SADC Banking Association | How Mobile and Innovative Financial Service Solutions can Shape Resilient Societies across Africa

How Mobile and Innovative Financial Service Solutions can shape resilient societies across Africa by acting as a catalyst of financial inclusion and entrepreneurship

Author: Pat Adams SADC Banking Association

Developing financial resilience with Fintech

The 16 member states of the Southern African Development Community (SADC) have a combined estimated population of 345 million,32% of which were excluded from all forms of financial services in 2020. In most low-income countries, mobile money is accelerating financial inclusion and progress towards the achievement of some of the United Nations Sustainable Development Goals, which contribute to inclusive economic growth by, among others:

  • Providing access to economic resources and helping households lift themselves out of poverty and become more resilient to financial shocks.
  • Increasing food security and making agricultural value chains more efficient by helping producers access financial services.
  • Helping women access financial services, including credit to start and grow a business.
  • Increasing the productivity of micro, small and medium enterprises (MSMEs), creating employment and stimulating economic growth.
  • Helping migrants and their families send and receive international remittances.

The World Bank explains financial inclusion as meaning that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way. The SADC Council of Ministers in September 2016 approved the SADC Strategy on Financial Inclusion and SME Access to Finance as a means to accelerate financial inclusion programmes among its member states.

The SADC Banking Association (SADC BA) is a recognised structure of the SADC Committee of Central Bank Governors and through it is providing commercial banks in the community with the opportunity to inform the development of financial market infrastructure and a framework for an integrated regional payment environment.

The SADC BA is keen that these efforts translate to improved customer service, cost reductions, and efficiencies in cross-border payments. Within the region, the influx and movement of migrant workers have increased over the years and the need for low-value cross-border remittances in a safe, affordable, efficient and convenient way has become a necessity for people who want to send money home to their families.

In 2010, the SADC Integrated Regional Electronic Settlement System (SIRESS) was launched to process secure, real time, cross-border payments across the region, now known as the SADC-RTGS.

As of January 2021, the total number of transactions settled on the system was 2 019 818 representing the value of R7.91 trillion (US$520.66 billion/EUR429.99 billion).

SADC low-value credit transfers cleared on an immediate basis via an RCSO operating model

Barriers for low-value cross-border remittances

High remittance costs in Southern Africa are said to be the result of insufficient competition in the financial services sector, a lack of interoperability between systems and risk-averse banks closing accounts because of global standards to prevent money laundering and the financing of terrorism. Financial inclusion has also not been prioritised by formal financial services providers, leading to language barriers with marketing initiatives and a lack of consumer awareness, education and trust in banks. There is also a persistent consumer preference for cash.

However, the increasing number of people who have access to mobile technology has created opportunities to bridge the financial inclusion gap to underserved consumers.

The SADC BA has developed a low-value cross-border workstream know as Transactions Cleared on an Immediate Basis (TCIB). TCIB offers open loop, push payments, and real time interoperability between banks and non-banks – a first in the cross-border environment. This workstream contributes to accelerating financial inclusion by providing a safe and secure solution which allows for the underserved and unbanked in the region to make payments.

Among others, TCIB allows instant payment and notification, irrespective of the sophistication of the initiating device, be it a feature phone or smartphone, to an individual or small business in any SADC country. Government and corporates can make an instant payment to an easy to remember alternate identifier – such as a mobile phone number – irrespective of whether the recipient has a bank account or not.

Benefits for all participants in the system include lower costs, better security and increased access to financial services. Other benefits for key participants include:

  • For the 72 participating commercial banks, working with non-banks creates the opportunity of more payments from the underbanked and unbanked
  • Mobile payment service providers can scale their agent distribution network by leveraging the ubiquity of banks, retailers, spaza shops (informal shops), money changers and airtime resellers, especially in rural areas
  • Remittance agents can perform cash transactions on behalf of banks and non-banks. Agents, who can earn a commission, have seven times more reach than ATMs and 20 times more reach than bank branches

From these and other examples, digital inclusion can assist with the acceleration of financial inclusion. Combining new technologies and fresh market entrants contributes to efficient robust remittances, bridging the gap of financial inclusion of the most vulnerable, driving inclusion into the financial sector and creating competition in the market.

The adoption to harmonised regulatory oversight to changing market conditions can play a pivotal role in supporting more open and inclusive payment systems. Regulators are willing to accommodate new market entrants, promote a culture of innovation and fresh business models and cross-sector collaboration to deliver financial services to vulnerable segments of the population, while ensuring consumer protection and financial stability.

Conclusion

Promoting financial inclusion in a responsible and sustainable way requires collaboration between the public and private sectors, and strong regulation and supervision to prevent potential crises that can accompany a rapidly growing financial system. By strengthening and accelerating mobile broadband coverage, utilising fintech and increasing interoperability between banks and non-banks, it is possible to lower costs and meeting the needs of entirely new customer segments, including traditionally underserved and cash reliant customers.