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The growing use of banking services in South Africa is driven by a national rollout of social security debit cards and strong economic growth across finance, real estate and business services sectors. According to the Banking Association of South Africa, just under a quarter of the adult population (23.5%) remains unbanked.
The rapid adoption of feature phones, smartphones and online technology has positive implications for financial inclusion policies and growth of payment electronification. It is also providing new, highly-convenient ways for consumers to pay themselves (through deposits and transfers), other people, bills and retailers. What could a mobile banking revolution mean for South Africa in particular?
A tradition of banking innovation
Innovation is nothing new for South Africa’s banking industry, which – along with Morocco and Egypt – has set a high standard for African financial services. As a result of a highly responsible central bank, the South African Reserve Bank, the well-organised Payments Association of South Africa (PASA) and a host of long-established financial institutions, the country was among the first in the world to set up a Faster Payments system. It is also showing dramatically increased use of internet banking, with penetration up from 7% in 2012 to 11% in 2013, driven by men aged 30 to 44. According to research by PwC, some banks in the market have already achieved operational savings by encouraging customers to migrate certain banking activities from the branch to electronic banking channels.
What’s more, innovation hasn’t ended with customer channels. In PwC’s survey, all four of the country’s biggest banks give innovation five out of five in terms of importance. This is not just talk: leading organisations have not only developed new systems, products and services but have also made clever use of technology to enhance the entire banking process. BankservAfrica, which runs South Africa’s national payment system, has established an electronic bill presentment and payment (EBPP) platform to help residents pay bills electronically.
Although advanced, certain aspects of South Africa’s banking infrastructure remains sub-optimal. While individual banks have undoubtedly developed some great technology solutions, these can typically be used only by their own customers. In other words, there’s a marked lack of interoperability between banks. This in turn is preventing South Africa’s banking sector from reaching every corner of the country. We believe one area of focus should be the development of a low value real-time person-to-person (P2P) payment capability.
Mobile money opportunity
With real-time P2P payments, consumers can use their feature phones and smart phones to send money to, or receive it from, anyone they know or owe. Tapping into the increasingly connected lives of today’s consumers, this modern, convenient equivalent of exchanging cash or writing cheques is an effective way to introduce financial services to previously unbanked members of society.
In the US, more than 2,500 banks participate in the largest P2P payment network in the western world. In turn, P2P payment services have made a particularly significant impact on the money management habits of emerging economies. In Cambodia, for example, ACLEDA Bank has taken a solid market leadership position by founding its ACLEDA Unity mobile payments brand on Mobiliti Reach, a world-leading mobile banking and payments platform.
Similarly, Australia and New Zealand Banking Group (ANZ) has brought mobile financial services to unbanked and underbanked consumers in the Pacific nations of Samoa, Vanuatu, Solomon Islands and Papua New Guinea with ANZ goMoney, enabling customers to save, send and spend their money without using cash or using traditional banking channels.
Channels such as these provide the opportunity to not only make P2P payments but also to conduct a range of everyday transactions. These include making cashless ATM withdrawals, buying goods from accredited merchants, purchasing airtime top-up vouchers and paying household bills. As utilities must be paid for on a regular basis, the bill payment capability in particular may be instrumental in fostering the greater adoption of electronic banking in emerging economies.
Meanwhile, in Africa, the m-pesa mobile money service has been transforming Kenya into a cashless society. Nineteen million of Kenya’s 44-million population subscribe to m-pesa and a quarter of the country’s economy flows through it. In South Africa, where mobile phone banking is used more widely than internet banking, by 33-million versus 8-million, the likes of m-pesa and a growing number of non-bank competitors have the potential to make considerable inroads into the unbanked and banked population.
Bringing innovation, tradition and people together
On the one hand, mobile money services are good news for financial inclusion and growing electronification of payments, but on the other, South African banks are yet to capitalise on the mobile market’s opportunities. The mobile money market in Africa is currently dominated by telecommunication companies such as Vodacom (m-pesa) and MTN (Mobile Money).
Nobody can deny the innovation that these telcos have brought to market. But for the South African Reserve Bank and consumers, bank-led mobile payment services based on established banking practices have far more comfortable levels of security, regulation and rigor. They could also make excellent use of existing systems such BankServ’s bill payment platform and national payment switch.
As a start, banks need to solve their interoperability problem and create a mobile payments ecosystem that connects all their customers, regardless of with whom they bank. A united bank-run mobile ecosystem could connect financial institutions in South Africa and the countries of the South African Development Community (SADC) more effectively to unbanked and banked communities, and those communities to one another.
As well as supporting emerging economies, an interbank mobile payments network would ensure adherence to the global standards of, for example, anti-money-laundering, Know Your Customer regulation, etc. This would increase the size of the formal economy in South Africa and increase revenue for local governments that can be used to fund better social programmes touching every resident in South Africa and driving greater GDP growth.
Certainly the opportunities are out there for P2P payments and mobile money to drive even greater financial inclusion and electronification in South Africa and the SADC. But for the safe, secure, and sustainable development of electronic and mobile banking channels, and to truly fulfil their potential, the South Africa’s banking industry needs to work collectively.
With a common network that connects customers across multiple financial institutions, banks will be in a far stronger position to meet the needs of the growing digital demands of their customers. They will also be able increase barriers to entry for non-banks who are looking to replace banks at the centre of their customers’ transactional lives.