For the banking public, the entry of non-bank specialists into the domestic payments space is a welcome development because it broadens choice and hopefully improves the overall quality of service in the process. For banks, it probably complicates their situation by raising the competitive stakes. Or does it perhaps increase the range of possibilities for partnerships and collaborations? Either way, what are some of the broader implications for the banking sector?
Changing profile of payments The use of mobile phones and other devices for payment purposes does not necessarily mean that non-bank providers will take business away from banks. Of course, they do take away a significant chunk of the value chain, but the current regulatory framework ensures that there is enough space left for banks to play a major role as well. However, in order to position themselves appropriately, banks have to understand the nature and implication of the underlying change in payment activity. The payments are not necessarily disappearing out of the banking system; they are just changing their profile. For instance, banks such as TN Bank Limited still have to handle trust accounts for the likes of Econet’s Ecocash. In Zimbabwe, as is the case elsewhere, telecommunication companies (telcos) cannot be banks — they need to partner banks so that they act as a “front end” for banking transactions, where the regulation and consumer protection mainly sit. Paynet, which owns and operates an Electronic Funds Transfer system that automates the process of companies transmitting bulk payment instructions to their corresponding Financial Institutions (FIs), is a good local example of a non-bank provider that competes with but also collaborates actively with banks at the same time. It currently works with 22 FIs.
Missed opportunity Characteristically, mobile banking products enable users to bypass the banking system and transfer money through their mobile phones. It is, however, often argued that this has so far not threatened the existing core business of banks in a material way because most of the targeted users were not being served by the banks anyway. A figure of between $2 billion and $3 billion is often bandied around as floating outside the banking system in Zimbabwe and it is this amount that the likes of EcoCash are said to be chipping away at. Undeniably, those banks which are not exploiting the use of mobile technology are missing out on an opportunity to service this market. However banks have the advantage that when they do introduce mobile into their offering – as quite a number of them have already done locally – they are able to offer it in combination with other banking services in addition to plain mobile money transfer.
Who owns the relationship? In retail banking, when it comes to mobile solutions, banks are typically concerned with whether they or the mobile operators or other partners own the individual customer relationship. For EcoCash for instance, unless the user is already a holder of an account with the bank, the relationship would sit with Econet, which enrolls the customer directly or through its agents. This is something banks have to get used to, as it indeed provides the impetus for collaboration.
International/cross-border payments dimensions Alongside local initiatives in the domestic payments space, many independent corporates are constantly innovating on the international scene. Their payment solutions range from those seeking outright replacement of the role of banks to those seeking to complement it. The international nature of some of these payment initiatives means that they challenge long-standing monopolies such as the Society for Worldwide Interbank Financial Telecommunications (SWIFT). One such example of is, Earthport, which focuses on lower value payments and offers an alternative to the inefficiencies of the correspondent/nostro banking system. For international payments, rather than moving money along the usual cross-border payment channels, Earthport, which has segregated accounts around the world, uses cloud computing to treat the payment as two separate domestic credit transfers. When a transfer is made domestically into one of these accounts Earthport is able to send a payment instruction to the recipient country’s equivalent account, confirming that the funds are available, and from that segregated account a domestic transfer is made to the beneficiary.
Another international example of a non-bank provider is Bolero, an internet technology platform for banks and corporations to arrange trade finance in an automatic way. This arose because corporates previously had to deal with each of the banks separately, all of which had their own systems in place. Now Bolero provides a multi-bank platform whereby a corporate is no longer forced to deal only with one bank for its trade finance.
In Zimbabwe, Econet is considering upgrading EcoCash to provide cross border payment capacity, which will bring it in direct competition with local banks. We should support such home-grown solutions, rather than relying solely on SWIFT.
Will corporates migrate to these emergent solutions? Experts argue that despite innovation galore out there, corporate clients will not necessarily always want to be part of it. They expect their bank to observe the trends and carefully select which ones are worth using rather than jumping on the bandwagon of every new idea that comes along. Corporates do not wish to manage large numbers of settlement partners hence they are more interested in establishing a relationship with a bank that identifies how to work with those multiple partners, according to Jane Cooper of The Banker. . Omen N Muza writes in his personal capacity. He is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd, a Harare-based financial advisory company with interests in banking, technology and agriculture as well as the convergence area among others.
