Technology drives new partnership models in Africa’s financial sector
As the financial industry evolves, there is massive potential for the forging of myriad partnerships between African financial institutions and other relevant stakeholders across the globe.
technology is transforming the way financial institutions serve clients in Africa at a rapid rate. However, less obvious, yet equally profound, is how technological deepening – and the new partnerships that this inspires – is transforming the organisational structure and strategies of financial institutions on the continent. The new hybrids of partnership that African financial institutions are developing provide a key to understanding the organisational and strategic impact that rapid technological change is having on the continent’s financial sector.
Regardless of how one looks at it, the impact of technology on Africa is overwhelmingly transformative. Technology is part of Africa’s development landscape, driving financial inclusion by increasing access to capital and the ability to transact at a faster rate than ever before.
The absence of legacy investments among African financial institutions means that technology empowers these institutions to leapfrog expensive physical infrastructure – directly to mobile. The ubiquity of M-Pesa in Kenya demonstrates how financial technologies have been taken up on the continent, enabling African financial institutions to service the previously unbanked – often using the most cutting-edge technologies. That said, investments are required to cater for cybercrime management, know your customer (KYC), anti-money laundering (AML), terrorist financing detection, big data management and robotics.
Historically, as financial institutions in the developed world evolved, they developed new technologies that enhanced customer servicing and operational efficiencies. Adopting many of these cutting-edge technologies requires African financial institutions to partner with these international firms.
Developed world financial institutions are admittedly under increasing legislative and compliance pressures to reduce correspondent risk, yet if they are to continue to service their core global multinational client base, they need to service them in
Africa too. This means partnering with African financial institutions that are present, informed and agile in local legislative and risk environments – as well as fully institutionalised to manage US dollar clearance across the continent.
Increased KYC requirements, especially among developed world financial institutions, require that African subsidiaries are able to list their compliance documentation on the Society for Worldwide Interbank Financial Telecommunication (SWIFT) repository. Providing uniform client documentation that meets global compliance standards across countries in Africa – each with different legislative and risk environments – is a complex and expensive process that can more efficiently be delivered by financial institutions present and operational within these territories.
This is something that developed world institutions are prepared to pay for – or share technology, systems and processes with – through mutually beneficial partnerships. As Africa continues to deliver annual average GDP growth rates of 4% to 4.5%, making it the secondfastest-growing region after Asia, partnerships with Asian banks are increasingly important. Technology and how people transact in Asia is evolving along its own path. Making WeChat, China’s most widelyused business and transaction platform available and accessible in Africa, for example, is critical to linking African opportunity with Chinese investment and capability.
Linking Asian skills, capital and know-how with Africa requires that the continent’s financial institutions reimagine not only their choice of technologies but also their corporate structures – including partnerships with Asian financial institutions – if they are to build accessible bridges between the world’s two fastest-growing regions.
As Africa’s economy grows, the continent also presents opportunity for short- and long-term insurance as well as the management of state and private pensions. In turn, as global pension and investment funds look to access African yield, partnerships with established, globally compliant African financial institutions will increase. Looking to the future, this is likely to see hybrid relationships between a range of technology service providers backing up established financial institutions to deliver via new platformagnostic mobile technology.
Increasingly too, the sophistication of what global clients are looking to accomplish on the ground in Africa requires that financial institutions on the continent consider a broader set of partnerships.
Mozambique, for example, is now in what is being called its second wave of growth. The first wave was characterised by the bartering of resources for basic infrastructure at a government-to-government level.
The second wave is seeing global corporates investing in sophisticated secondary infrastructure accessing oil and gas opportunities for sale on global markets. This requires a financial capability able to manage complex foreign investment. It also means managing daily transactions, on the ground, between Africa and new client markets globally.
While technology is driving this evolution, an integrated local and global capability – delivered through key partnerships with both financial institutions and new technology start-ups, platforms and providers – will see financial institutions enter into entirely new types of partnerships across the continent. ■ firstname.lastname@example.org
is head of financial institutions client coverage at Standard Bank.
Cellphone-based M-Pesa, which offers money transfers, financing and microfinancing, has enabled millions of unbanked Africans to access financial services.