Tomorrow Is Here

Some regard new technology as a useful tool in business strategy. Others see it as a means of cutting costs. Yet there is no doubt that cutting-edge technological innovation is at the heart of Africa’s banking boom, bringing financial services to the unbanked and driving ever-stiffer competition in markets across the continent. From card technology, to mobile banking and on to management software, new applications and services can widen a bank’s customer base, offer an improved service, provide new products and reduce costs.

It is not merely a case of Africa following the same pattern of technological development as the rest of the world. As in the mobile telecoms sector, there can be advantages in missing out stages of development and leapfrogging technologies.

William Mzimba, the chief executive of global consultancy Accenture in South Africa and Botswana, says: “Having been a slow adopter of technology, the continent is now at a huge advantage because it is not burdened by legacy systems. It is able to leapfrog development by using cutting edge technologies in areas such as mobile phones for banking.”

Africa certainly is proving to be a hotbed for the development of mobile banking services. It has been well documented that M-Pesa led the way when it was launched in Kenya in 2007 but, as we discuss below, many other countries and companies are following suit.

Bank branch networks are restricted to urban areas in large parts of Africa and so many people have no access to any form of banking at present.

Many banks do not regard branches in rural areas as commercially viable because of their high running costs, but the lack of access to banking services helps to stunt economic growth in such regions, creating a catch-22 situation.

Traditional banks usually require proof of earnings in the form of payslips equivalent to a minimum amount before they allow potential customers to open an account. In addition, they may insist on a minimum balance being retained in any active bank account. Such regulations exclude many workers in the informal sector, or even low-paid workers in the formal sector, from accessing financial services of any kind. As a result, just 20% of all Africans have access to a traditional bank account.

Micro-credit organisations are providing part of the answer and there is much to recommend this low-tech solution. However, mobile banking is also contributing to the provision of banking services to the unbanked, while the two solutions can even work in tandem, with micro-credit banks using mobile technology to communicate with customers.

While some banks are becoming involved in mobile banking, it is the mobile operators themselves that continue to lead the way. French mobile company Orange has already launched banking services in Côte d’Ivoire, Senegal, Mali, Niger, Madagascar and Kenya, and in early June Orange Botswana introduced its Orange Money service in the southern African nation with the support of Standard Chartered Bank Botswana.

It allows subscribers with a payment account to transfer, deposit or withdraw money, as well as pay bills and purchase airtime. More than 2m Orange customers now use mobile banking services in Africa. At the Orange Money launch, chief executive Elisabeth Medou-Badang commented: “While voice services are still at our core business, data volume is growing at an accelerated pace. This growth is due partly to customer demand and it is also due to our ability to innovate and bring new products and services that meet customer needs.”

Security concerns are also driving the development of banking technology. Absa is currently testing what it describes as ‘wave and go’ payment cards that enable customers to use debit cards to complete transactions at retail outlets.

In Nigeria, United Bank of Africa (UBA) has replaced magnetic stripe ATM cards with magnetic chips in order to tackle fraud. Chief executive Muyiwa Akinyemi said: “Fraud is on the increase through card cloning. We are doing this because it is difficult to clone a chip unlike a magnetic stripe.” In conjunction with the technological upgrade, the UBA has launched a Visa card for the first time.

Chip technology

Greater uptake of chip technology could also have other advantages. Research by IQPC concluded that: “Wireless and smartcard technologies are enabling the development of services in previously unbanked areas, helping to stimulate local economies and encouraging investment and tourist spend. There is great potential for growth [in Africa], utilising new electronic banking systems, without having to significantly upgrade the existing infrastructure.”

Many of the tourists that visit Africa’s main holiday destinations are used to convenient access to ATMs and using both credit and debit cards to make most of their payments in other parts of the world, so rolling out payment IT infrastructure could encourage higher expenditure per tourist visit.

New technology is also helping financial institutions to streamline their operations and offer greater uniformity in services. In March, South Africa’s Nedbank chose Fico’s Model Builder 7.1 as its new predictive analytical model for use in retail banking. The use of predictive models in the African banking sector is spreading ever wider, as financial institutions rely on them to determine risk and make loan decisions.

As with many other pieces of similar software, the new Fico product provides a scorecard for potential customers. The new software – which is compliant with the Basel II international regulations – and training support are being provided by local firm PIC Solutions.

John Linfield, the head of the retail credit lab at Nedbank, commented: “We want to be world class at managing risk and the scorecard development process was an area where we identified the need for investment. We conducted an extensive evaluation process of tools available in the market to meet the requirements of our developers and to facilitate and simplify the audit and governance process for the Basel II models.

“We are confident that with Fico Model Builder 7.1 we have a good combination of modelling power and ease of use that will provide the best tool for a sophisticated analytics team like ours, while making the audit and validation process simpler.”

While demand for credit and debit card technology is still limited, Africa’s preoccupation with cash transactions does place strain on some parts of a bank’s technological network, notably its ATM machines.

Indeed, there is certainly scope for increasing the range of ATM networks in Africa. In the most recent survey into the industry by consultants RBR, Global ATM Market and Forecasts to 2015, the Africa and Middle East region recorded an average of 3,914 withdrawals per cash machine, far above any other region, including an average of just 1,631 per month in North America. Within that wide region, Iran recorded the highest average, followed by South Africa and then Nigeria.

Although the figures from the South African Reserve Bank come from the end of 2009, at that time there were still a massive 21,025 ATMs in the country as a whole, including 4,562 operated by independent companies, such as Spark ATM Systems and ATM Solutions, with the remaining 16,463 controlled by banks.

Cash transactions still accounted for about 87% of all purchases, leaving the remaining 13% divided roughly equally divided between credit and debit card transactions.

Cross-border challenges

While new technology is improving the range and spread of banking services within many domestic African markets, far less progress has been made on easing cross-border financial flows.

This can partly be attributed to the generally low level of cross-border trade in Africa and also to fears over fraud – but the ability to move money from one country to another is a key element in successful economic development. The chief executive of South African bank Absa, Maria Ramos, says: “It is almost impossible to duplicate a personal banking account in another country. However, credit cards can be used successfully to draw cash at ATMs and we have an alliance with Western Union so people can transfer money wherever they have offices.”

Some banks with an international reach have sought to reduce their costs and improve efficiency by integrating their IT operations in different countries. Absa, which is mainly owned by British bank Barclays, now operates in a dozen African countries and is seeking to roll out both its own products and those of Barclays, wherever possible. Making use of its existing IT systems obviously saves time and money.

However, some initiatives are planned that should ease the movement of money within particular regions. The East African Community’s plan to introduce a single currency should encourage financial interaction in that region, while the Southern African Development Community (SADC) expects to introduce the SADC Payment System in 2018. This should result in monetary union and the implementation of single-payments systems incorporating the use of payment cards and ATMs. Both initiatives are designed to promote regional economic integration.