ICT in the Financial Services Sector in Africa
It’s no secret that the financial services sector is the biggest spender on ICT in the country. According to BMI-T’s SA ICT Vertical Market Sizing and Forecasting Report, the financial, business and other services sector accounted for over 30 percent of total expenditure on information and communications technology in South Africa. But what trends are dominating the sector?Because of security, financial institutions, especially banks, cannot feasibly outsource their IT departments, a trend seen in most other sectors. Most functions are retained in-house. However, desktop support is one area where outsourced solutions make economic sense. Gijima AST, one local company focused on the financial services sector, offers customer interface as well as electronic payment solutions. Electronic payment (largely back office) solutions are seeing tougher security as well as further automation of processes. The trend is for cheques and other documents to be scanned and archived for simple access from anywhere on the bank’s network.
Making this kind of data available on other platforms is also seeing serious adoption in the industry. Clients can, for example, access scanned cheques/ deposit slips/documents via the traditional online banking platform. The broader push sees transaction systems leveraged onto different platforms and interfaces. In the same way that an archived image of a cheque can be accessed in-branch and over the internet banking interface, banks are taking their core transaction functionality and leveraging that over a number of platforms.
No longer are ATMs simply cash withdrawal points. Transactions can now be done inbranch, online through internet banking, via ATMs, through point-of-sale systems and, increasingly, on mobile phones. Gijima says the “focus is shifting towards solution concepts for new delivery channels such as electronic banking and new branch structures”.
Mobile Banking
This leveraging requires significant integration of new systems with the banks’ core legacy offerings.
The biggest push in the South African market is undoubtedly into mobile banking. FNB, one of the pioneers, set up a division internally that innovated mobile banking. This now falls under the ambit of FNB Mobile and Transact Solutions, and the group has set up a similar team responsible for innovation, with some of the original mobile banking staff involved.
It’s not only FNB that has realised that smaller, more autonomous units are the key to innovation.
This new team is largely responsible for the ancillary FNB Connect service, where FNB is leveraging its excess bandwidth and providing connectivity and VOIP calling to its customers. The use of two-way SMS messaging in the customer relationship management realm has caught on in the South African market, and banks have here again married newer platforms with their legacy systems.
Internet banking systems have been further integrated with SMS gateways as a fraud prevention mechanism. Account transaction notifications are sent in real-time, allowing customers to be aware of payments immediately.
Aside from sector-specific adoption, the financial services industry is adopting broader ICT trends, such as virtualisation, standardisation and – as mentioned – the outsourcing of desktop support. Standard Bank, for example, in 2008 standardised its IT environment to create a centrally managed one.
The benefits were obvious: costs were reduced, while the bank saw increases in security, productivity, agility, and stability. It’s also used the built-in virtualisation technology in Windows Server 2008 to reduce the number of physical servers required to run bank operations. This also translates into quicker development of new services.
Cross-Continent
Less than ten percent of Africans use banking services, however. In addition, cash is still the primary financial instrument, and market capitalisation as a percentage of gross domestic product (GDP) is well below 100 percent. These statistics illustrate that financial markets in Africa only contribute in a minor way to economic growth on the continent. However, initiatives like the M-PESA mobile payment system in Kenya show the potential opportunity for ICT in fi nancial services. It is also ICT providers across the globe that are increasingly providing these services, either instead of or in partnership with banks.
There is another success story in Ethiopia – Ethiopia Commodity Exchange (ECX). Solomon Edossa, CIO of ECX, says it is designed after world-class commodities exchanges like the Chicago Mercantile Exchange. Generally, a commodities exchange would partner with financial institutions to handle settlement of trades, but there was no clearinghouse and no electronic payment system in Ethiopia. ECX established its own clearinghouse and electronic payment system, in partnership with Ethiopian banks, to handle its transactions.
In fact, ECX has become a financial services “orchestrator” in its ecosystem, which can extend to several hundreds of thousands of subsistence farmers in cooperatives participating as ECX members.
Its commodity warehouses can be considered “bank branches”. Producers deposit commodities at the warehouses. ECX assures the quality, quantity and delivery of each commodity to buyers. At the same time, ECX assures sellers their commodities are secure and payments are received within 24 hours. In 2010, producers will be able to get warehouse receipting financing on commodities they deposited. ICT abounds in ECX’s “financial market”.
Edossa says once commodities are deposited into a warehouse, they are electronically registered and tracked. This information is electronically communicated to the ECX headquarters in Addis Ababa. In addition, prices are displayed across the country at remote stations and on mobiles. Soon, ECX will begin online trading.
But the ECX story is really about the potential of its ecosystem. Edossa states: “All my staff members are local. We are creating jobs and increasing local capacity.”
In working with banks to deliver on their service delivery agreements with members, ECX is helping banks design new financial products for members. This brings more business to the banks. In addition, the process is also encouraging Ethiopian partner banks to implement core banking processes, which is creating new opportunities for ICT providers. Eventually, ECX will implement ICT-dependent services in sectors other than financial services like logistics, systems support and internet cafes.
But ECX still faces the typical challenges in Africa. In fact, Edossa admits: “I doubted it could be done.” ECX had to address the regular power outages in Ethiopia, particularly in the rainy season, and the unreliable communications network. It met the challenges with a variety of solutions like mixing generators and uninterrupted power supplies to keep systems running, and mixing broadband and dial-up for telecommunications consistency. ECX worked the ICT challenge so well that there is not a single failed transaction in two years of operation and close to $2 billion in transactions.
