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FINANCIAL TECHNOLOGY - Mobile money: the great disruption.

Summary: Mobile technology has taken Africa by storm, with hundreds coming online each day. Mobile con- nectivity has the potential to transform lives, giving individuals access to health, education and banking services for the first time. In banking, Africa boasts the most mobile bank accounts of any continent, and financial inclusion is high on the agenda.

But how will banks cope with the disruption in tradi- tional bricks and mortar services caused by the mobile banking revolution? And what other shocks does the advance of technology hold for the financial sector? African Banker investigates.

Adapt or die? The challenge of fintech

Technological innovation is altering the market for banking services so radically that traditional banks could be in danger of being bypassed.

It is well known that mobile fi- nancial services are revolutionis- ing the banking industry across Africa. The latest figures suggest that 70% of sub-Saharan Africans are now mobile users and that proportion continues to rise on the back of cheap handsets.

Yet advances in financial tech- nology, often known as fintech, are not restricted to mobile technology. Bitcoin, blockchain, Twitter and the internet of things could completely change the way we handle, save, bor- row and move money in the future.

Banking is speeding up

A greater proportion of customers are now used to accessing banking services whenever and wherever they need them, without being restricted to fixed hours or locations. Customers no longer need a physical bank or even a banking app in order to move money around, as Twitter and other social networks can be used instead. As a result, traditional banks are being forced to respond by finding new ways to ensure the services they offer are fully integrated into their customers' lives, regardless of where they live and no matter which platform they are using.

The growing use of mobile banking apps also makes customers more reluctant to use cumbersome and slow procedures that take too long and encounter too much bureaucracy. While lenders must still undertake due diligence and risk assessment on borrowers, many procedures can be massively sped up thanks to modern technology. Christopher Low, group managing director of African financial services provider Letshego Holdings, believes that traditional banking models will be forced to adapt or exit. He says: "We will be leveraging mobile penetration and related financial technology solutions to make mobile financial transactions the cornerstone of our offering," and adds that his company is seeking to work with third party agents and form strategic partnerships.

As Ashley Veasey, the chief information officer for Barclays Africa Group, says: "Technology disruption and the innovation it thrives on, is fundamentally changing how we design and deliver financial services to our customers. We are therefore shifting our approach from 'selling' financial products to instead leveraging the power of our technology capabilities and collaborating with fintechs, start- ups and other external parties, to drive financial inclusion and add value to customers' lives in new, non- traditional ways."

There is no doubt that sub- Saharan Africa is proving an excellent breeding ground for new banking innovations. According to World Bank figures, 12% of the adult population of Sub-Saharan Africa have mobile money accounts, compared with a global figure of just 2%. Previously unbanked individuals and small businesspeople now have an effective way to manage their finances and businesses. Letshego's Low says: "Technological developments have certainly helped to eliminate barriers, such as cost, distance and lack of infrastructure, to accessing financial needs and to reaching the 'unbanked'."

Regulatory questions

Rapid innovation will create regulatory challenges, with plenty of opportunity for fraud and the diffusion of unwelcome financial products, such as very short-term, very high-interest loans. Wim van der Beek, the managing partner of Goodwell Investments, says: "There is excitement that the gap is being closed very rapidly, but concern also about the risk that vulnerable sectors of the population are being taken advantage of. The GSMA Mobile Money Code of Conduct, the SMART Campaign and the UN Principles for Responsible Investment are already providing a useful set of guidelines, but we all must do more to ensure the end-user of mobile financial services is protected."

There is a big fear that national regulators are seeking to cope with ageing technological innovation, rather than creating a f lexible regulatory environment for the changes to come. Low says that regulatory innovation is "much needed in order to enable real financial inclusion across the private sector." His firm is working with the Alliance for Financial Inclusion and national financial regulators "to advocate for regulatory improvements that will support a transformation of the financial systems across developing countries."

Banks must act fast

There is the prospect of banks being bypassed if their infrastructure becomes irrelevant because of innovations such as bitcoin and blockchain, which tracks bitcoin trades around the world in order to promote transparency. Some compare established banks with ageing technology that can be leapfrogged, like fixed line telecoms networks and power transmission infrastructure. Traditional banks, have the power to adapt, although it remains to be seen whether they have the will to do so fast enough.

However, people rely on banks for trust as well as infrastructure and this may be more difficult to replicate with technology. Marcus Swanepoel, the chief executive of South African bitcoin start-up BitX, says: "People think that if you put something on the blockchain all of a sudden the counterparty risk disappears. Take deeds or diamonds or shares. You're effectively tokenising something. But you still have to trust that the person who made the token for that asset actually holds that asset. Fraud happens when people load things onto the system, not within the system itself." Such is Africa's growing reputation as a source of successful innovation that international banks and technology companies are beginning to use the continent as a testing ground for new products. One of the latest mobile innovations introduced by Barclays is its ChatBanking tool, which allows customers to conduct some day-to- day banking transactions through their Twitter profile, via a secure registration process, and without having to access their banking app or account. Depending on the success of the venture, Barclays hopes to roll out ChatBanking to other social media platforms in the near future.

The pace of change is obviously relevant to other sectors because it will affect economic growth and influence how people pay for goods and services. However, there is another more general economic benefit that is often overlooked. The data collected by fintech companies will become increasingly valuable to companies based in other sectors because of the lack of information on African patterns of consumption. Even simple banking products will provide a gateway to insurance, education and other products.

12% of the adult population of sub-Saharan Africa have mobile money accounts, compared with a global figure of just 2%.

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Publication:African Banker
Geographic Code:60SUB
Date:Aug 31, 2016
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