|Topic:||Stable financial ecosystems for Africa|
John R. Dick is Western Union’s Senior Vice President and Chief Information Officer (CIO); he is responsible for all of the company’s information systems and technology. Mr Dick has more than 28 years of financial services and information technology experience. Most recently, he served as EVP and CIO of Regions Financial Corporation. Earlier, Mr Dick served in senior leadership and consulting positions with GMAC, First Union Corporation (now Wachovia), Price Waterhouse and Crestar Bank (now Suntrust). Mr Dick has served on the Information Technology board of American University’s Kogod Graduate School of Business, and the global advisory boards of Microsoft and NCR Teradata. John R. Dick is a graduate of the University of Virginia; he earned a Masters of Business Administration degree from Virginia Commonwealth University and graduated from the School for Bank Administration at the University of Wisconsin. Mr Dick completed the executive leadership programs at the Center for Creative Leadership and the MIT Sloan School of Business.
Africa lacks a financial ecosystem that covers more than the major cities and a small, privileged, part of the population. The explosive growth of mobile telephone ownership and usage is changing this. The mobile pre-paid charge-up system lets ‘unbanked’ mobile owners send and receive credits within countries and cross-border between individuals and businesses. As a result, a financial ecosystem is emerging that combines the network and systems of mobile operators with the ability of financial institutions to handle financial transactions.
Over the last several years, companies in every industry have spent enormous amounts seeking to understand and adapt to the rapidly evolving digital landscape. Digital financial transactions of every sort continue to evolve. As digital financial transactions have increased, ‘consumerization’ of technology, including the consumer’s use of self-service, has driven the demand for mobility and multi-channel applications. More than convenience, in some parts of the world, mobility and self-service have become the standard for access and empowerment. In the rush to adjust and innovate, companies must challenge themselves. They must be willing to change not only their thinking, but their operating models to best leverage their knowledge, core competencies and technologies to generate new opportunities in the evolving financial ecosystem’s value chain. Their success will help the developing ecosystem flourish and ensure its relevance in a rapidly changing world. Leaders who hope to retain leadership roles as the financial ecosystem evolves must find ways to remain relevant and to help build new paradigms. Relevance demands merging assets from a business and technological perspective. It’s about securing roles that multi-nationals moving enormous sums of money globally each day can play in developing thriving, sustainable financial ecosystems. Most importantly, it’s about understanding the implications that bringing technologies together can have on a population, a geographic region and, ultimately, with connectivity and interoperability, society at large. Let’s take a specific example: intra-country and cross-border mobile banking in Africa. In more developed areas of the world, multi-channel account access and mobile banking are centred on convenience. Convenient transactions with the assurance of safety, accuracy and regulatory compliance create a compelling value proposition for consumers and companies alike. In Africa, financial services are evolving rapidly because mobile operators now offer m-banking transactions to a significant part of the population. Mobile money transfer in particular has gained extraordinary traction in countries that have high percentages of ‘unbanked’ consumers, such as Kenya. For example, Kenya’s Safaricom Ltd., a network operator partially owned by Vodafone, has more than 8.5 million customers using an m-wallet service that lets Kenyans transfer money domestically and, with select countries, across borders via text message. This development has had a significant impact on financial inclusion – whereas, according to the World Bank , only around ten per cent of the population previously had access to financial services, according to the FinAccess National Survey, over 40 per cent of the adult population are now formally served, as Kenyans embrace mobile technology. Across the continent as a whole, mobile penetration, which is a remarkable 48 per cent , has provided access to financial services to banked and unbanked populations alike, in select countries. This is particularly noteworthy since an estimated 80 per cent of the adult population across sub-Saharan African is unbanked. By eliminating the need to provide a physical location for banking transactions, mobile finance is proving to be highly viable way to extend banking services to millions of individuals in regions where there previously was little if any financial and communications infrastructure. Clearly the opportunity is growing daily, but to convert this opportunity into stable economic growth within Africa, there is a need for a financial ecosystem that provides access to transactions, whether inflows, outflows, payments or banking, within countries and across borders, on mobile or transportable across other electronic and traditional channels . Today’s ‘electronic’ finance within African nations varies widely. Regardless of whether it is anchored by m-wallets, e-wallets or even prepaid cards, mobile financial operations in most countries are typically highly fragmented. Each network is a unique blend of mobile network operators, the financial entities legally authorised to provide banking and payment services, and mobile platform providers that enable transactions between consumer devices and financial entities. A multitude of players are seeking to determine and secure their place in the value chain. In most cases, sustainable economic models are far from certain. If this burgeoning financial ecosystem is to flourish and contribute to the economic stability of African nations, many support systems must be added and interoperability must advance. Regulatory compliance is crucial in any financial transaction, but countries have widely varying laws and inconsistent regulations regarding transaction limits and rules for authentication; this makes cross-border transactions complex. The complexities of complying with the many constantly changing regulations and laws in Africa’s 53 countries encourages most mobile and traditional financial entities on the continent to seek out partners with sufficiently broad expertise to efficiently provide cross-border financial services. In addition, compliance – both regulatory and legal – is but one component of the full range of systems needed to sustain the financial services industry in Africa. Building a stable financial ecosystem requires systems that range from security – including theft, anti-fraud, money-laundering and anti-terrorist safeguards – to those that support basic cross-border cash flows, such as currency translation, and ultimately, settlement. Add to this the need to deliver physical cash, to provide business continuity and multi-channel availability and the list grows exponentially. Given this complexity, is it worth the time and resources for even the most sophisticated mobile operators in Africa to attempt to build an end-to-end system capable of sustaining a full-range financial ecosystem? Would it better to find a business partner with proven systems and capabilities in place? It appears that what is most needed is collaboration among strong mobile partners and proven financial services providers that understand local, national cultural and regulatory issues, whilst having the network technologies and capabilities to assure ecosystem stability and global connectivity. Ideally, such relationships provide the robust, scalable back-office that connects the network and addresses the crucial authentication, compliance and security issues. Economies of scale will increasingly drive consolidation and optimization of many of these services. If mobile banking, m-wallets and e-wallets are to become the personal and commercial financial instruments of choice in Africa and elsewhere around the globe, the mobile banking infrastructure must be secure and provide consistent, compatible transaction tracking, regardless of whether the transaction is in-person, via the Internet, a mobile device, an SMS message or any other suitable medium. Looking beyond today’s consumer-to-consumer applications, these capabilities become even more crucial as small and mid-size businesses dealing with larger transactions, increasingly utilize both intra-country and cross-border mobile payment systems to support their growing enterprises. The acceptance of mobile financial services is growing most rapidly in developing nations and regions where few of the traditional banking and financial options exist and where local trade and relatively simple needs fuel monetary movement. Access to cross-border transactions and payments to consumers and businesses is becoming an increasingly important requirement. Equally crucial to the successful evolution of the financial ecosystem is focus and communication on how regionalized solutions are integrated. Over the next few years, the financial services industry anticipates that the developing financial ecosystems in Africa will continue to fuel the growth and expansion of mobile financial services. Certainly, the challenges that accompany the growing use of mobile financial services are many. Today this growth creates a significant window of opportunity for multi-nationals and global financial services firms to facilitate both intra-country and cross-border transactions by applying their time-proven back-office and operational capabilities, transaction expertise, global scale and highly reliable telecommunications networks. Ultimately, success in tying together technologies, networks, infrastructures and back office capabilities to capitalize on the evolution of digital channels will expand the ability to move money between different entities, whether it’s from an individual to a bank, from a mobile operator to another business, or an individual to a family member in another country. Bringing this global expertise to the growth of mobile financial services can significantly stabilize and enhance the sustainability of financial ecosystems in the region. In that way, the promise of financial access and empowerment to new generations of Africans can be realized. l i http://www.safaricom.co.ke/index.php?id=1228 [accessed 26/03/10] ii FINANCE FOR ALL? Policies and pitfalls in expanding access, The World Bank, 2008 iii FinAccess National Survey 2009 – Dynamics of Kenya’s Changing Financial Landscape (June 2009) – supported by Central Bank of Kenya and FSD (Financial Sector Deepening) Kenya iv GSM Association – Wireless Intelligence Database[accessed 19/02/10], figure for 4th quarter 2009 v Financial Access Initiative, October 2009.