Money is a value item accepted as payment for goods and services. As a designated medium of exchange that represents global economies, money can actually come in any shape or form. And this is increasingly what we're seeing, as currencies evolve from notes and coins, once the primary means of compensation, to electronic transactions. While cash may have been king in the past, ecosystems of digital payments, virtual currencies and mobile wallets are gaining more and more traction.
Technology is just one piece of the informal banking puzzle.
Vahid Monadjem, CEO, Nomanini
This changing landscape provides businesses and banks with countless opportunities, says Paul Opie, Gemalto's banking field marketing manager for Africa. This is especially true when you consider approximately 2.5 billion people across the globe, which is almost 36% of the world's population, don't even have a bank account, according to the World Bank's Global Financial Inclusion Index. "Most of these people live in Africa," notes Opie, adding that roughly 80% of sub-Saharan Africa is unbanked. "The high mobile phone penetration rate in Africa compared to traditional banking infrastructure allows for unique gap technologies."
For Vahid Monadjem, CEO and founder of South African-based mobile point-of-sale service Nomanini, this new era of transactions offers a multitude of possibilities for developing markets, where high costs, remote locations and a lack of infrastructure prevent the average citizen from accessing the services necessary to meet their financial needs. While QR codes, NFC technology, cloud-based solutions and smartphone apps are commonly cited as the latest technology in this space, Monadjem believes the focus should be on creating enterprise solutions that enable the use of these innovations in different markets.
"Technology is just one piece of the informal banking puzzle. Figuring out the regulatory environment, structure of existing channels, nature of the market and the availability of existing alternatives is just as important," he says, noting that attempting to replicate international strategies in local markets is like trying to put square pegs into round holes.
Local knowledge
He cites the success of mobile money transfer service M-Pesa in Kenya as the perfect example of this. The primary use case for M-Pesa in Kenya is for person-to-person payments, notes Monadjem. In SA, banks and retailers already offer this service, he points out, highlighting that although these two countries are both located in Africa, the dynamics within their markets are vastly different.
But banks and businesses are increasingly starting to appreciate the realities ? and opportunities ? of operating in informal markets, says Monadjem. "Partnership models and white-labelled solutions are becoming more and more commonplace. This approach has the benefit of bringing global solutions into markets, with localisation making them truly relevant. These new services cannot operate in a vacuum. Entrenched alternatives, existing channels and market dynamics require thorough local knowledge to navigate."
This idea of gaining a better understanding of the market boils down to better understanding your customer, say Shailendra Singh, business director for Africa at Wipro, and Sushankar Daspal, Wipro practice products and financial services business partner. Older generations traditionally trusted their banks and relied on them for solid advice. But millennials have no preconceived idea or historical view of a bank. "They don't recognise financial institutions as the only organisations to offer financial advice and solutions. Furthermore, their trust is influenced by views and recommendations from their peer groups, which are regarded as a more authentic source of information," the duo says.
Millennials are exposed to so many different verticals, from retail and gaming to media and travel, all of which meet their needs through sophisticated methods of engagement. "Banks are perceived as more rigid and inflexible in terms of what they can deliver to meet their requirements," the pair adds, calling on financial institutions to take up the challenge to bridge this gap. According to Singh and Daspal, embracing a distributed agile approach, which typically hinges off joint partnerships, is an integral part of moving with new financial market forces. "The approach, methodology and process of delivering new services in a digital world must be overhauled in order to hasten delivery - with agility and innovation at its core. It's a case of 'do or die'."
Agility
Singh and Daspal note that if millennials don't like a specific feature or the functionality of a digital solution or application, they'll let the business know. It's then up to the business to respond by modifying and adapting the area of concern. "Agility is required to build trust and credibility with millennials. And constant upgrades are the order of the day."
According to Opie, the aim of advanced technology is to make our lives easier and more convenient, enabling consumers to bank and shop online whenever, wherever, while helping banks and businesses to be more cost-efficient and stay ahead of the consumer curve. The only way new ideas can succeed is if the technology offers a value proposition for all stakeholders in the ecosystem, bringing value to the bank, the merchant and the end-user.
"The world of payments is changing fast and is moving towards mobile payments/mobile commerce, with an array of new payment technologies now available on the market," says Opie. "What will truly transform the way customers around the world make purchases is not one technology in particular, but an array of payment options."
Emerging threat landscape
Between 2012 and 2013, South African banks experienced losses into the millions at the hands of a variant of the Dexter virus, a piece of malware that infiltrates point-of-sale (POS) devices. Simeon Tassev, MD and QSA at Galix, believes many of the affected institutions were caught unaware because they lack a clear understanding of their own systems, particularly from a security perspective.
"Technology can assist significantly to reduce the risk of these threats to the banking sector; however, the correct implementation and management of this technology is still required," he says, adding that with the right safeguards in place, any sinister activity can be easily identified and addressed proactively. And these risks are constantly changing, stresses Tassev, highlighting that the Dexter variant mentioned above had been altered to avoid detection by anti-virus software.
"Incidents like the Dexter breach prove that as technology evolves, so too does online fraud and cyber crime. With new malware, organisations need time to find the right preventative technology."
What will truly transform the way customers around the world make purchases is not one technology in particular, but an array of payment options.
Paul Opie, banking field marketing manager for Africa, Gemalto
According to Maeson Maherry, LAWtrust solutions director, the global economy is dependent on the flow and processing of data. Trusting that this data is authentic, private and unaltered is a core requirement for economic growth. Thanks to incidents like the Dexter breach, the publishing of confidential information by WikiLeaks and Edward Snowden's surveillance revelations, security is now on everyone's minds, especially when it comes to the security of one's finances, says Maherry.
"Security within financial services is of utmost importance as it impacts customer trust. Who would bank with an institution they don't trust?" Tassev asks, noting that if a customer feels 'unsafe', s/he will simply take his/her business elsewhere. "By understanding this, banks can be innovative and implement technologies that provide secure services and further build the trust of the customer."
While the Dexter incident has been described as one of the worst breaches of customer card data in the history of the South African financial sector, Tassev is confident the affected organisations learnt a valuable lesson. "Organisations cannot develop, implement and then secure systems; they have to develop a secure application from the ground up."
Banks and digital engagement
As digital disruption slowly begins to affect the financial sector, banks are beginning to view digital engagement as an integral part of their growth strategy. Banks want to digitise and transform, but the rate of progress is vastly different for each institution. These insights are based on the findings of a survey conducted by Oracle in September 2014, with over 100 decision-makers from major retail banks across the globe.
Nearly all of the banks surveyed (94%) recognise that developing their digitised, omni-channel customer engagement capabilities will be important in order for them to be successful in the future. In fact, over one-third (37%) of the respondents believe the success of a bank will be entirely dependent on their digitised, omni-channel customer engagement.
But, the action taken by banks largely remains slow and concentrated in areas such as mobile payments, says Heilet Scholtz, director of solution consulting at Oracle Technology, SA.
An interesting finding, according to Scholtz, is that many of the banks know where they need to be in terms of their digital offerings and capabilities, and understand the necessity of this approach should they wish to remain competitive, but few have made the required progress to achieve this level of innovation. Thus, even by its own standards, the industry is just not advancing quickly enough, she continues.
For example, although the surveyed financial institutions mentioned real-time synchronisation, location-driven services and real-time analytics as important elements of their digital transformation, they lacked the capability to fully benefit from these technological advancements. Similarly, things like social media engagement, mobile device payments and the implementation of gamification were highlighted as key to digitisation, but remained largely neglected by most of the survey participants.
As the 'bank of the future' - featuring omni-channel client-centric and self-directed digital-centric business models - begins to take centre-stage, all that is required is for the banks of today to step up to the plate.
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