At this year’s World Economic Forum, panel discussions including how digital can enable financial inclusion and Bridging Africa’s Great Digital Divide raised some very interesting points about the benefits of digital adoption and ideas to take them further, especially with regards to the African continent.
First of all, in countries such as Nigeria, the adoption of digital networks has helped address some of the risk factors inherent in typical cash-based systems by offering an alternative. Cash and card-based transactions are slowly being replaced by new payment systems. Mobile money, for example, facilitates phone-to-phone and phone-to-ATM transactions, which is more convenient and less susceptible to the threat of theft than dealing in cash. Uzoma Dozie, MD/CEO of Diamond Bank in Nigeria, attributes their recent unprecedented level of customer acquisition – from 6 million in 22 years to the same figure in just 2 years – to such a system.
The role of the telecommunications industry in providing financial service providers with substantial cost savings can also not be diminished. Digital communication, via the likes of email and instant messaging services like WhatsApp, has become more affordable and accessible to the greater public, thanks to the growing availability of public Wi-Fi hotspots and fibre connections. Not only does this drive down the cost of customer acquisition, but customers stand to benefit too. This is because financial institutions can on-board, or process new customers inexpensively and extend those same cost saving benefits to their customers in the form of reduced banking transaction costs.
Additionally, digital adoption has stimulated partnerships between the financial sector and the telecommunications industry. Establishing standalone digital platforms can be expensive, which is why financial institutions are turning to the telecoms operators who own their legacy systems, to help them reshape their Fintech effectively and without breaking the bank, so to speak.
This raises the question, “can telecom operators serve as disruptors and replace the financial sector?” WEF panellists Sim Tshabalala and Stephen van Coller of MTN do not believe so. The relationship between the two sectors is mutually beneficial, allowing each one to draw upon the strengths of the other and attract a wider customer base. What is needed instead is to expand the relationship and scalability – and therein lies the key challenge.
Scalability necessitates innovation, in this case to alter existing transaction and revenue models in order to provide suitable products for a wider and more diverse target audience. WEF panellist Dr Matt Lilley of Prudential brought in the company’s experience in Asia where they have attracted over 100 million customers to the financial sector over the last 30 years as a good example of scalability.
Through the adoption of innovation, Prudential has been able to drive growth in the more fragmented markets of Asia, such as the Philippines and in Vietnam. Innovation has enabled Prudential to expand and make more revenue from these smaller markets than the typical large Asian economies of India and China – thus challenging the notion that investments in emerging markets should focus on the larger economies. For Prudential, their growth has been largely driven through both innovation and beneficial government policies. This in turn has enabled greater financial inclusion, which according to Lilley, has helped people gain a more prosperous life and improve the local economy.
On the African continent where regulation is an essential missing link and a major challenge to growth and scalability, replicating this level of success may prove difficult. Though exceptions do exist, such as in Tanzania, Kenya and Rwanda, much of the various African governments’ policies have hindered growth. This will need to be rectified to scale up financial services and increase economic inclusion.
Several ideas where discussed about how to surmount these regulatory barriers. One idea was utilising innovation to facilitate regional integration, as Prudential did in Asia. Another idea was to form alliances with the government. Ade Adeyemi of Ecobank talked about the bank’s drive to establish mutually beneficial partnerships with the government of33 African countries, 25 of them agreed. Creating an incentivized programme that makes the government income dependent on the successes of these technology driven programmes and partnerships was also suggested.
In the meantime, the adoption of digital networks in the financial sector will continue to be a disruptive force with a far-reaching impact, particularly for the bottom of the pyramid consumers. First of all, disadvantaged and low-income segments of society are able to gain access to basic financial services. Digital adoption motivates innovation in the SME sector, developing ways to enable these independent business owners further. Finally, it offers established business sectors and industries opportunities to change, grow and contribute to the end goal – continuous societal and economic inclusion and improvement.
Chinwe Ajene-Sagna
