Embracing the 1st Bucket: A Note to Bank Management
Embracing the 1st Bucket: A Note to Bank Management
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).”