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VITAL WAVE eTransform Africa: Lessons from the Financial Services Sector
Vital Wave
Emerging Market Speaker Series
Brendan Smith Director of Professional Services
May 17, 2012
© 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.
AGENDA
The Role of ICTs 2
Financial Services: Challenges & Opportunities 3
Financial Services: Recommendations 5
1
Questions and Answers 6
Financial Services: Case Studies – Kenya & Senegal 4
The African Context 1
2 © 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.
• Six of the ten fastest-growingeconomies are in sub-SaharanAfrica, including non oil-basedcountries such as Ethiopia andUganda
• Africa is the fastest-growingmobile market in the worldand the second-largest afterAsia, with 20% growth over thepast five years
• Nearly half of Africa’spopulation lives in poverty asdefined by the World Bank andthe continent trails others inmany health indicators
THE AFRICAN CONTEXT
2
Rapid Growth with Substantial Socioeconomic Challenges
Sources: Ernst & Young, GSMA, World Bank
3 © 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.
Country Overall NRI
Rank
NRI Infrastructure Readiness Sub-
Rank
Country ICT Opportunity
Botswana Ethiopia Ghana Kenya Mali Mauritius Mozambique Namibia Senegal South Africa Tunisia
91 123 99 81 120 47 106 82 80 61 35
106 137 118 102 134 78 133 108 91 73 57
ICT Investment Impact Opportunity There is a notable difference in overall NRI rank and the supporting rank for infrastructure readiness (a difference of greater than 10 places), suggesting these markets may be in the greatest demand for ICT infrastructure.
Nigeria Uganda Zambia
104 107 102
112 116 111
Some ICT Investment Impact There is some difference (greater than 5, less than 10 places) between overall NRI rank and infrastructure readiness rank, suggesting markets may be in greater relative demand for ICT infrastructure than is available.
Malawi Morocco Tanzania
105 83 118
109 84 120
Readiness and Infrastructure on Par Overall NRI ranking and infrastructure readiness ranking are comparable, suggesting a more balanced strategy of ICT investments, awareness, and usage are in order.
Côte d'Ivoire 113 103
Some Underutilization of ICT Assets There is some difference between overall NRI rank and the supporting rank for infrastructure readiness (greater than 5, less than 10 places), suggesting markets can do the more to improve the environmental conditions and awareness to make better use of existing ICT assets.
Algeria 117 101
Greatest Underutilized ICT Assets There is a notable difference between overall NRI rank and the supporting rank for infrastructure readiness (a difference of greater than 10 places), suggesting these markets can do the most to improve the environmental conditions and awareness to make better use of existing ICT assets.
Prepared by Bazaar Strategies LLC using the World Economic Forum, The Global Information Technology Report 2010-2011.
THE ROLE OF ICTS
3
Variance in “ICT Readiness” among African Nations
4 © 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.
THE ROLE OF ICTS
4
ICTs as a ‘Game Changer’
ICTs can help reduce waste and inefficiency and increase productivity
ICTs can increase synergies between sectors and create new opportunities for growth in business and innovation
ICTs can improve access to services, especially to poor, underserved and remote populations
5 © 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.
While access to financial services varies widely in Africa, it trails other major regions
FINANCIAL SERVICES SECTOR STUDY
5
Landscape Analysis
Country
Branches per hundred thousand adults
Branches per thousand Km2
Deposit accounts per thousand
adults Combined (Commercial, Co-ops,
SSFIs, MFIs) Combined (Commercial, Co-
ops, SSFIs, MFIs) Combined (Commercial,
Co-ops, SSFIs, MFIs) Mauritius 20.11 96.55 2109.04 Tunisia 31.87 16.16 1143.36 Botswana 10.29 0.23 912.50 South Africa 8.00 2.22 839.13 Namibia 7.25 0.12 757.61 Algeria 5.30 0.55 736.56 Nigeria 9.54 9.09 495.21 Morocco 15.91 7.93 412.14 Kenya 4.41 1.71 389.62 Ghana 8.29 5.21 332.61 Rwanda 1.87 4.26 226.15 Mali 18.24 1.06 223.13 Senegal 12.80 4.57 206.07 Uganda 2.73 2.23 195.73 Malawi 2.16 1.75 175.57 Cote d'Ivoire 2.12 0.81 170.56 Ethiopia 2.42 1.10 144.03 Mozambique 3.89 0.60 140.50 Zambia 5.62 0.51 44.35
Sudan 0.04 0.00 No data Tanzania 1.84 0.49 No data
Region % of banked households
High Income 91%
Eastern Europe & Central Asia
50%
East Asia & Pacific 42%
Middle East & North Africa
42%
Latin America & Caribbean
40%
South Asia 22%
Sub-Saharan Africa 12%
Source: CGAP Prepared by Bazaar Strategies LLC using CGAP Financial Access 2010
6 © 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.
FINANCIAL SERVICES SECTOR STUDY
6
Financial Sector Development Challenges
Market Maturity/ Financial System
• Provider interest
• Weak industry voice
• Cost of established practices
• MFI single product approach
• Interoperability, networkcooperation
• Insufficient infrastructure
• Poor/abusive businesspractices
• Availability of credit bureaus
• Collateral registry
Governing/ Regulatory
• Lag of regulation to keep upwith technological pace
• Documentation requirements
• Prioritization of financialinclusion
• Limited regulatory frameworkfor MFIs
• Political interference
• Non-business friendlyenvironment
• Inadequate client protection
• Weak legal infrastructure
Consumer/End User
• Transient populations
• Remote populations
• Understanding of consumerneeds (behavior anddemographics)
• General literacy
• Financial literacy
• Trust of banking institutions(exposure and history)
• Capital access (SME/MSME)
Three main categories of challenges
7 © 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.
FINANCIAL SERVICES SECTOR STUDY
7
ICT Advances Offer New Potential
Advances in ICTs present new opportunities to increase financial inclusion
Data Processing & Analytics • Open-source and more open platforms
• Crowd-sourced data sharing and analytics
• Shift from IPv4 to IPv6
• Business intelligence and predictiveanalytics
Security • Biometrics
• One-time passwords
• Fraud management
Data Storage and Application Hosting
• Increased local storage
• Remote and shared storage – cloudcomputing
• Software-as-a-service (SaaS)
Consumer Device Advances
• Intuitive interfaces
• Increased processing power
• Geolocation tracking capabilities
• Improvements in power storage
• Falling costs
Data Transmission • Satellite (end point and Internet
backhaul)
• Terrestrial wireless – broadband/data
ICT Category • Important Developments
8 © 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.
Source: GSMA
Mobile money users in Africa exceeded 40 million by 2012 Many operators are still trying to replicate the success of M-Pesa in Kenya, but growth is occurring in countries like Uganda, South Africa, Nigeria and Ghana as telecom operators and banks see the market potential
Reaching those without phones Movirtu’s cloud-based solution lets consumers enroll for services and get a “virtual” SIM so that consumers may use any available mobile phone to login to their own accounts and perform transactions
Creating an electronic collateral registry The Ghana Collateral Registry was created in 2008 and a fully integrated and redesigned electronic database is in development, all with the aim of increasing access to lending
VALUE-ADDED SERVICES: A GROWING CHANNEL Initiatives Capitalizing on ICTs’ Potential
There are initiatives underway that seek to address fundamental challenges, such as retail payments, identification, collateral registries, SaaS for MFIs and credit bureaus
9 © 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.
FINANCIAL SERVICES SECTOR STUDY
9
Challenges to Application of ICTs in Financial Services in Africa
While access to financial services varies widely in Africa, it trails other major regions
Identification
Credit Bureaus
Collateral Registry
• Liquidity Management• Consumer Protection• Intersystem Agreements• Fraud• Limited Products• SME Access to Capital
• Lack of Id Documents• Moveable Assets• Fragmented Collateral Data• Corruption
• Fear of Redundancy• Institutional Opacity• Customer Services• Security• Discrepant Data
10 © 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.
FINANCIAL SERVICES SECTOR STUDY
10
Case Studies: Senegal
Senegal is at the tipping point to become one of top performers in financial services in Africa
Drivers of Growth Readiness (Regulations,
Infrastructure, Demand)
Challenges Opportunities
ICTs High Multiple regulators Bureaucracy Slow mobile money
services
Diversification of products/servicesoffered on existing platforms (mobile)
Linking to financial and non-financialservices
Financial Services Low-Medium Up-market focus Inefficient MFIs Lack of credit to SMEs and
the informal sector technology limitations
Low-cost, down-market banking Leveraging excessive technological
capacity Diversification of products and delivery
platforms
Market Players Medium Limited knowledge ofmarket
Competition notaggressive enough
bureaucracy
Demand-driven product offering More competition
11 © 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.
If the banking sector perceives mobile money services as an additional business opportunity rather than a competitor, both industries (as well as their clients) gain from this co-operation, and the financial sector is less likely to lobby against the introduction of mobile money services.
FINANCIAL SERVICES SECTOR STUDY
11
Case Studies: Kenya
Drivers of Growth Readiness
(Regulations, Infrastructure, Demand)
Challenges Opportunities
ICTs High Address interoperabilitychallenges to allowoperator-independentplatforms to compete
Build on mobile money success by allowinggreater functionality for other savings,payment and insurance products
Financial Services Medium Overcome relativelyhigh transaction costs byaddressing marketcompetition issues
Address internationalpayments issues (such asremittances)
Create competitive environment foradditional mobile or ICT-based savings andpayments services to thrive
Improve and clarify regulatory structure toencourage cross-sector participation bytelcos and banks/MFIs
Diversification of products and deliveryplatforms
Market Players Medium Mitigate dominantmarket position of onecarrier
Encourage greater competition
12 © 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.
FINANCIAL SERVICES SECTOR STUDY
12
Opportunities for ICTs to Improve Financial Inclusion
Mobile Banking
Identification
Product Diversification
Formative State
Scaling State
Desired State
SME Access to Capital
Backend Systems
Credit Bureaus
Collateral Registries
S izable mobile penetration ; ad hoc,
provisional experiments
Multiple closed networks; Coordination with
“seeding” initiatives
Interoperable Fully fungible
Interest - bearing
Rudimentary extensions of mobile
payment
Collaboration with non - financial institutions
Broad portfolio; nuanced demographic
targeting
Proportional methods of ID for financial
access
Introduction of broad - based identifying
infrastructure
Unique identifiers for all citizens
Mechanisms to leverage available capital access
practices
Risk underwriting incentives to induce
private capital
Transparent & competitive capital
environment
Data and protocol standards System adoption
Interoperable systems engaged in data
exchange
Data sharing standards
Networked data aggregating capabilities
Multiple competing sources for assessing
risk
Transparent ownership policies
Shared registry of ownership and liens
“Real - time” viewing and updating of shared registry
© 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.
FINANCIAL SERVICES SECTOR STUDY
State of Maturity
Consumer Public Sector Private Sector
Formative State
Productdiversification
Wider consumeridentification options
Engage in policy experimentation in:
data standardization andalternatives
transparent propertyownership
Diversify products andcapital raising channels
Scaling State
Raise overallawareness
Incent and requireobtaining ID
Remove artificial levies ontechnologies
Mandate IPv6 transition andcompliance
Minimize monopoly andramp up interoperability
Desired State
Ensure competitiveenvironments andconsumer protection
Policy conducive to integratedfinancial services in place
Full-fledgedInteroperability
Platforms for basicpayments as semi-publicproducts
Recommendations
14 © 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.
14
• Health
• Financial Services
• Agriculture
• Education
ETRANSFORM AFRICA
Overarching Project Goal Raise awareness and stimulate action, among African governments and development practitioners, of how ICTs can contribute to the improvement and transformation of traditional and new economic and social activities across all sectors.
Sectors • Climate Change Adaptation
• ICT Competitiveness
• Public Services
• Trade & Regional Integration
www.etransformafrica.org
Join the conversation online eTransform.org
Q&A
For more information contact:
Brendan Smith Director of Professional Services
[email protected] vitalwave.com