Financial innovation, technology and financial inclusion

Access to basic banking and financial services has been for centuries, the preserve of a privileged few. As banks evolved over time and the market became more dynamic and competitive, they faced the need to broaden their market and widen the scope of services on offer.

by Clive Mphambela

Today, the provision of financially inclusive services has become a challenge for all financial institutions for as long as they wish to remain relevant in the market place. Financial inclusion has for banks, become a matter of long-term survival. It is no longer a matter of choice.

It is not surprising, therefore, that the wheels of financial innovation have never stopped turning and are now spinning even faster than before, as financial institutions continuously remodel their products and services and delivery channels to meet the ever growing demands of the banking public.

Innovation has also been a consequence of growing competition within the sphere of banking and as disruptive innovations happened from other industries such as retail shops and mobile telephony companies, banks have had to innovate at a greater pace.

It is thus very difficult to separate any discussion on financial innovation, from the important subject of financial inclusion.

At every point as banks innovate and create new products, they are also thinking about solutions that will broaden their market base and bring more people under the ambit of banking.

The role of plastic money

Plastic money refers to the use of plastic cards over an electronic funds system both to access cash and to make payments. Plastic money has been around for decades and enabled banks to lower the cost of delivery of services and access areas that were relatively remote.

It is possible nowadays to spend money on your plastic credit or debit card anywhere in the world at any time without the need to visit your bank branch. This is fast becoming the norm globally as new and faster and more secure electronic platforms are developed.

Mobile-based payment systems

One major element of financial exclusion is lack of access to financial services. However, mobile phone based technologies have now offered financial institutions the ability to electronically “include” a wider cross section of the previously unbanked market.

Mobile-based payment systems which have given rise to mobile banking as we know it today give access to banking and payment services via hand held mobile devices such as mobile phones.

For banks in Zimbabwe mobile based payment systems are seen as a complimentary tool in meeting the significant financial exclusion challenge.

Mobile money also brings other benefits to the economy such as lessening the dependence on overall use of cash as a payment instrument.

A vast amount of transactions can now be done via mobile payment systems, quickly and securely, sometimes eliminating the need for people to carry cash around.

This is especially important in Zimbabwe, where we have said banks have to import cash into the country at great expense.

Efficiency of mobile payment systems in addressing both the financial inclusion objective and the achievement of a “cashless or cash-lite economy” requires broadening and deepening access to mobile banking platforms by both providers and users.

Zimbabwe, like other countries, pursuing broad financial inclusion, mobile based payment platforms have opened important opportunities to drive the financial inclusion agenda.

Interoperability of infrastructure as a necessary condition for the success of mobile-based financial inclusion

The interoperability of retail mobile payment instruments and platforms has been identified as a key success factor in the drive towards mobile based cashless society and greater financial inclusion.

The sharing of mobile-based payments infrastructure promotes what is known in economics as productive efficiency (avoiding duplicative infrastructure) and leads to dynamic efficiency (promoting competition and product diversity).

Regulators must, therefore, step in to promote the efficient use of existing infrastructure in a manner that does not hurt those that have invested in its deployment and promotes further investment.

Interoperability is aligned with the promotion of consumer rights

Because interoperability implies cost sharing, services are delivered at least cost to consumers.

Therefore, regulators and government and market players need to prioritise and promote interoperability of mobile platforms in order for the mobile revolution the country is experiencing to provide maximum benefits at the least economic cost.

Consumers have a right to efficient services at the best or least cost

Presently in Zimbabwe, there is Zimswitch which is a good example of how the sharing of front-end infrastructure can reduce costs of financial services delivery and promote a cashless economy.
This is network comprising 16 member banks; with over 4 000 Zimswitch enabled point-of-sale machines nationwide, found in the major regional and local retail outlets and close to 400 Zimswitch compliant ATMs, some of them located in remote areas financial services are within the reach of many.
However, with mobile telephone penetration now estimated at over 100% in Zimbabwe, mobile payment systems become a logical extension of any national strategy to meet the financial inclusion challenge and the success of a cash free society.

Interoperability will change the trajectory of mobile money growth in Zimbabwe, lower delivery costs and even greater interoperability could unlock the pathway to a cashless economy.

For example, with agent-level interoperability, where mobile money agents representing various network operators and banks, are also able to deliver services of other operators or banks. This could help rationalise the large investment that is needed in developing agent networks.

However, care is still needed in implementation by the regulators so that policies promoting interoperability do not depress the economic incentives for institutions to put up infrastructure.

On the other hand, interoperability can be engineered at the platform level, focusing on the full interconnectivity in specific payment systems. This kind of interoperability is desirable as it enables efficiencies in transmitting payment instructions across networks also lowering costs and improving service delivery.

Mobile money, consumer protection and levelling the playing field

Regulators can play a greater role in harmonising the legal framework. One of the issues around mobile platforms has been the complex nature of the regulatory frameworks surrounding banks when they want to roll out mobile based services as compared to the relative ease of regulation when mobile network operators roll out similar services.

Banks as regulated institutions face an uphill task and have to conform to onerous and very stringent KYC and AML/CFT guidelines.

Banks are also subject to tight prudential regulations. This tends to make the playing field uneven and creates a scope for regulatory blind spots that can result in inadequate protection for consumers.

l Clive Mphambela is a banker. He writes in his capacity as advocacy officer for the Bankers’ Association of Zimbabwe. BAZ expressly invites stakeholders to give their valuable comments and feedback related to this article to him on clive@baz.org.zw or on numbers 04-744686, 0772206913

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