Embracing the 1st Bucket: A Note to Bank Management

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Embracing the 1st Bucket: A Note to Bank Management

digital , 18-11-2019

Perhaps in the whole world, there were barely five people who understood what would  become M-PESA mobile money; three who truly knew what they were doing and a billion who stood to benefit. Mobile money has its roots in many places; but it first took off in Kenya through the application of financial technology, better known as FinTech.

It provided an anchor for broader digital payment services on the continent and generated impetus for spin-off mobile money services across the world. FinTech is not a question of companies but technology. Right from the days of ERMA2 (the Electronic Recording Machine, Accounting) which enabled computerised  processing of bank cheques and automated account management; technology, qua technology has been a part of banking. Fintech is part of every successful bank –  more so today than ever – without which, there can be no successful business  model.

Traditional banks are massively investing in technology to respond to and prepare  for structural changes to banking and consumer behaviour. That represents the first  bucket of the FinTech raison d’être. In this bucket, there are emerging and  established companies; some still on L-plates and others with a viable and  repeatable business model. They are predominantly local companies with a growing  regional footprint. These are silent partners, enabling day-to-day bank operations  and co-creating branchless banking. Ghana’s Central Bank reported that: “The  introduction of FinTechs provided various support services to financial institutions  and made payments transparent, convenient and efficient for consumers.”

The partnership is developing new revenue streams; with simpler, faster and smarter  banking. As a result, banks can be present across multiple customer channels (web,  mobile, USSD and in-branch) and deliver a flexible and seamless banking  experience; anytime, anywhere. These experiences cultivate customer relationships  and provide valuable insights.  The louder aspect of FinTech is the second bucket. Their business models directly  challenge incumbents, especially traditional banks and their legacy infrastructure.

For instance, Alipay was created from the need to give e-commerce users a practical  method for making payments. Similarly, WeChat Pay, another payment app, grew  from the WeChat messaging platform. The sheer size and customer base of such  big tech companies give them a running start when they venture into finance. More than 92 per cent of the mobile payments in China are made over these two dominant  platforms: Alipay and WeChat Pay. Such platforms provide a low barrier to entry  and there could be a tipping point where they become the new dominant global incumbents.

It is a fast-evolving landscape, with regulators scampering to keep up,  particularly with Facebook’s blockchain digital currency, Libra.  In response, Ghana’s Central Bank Governor, Dr, Ernest Addison noted that:  “We in Ghana have come out publicly to say that we are still trying to study  the virtual currencies and establish a regulatory framework…”  US Federal Reserve Governor, Lael Brainard observed that: “We are seeing  some companies seeking to establish a payments system that bypasses our  banks and our currency.

Facebook’s Libra project raises numerous concerns that will take some time to assess and address; but one thing is clear,  consumers and businesses across the country want and expect real-time  payments…” Martin Wolf, CBE, the Chief Economics Commentator at the Financial Times  noted that: “I think that anybody who isn’t worried the hell out of a world in  which Facebook runs the monetary system or maybe Amazon; then they are
just not paying attention”. Either bucket, the landscape is changing – too quickly, too soon. Ghana’s Central  Bank indicates that banks that have embraced the first bucket are ahead; delivering  “digital savings, credit scoring, agency banking, electronic payments, [and]
integrated Know Your Customer (KYC).”