factor today. You will agree with me that the telcos are eyeing the banking space. I mean, the banking space is so convoluted right now that I am apprehensive for banks. Those banks that don't adopt the technologies as quickly as practicable and change direction will probably find themselves as historical references for banks that failed, unfortunately. That's the reality of the ground.
Yes, we are in the late 90s now, where I transformed myself from the Head of IT and became the Head of Digital Banking. So then I decided to explore that internet banking space. The mobile device was still a brand new thing, and people were still getting used to the fact that you could carry feature phones around - 2G, 3G, 4G was to come later. So really banking on a mobile device was was was the furthest thing from most people's minds.
ATMs had started coming around, so I just thought, why can't we - meaning Ghana - why can't we begin to have ATM credit cards, debit cards, that sort of capability over and on top of the digital banking we had. So we set up a project to work with a couple of other banks to create the first banking switch within Ghana, that would enable three banks to facilitate people being able to use credit or debit cards on other banks. Though, I must say that the uptake then was not as impressive as we would have liked it to be. A critical success factor was bandwidth between the three banks, bandwidth with, you know, the ATMs transaction turnaround time, so even though the system was working, it was a little too slow. And you got to have power to power up these ATMs and most African countries were at that time, and still are, struggling with being able to provide clean, uninterrupted power, you know, on a 24/ 7 basis. So you'd go and plant an ATM somewhere, thinking that 'oh, I planted my ATM, the customer can withdraw his money'... and you'd get consistent blackouts in that area, and therefore the ATM doesn't help a customer.
Where the ATMs are attached to branches, of course you would have some ancillary generating power like diesel or petrol generator with a UPS. But then for the off site ATMs, what do you do? So for each ATM, we will have three or four leased lines from different telcos and then you'd have to get a small battery backup. And then how do you make sure you have the right temperature for the ATM? It was a very difficult time for anybody who was running it at a time when public infrastructure was really, to a large extent, intermittently available. We didn't have any means of ensuring that ATM would stay up. And that led to a lot of customer dissatisfaction, etc. And that is where I learned the lessons about user experience - thinking that through before deploying any system, because you can put the best technology together in the bits and pieces but if at the end of the day, the man at the tail end of it is unable to use the facility to the best of his or her ability, then we have a problem.
Brendan Le Grange 16:08
Yeah, and cash withdrawal is a very high pressure point in terms of customer service. So if you are looking to withdraw money and it times out, you have that big question, 'did the bank take my money?' 'Is it gonna be out my account, but not in my hand?', but also while you're waiting, you know, depending on the time of day is here, you don't always want to stand an ATM machine - so I can see it being a point where you have to be spot on.
Felix Duku 16:31
Yes, absolutely. Absolutely. And and those lessons still persists today. I mean, look, at the end of the day, you're looking at a situation where we put on all of these fancy systems, put in place all of these fancy systems, etc. And you ask yourself, are the customers really getting the value that they want, we still got a bit of ways to go in terms of understanding what users really want, and understanding what banking on the go means. And there's a lot of development happening happening in that space. But again, we are looking at a trajectory. And now that everyone has a good core banking system. Most banks have a good mobile app, the internet is pervasive everywhere. So what is it is holding things back?
Yes, so I was talking about our experience from trying to put a bank switch in place without having really considered the performance and the user experience side of things. Of course, back then it was still novel, so we could be excused for our flaws. So yes, back to the drawing board we went and looked for a more robust bank switch. And really, I mean, I didn't think that it was necessary for anybody to reinvent the wheel. So we ended up finding a fairly robust, good bank switch that was being used in South Africa at the time. Based on that were able to roll out a network of ATMs across the country in a very short time.
But the good thing for me, and this is my personal mantra, the good thing for me is that it created the opportunity to learn a lot of things that I wouldn't have learned, but then I like to see all of these challenges as opportunities to upskill by my ability, upskill my experience, upskill my learning.
So what did I do, I learned everything I could about power systems and backup systems. I can tell you what IP networks do and how they are configured, off the back of my hand. I actually went to mining areas to instal v-sats. You know, depending on your personal makeup and your personal mantra, it was a great opportunity to pick up a lot of experience, which now is proving invaluable because you learn how to do everything by yourself. Because at the end of the day, the customer needs a service.
Very exciting times, I would call that period 'mainly adoption of technology that was available in the Europes and the Americas, in the first world so to speak, but adopting that technology and bringing it into Africa'. Which is very different for what is happening today. What is happening today, especially in the mobile space, you actually have Africa leading. You know, the mobile app side of things really grew out of necessity within Africa, in the initial stages was just being able to use SMS, etc to do the banking. But that has evolved. I would say that when you're looking for where do you have a lot of mobile app development activity, etc. it's all within Africa. Of course, I'm not I'm not saying that it's not happening in other parts of the world. I'm not saying that. But really the main drive for that has been from within Africa.
Brendan Le Grange 20:17
Yeah, I think for a period there was... M-Pesa and SafariCom would be the sort of names associated with it, but that rise of mobile phone led banking in East Africa, and then spreading through Africa. Where, as you said, it was a workaround, it was because infrastructure was poor, so people found a way to turn SMS into a banking solution. And because they didn't have the same infrastructure problems [in developed markets], you didn't necessarily see much take up. Do people really need this, or is this just a way around infrastructure problems? And then suddenly, you know, smartphones reached maturity to degree that powered all sorts of mobile banking innovation, so the fintechs you're seeing now in Ghana, and Africa in general, look a lot more familiar to those outside.
Just before we spoke, I was looking at a report and it mentioned something like, in Ghana maybe 30 million people are doing mobile banking versus under a million doing internet banking, and those numbers splitting, so people are signing off of internet banking and signing onto mobile banking. So a gap that's growing. But basically, you have this freedom of development in Africa where people aren't constrained by 'this is what internet banking looks like'. A big portion of today's adults grew up with their only experience of banking being on a phone. There's no reason a smartphone app, built in Ghana can't go on and take on the world. Whereas the M-Pesa - of course, it was transportable, it went to different countries - but there needed to be certain things in place.
Felix Duku 21:51
You're absolutely right, your synopsis is spot on, Brendan, the gap in the infrastructure availability has actually turned out to be a "blessing in disguise". Because I mean, for a lot of the generation behind my generation, etc, access to the internet was really very limited. And the first real experience of being able to do things with a device that is, "fairly easily affordable" cames from the cheaper smartphones. So their main point of connection with the rest of the world, with the internet, is via their smartphone. So at the end of the day, do you really need internet banking, when you can put the ability to do whatever people wants to do on that device that they are carrying around with them on a 24/ 7 basis?
There's that section of us who spend quite a bit of time behind our desks glued to our screens. And for those of us, we want to be able to do things on that go and our experience of 'on the go' is behind our desks, on our screens, and those screens will almost invariably be our PC screen or our TV screen, or a larger screen. And therefore there's still space for that. So understanding the market dynamics and how the market has changed. And how that affects the offering that you you're you're providing is really key to being successful in this era.
It's not changed, like understanding the current state of technology, and matching that with what people are actually doing, not what you think people might wants to do because it sounds like a great idea. I mean, if that was what was leading the world, some of the smartphone manufacturing companies that I don't want to mention names that have dropped out into oblivion will still be here. So it doesn't... it's not a nice to have thing. People just want to be able to do things on the go and live their normal lives. Well, what was the name of this gentleman who said banking is something that you do and not a place that you go to? Brett King. Brett King is the name that I was trying to remember. And that philosophy is still pervasive up till today.
The digital banking side of things still excites me, and I'm happy. I'm a happy man, so to speak. I see all the development that is happening in the mobile digital banking space. But then the lessons that I've learned from the past still rings true: the fact that you build a great mobile app and put it in his hands, doesn't mean that he is going to use it. I mean, look, banking has become, and I think I put this on my LinkedIn profile as well, but banking has become like shopping online, I don't need to get up and go anywhere, I don't want to fill any forms, I just want to browse the internet and see, okay, today I need to borrow a little bit of money, let's see who's in the market for lending money, I really don't care which bank I'm getting it from. So banks, if you're out there listening to me, you better wake up and smell the coffee, the smell of a coffee is really very different at this point in time. It is not rhetoric anymore, the customer is indeed king.
Do not think you've got it all by providing a mobile app, do not think you've got it all by putting all of these blockchain apps and things and things together. At the end of the day, the customer has his choices. Before the customer thinks of where he's going, you have provided the route. The fact that I'm banking with you today doesn't mean that tomorrow, if one of these challenger banks comes up with a mobile app only bank, which I find interesting, I won't use that. I probably will. So what is it that gets one person to switch from one service to another? That is where we should all be thinking
Brendan Le Grange 26:29
Indeed. I think from what you were saying there, what works well with putting this in context of your career, is that essentially for 30 years, the vision's been largely the same. And there's been an advantage if you could get the technology right, if you were the first one to solve the next problem. But now we're in a position where that technology is ubiquitous, you can't rely on the fact that, oh, we're the only bank who can provide you this service. Everybody can run a bank. And now, yeah, who can do it better?
I'll certainly look to catch up with you again, when you can talk more about your big project you're working on now. But yeah, thank you so much for joining me.
Felix Duku 27:05
Thank you for having me, Brandon, I have enjoyed talking about myself, which is not something I normally do. And thanks for having me once again, and I'm looking forward to our next engagement.
Brendan Le Grange 27:17
And thank you for listening. This has been How to Lend Money to Strangers, the podcast about lending strategies around the world and across the credit lifecycle. If you'd like to work with Felix, feel free to reach out to him on LinkedIn. I'll drop his details in the show notes below. And if you're liking this content, don't forget to subscribe. I'll see you next Thursday.
Felix Duku 28:07
As we speak, there's one really challenging project that I'm on which is to find and implement a multi-tenant platform for the credit unions across Ghana. It's a badge that I proudly wear on my chest, a feather in my cap. That is one that I'm proud of. It's a huge project, and I am looking forward to the day when we turn the top on and all of the credit unions within Ghana will be able to to be able to run their core banking means and we are including a mobile app as well.