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Mobile networks holding back financial inclusion

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Out of 7.5 billion mobile users, two billion adults worldwide are unbanked. Although banking institutions offer solutions to bridge the gap, little impact is being achieved on the number of unbanked, says BRIAN RICHARDSON, founder of WIZZIT.

Financial inclusion is a key enabler of sustainable economic and social development. Initiatives by the United Nations and the World Bank Group continue to drive financial inclusion and it has become a priority for regulators and policymakers worldwide.

Out of 7.5 billion people and a mobile phone in almost every pocket, two billion adults worldwide are unbanked. Financial service providers (FSPs), FinTech’s and mobile network operators (MNOs) offer superior solutions to bridge the gap. However, despite the size, reach and power of banks and MNOs, little impact is being achieved on the number of unbanked.

Regulation is often blamed as a major barrier. What doesn’t help either are statements from European Central Bank executive board member Yves Mersch, who has given a spirited defence of cash, praising its ability to facilitate privacy, equality and security, insisting there is “no viable alternative”.

Digitalisation is the key to financial inclusion. Basic transactional accounts should be a birth right, together with a concerted effort by governments to remove cash and to support every effort towards financial inclusion. Illegal and illicit activities such as money laundering and funding of terrorist activities are facilitated predominantly through cash. The sooner we accept this fact, the better. What is urgently required is the removal of cash and the enforcement of policies that promote simple and seamless access to bank accounts for all. This provides full audit trails of every single transaction.

MNO’s have the reach and understand the power of marketing. Banks understand compliance and systems. As a leading global FinTech, WIZZIT International works effectively with all leading MNOs and banks in providing digital financial services. However, instead of embracing mutually beneficial partnerships, MNOs in some countries refuse to give banks access to their Unstructured Supplementary Service Data or USSD gateways.

The bulk of mobile phones in Africa are feature phones and the USSD channel provides functionality that is quick, safe and easily accessible from all mobile phones. For the vast majority, USSD will remain the clear channel of choice for many years to come. To date, it is the most successfully integrated and widely adopted technology for financial services in emerging markets and the lower end of the market.

MNOs in some countries seem to think that by denying banks access, they can create a bigger market for their own financial service offerings. This is most evident in countries like Angola and the Democratic Republic of Congo where the unbanked populations are 71% and 89% respectively. This abuse of power is tantamount to anti-competitive behaviour and is creating a major barrier to financial inclusion, something communication regulators should be aware of. The lack of progress in these and other emerging markets may well be the result of the prejudiced practices of Telcos gatekeeping access to the USSD gateway.

As smart phones become more affordable, so will the popularity of app-powered platforms as a channel for financial services. However, until there is a dramatic decrease in the cost of smart phones, the number of feature phones will remain at around 70%. USSD is still therefore critically important and banks will depend on MNOs for access – unless as has happened in some markets, banks get their own MNVO licence and control their own destiny.

A bigger pie or a bigger slice? 

The boundaries between the offerings of banks and MNOs are becoming increasingly blurred – yet the playing fields are not level. In some West African countries, for example, banks are by law not allowed to charge customers for deposits to bank accounts. MNOs, however, are unaffected by these laws and have the freedom to charge for deposits into mobile wallets.

Starting out as a convenient way to buy airtime and send money to family and friends, the financial services offering of MNOs has broadened to include offerings such as savings and loans. This is taking the banks on directly.

It will be argued that banks cannot be all things to all people and effectively service all segments of the market. It will also be argued that bank regulators are not there to protect banks from innovative competition from non-banks such as MNOs, Apple, Samsung, Google, Amazon, Pay Pal and Alipay. However, where governments and global agencies are putting enormous pressure on banks to drive financial inclusion, this is made increasingly difficult where banks are denied access to channels such as USSD.

To collaborate or not to collaborate

The Mobile Banking industry globally started some 12 years ago with WIZZIT (South Africa), Mpesa (Kenya) and GCash (Philippines) recognised as the early pioneers. It is interesting to note that there has not been a single successful partnership between banks and MNOs despite numerous attempts.

Perhaps a truly strategic collaborative model is still a ways off and competition between banks and MNOs is here to stay – at least for the foreseeable future. The question is whether or not this competition is supporting global efforts on financial inclusion through digital financial services.

The way forward

Digitisation and mobile penetration will continue to drive the growing trend of MNOs and FSPs infiltrating each other’s space to gain traction in new services. However, these rapidly blurring lines are bound to spark territorial claims regarding customers. This could impede financial inclusion if it lacks the required consumer protection measures and regulations.

Governments must regulate competitive behaviour amongst all role players and promote cross-sector collaboration towards financial inclusion. It is essential for countries to enforce policies that promote responsible financial access, financial capability, innovative products and delivery mechanisms. Any initiative that promotes financial inclusion should be praised and much work needs to be done.

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Online retail gets real

After decades of experience in selling online, retailers still seek out the secret of reaching the digital consumer, writes ARTHUR GOLDSTUCK.

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It’s been 23 years since the first pizza and the first bunch of flowers was sold online. One would think, after all this time, that retailers would know exactly what works, and exactly how the digital consumer thinks.

Yet, in shopping-mad South Africa, only 4% of adults regularly shop online. One could blame high data costs, low levels of tech-savviness, or lack of trust. However, that doesn’t explain why a population where more than a quarter of people have a debit or credit card and almost 40% of people use the Internet is staying away.

The new Online Retail in South Africa 2019 study, conducted by World Wide Worx with the support of Visa and Platinum Seed, reveals that growth is in fact healthy, but is still coming off a low base. This year, the total sale of retail products online is expected to pass the R14-billion mark, making up 1.4% of total retail.

This figure represents 25% growth over 2017, and comes after the same rate of growth was seen in 2017. At this rate, it is clear that online retail is going mainstream, driven by aggressive marketing, and new shopping channels like mobile shopping. 

But it is equally clear that not all retailers are getting it right. According to the study, the unwillingness of business to reinvest revenue in developing their online presence is one of the main barriers to long-term success. Only one in five companies surveyed invested more than 20% of their online turnover back into their online store. Over half invested less than 10% back.

On the surface, the industry looks healthy, as a surprisingly high 71% of online retailers surveyed say they are profitable. But this brings to mind the early days of Amazon.com, in 1996, when founder Jeff Bezos was asked when it would become profitable.

He declared that it would not be profitable for at least another five years. And if it did, he said, it would be in big trouble. He meant that it was so important for long-term sustainability that Amazon reinvest all its revenues in customer systems, that it could not afford to look for short-term profits.

According to the South African study, the single most critical factor in the success of online retail activities is customer service. A vast majority, 98% of respondents, regarded it as important. This positions customer service as the very heart of online retail. For Amazon, investment back into systems that would streamline customer service became the key to the world’s digital wallets.

In South Africa online still make up a small proportion of overall retail, but for the first time we see the promise of a broader range of businesses in terms of category, size, turnover and employee numbers. This is a sign that our local market is beginning to mature. 

Clothing and apparel is the fastest growing sector, but is also the sector with the highest turnover of businesses. It illustrates the dangers of a low barrier to entry: the survival rate of online stores in this sector is probably directly opposite to the ease of setting up an online apparel store.

A fast-growing category that was fairly low on the agenda in the past, alcohol, tobacco and vaping, has benefited from the increased online supply of vapes, juices and accessories. It also suggests that smoking bans, and the change in the legal status of marijuana during the survey, may have boosted demand. 

In the coming weeks, we can expect online retail to fall under the spotlight as never before. Black Friday, a shopping tradition imported “wholesale” from the United States, is expected to become the biggest online shopping day of the year in South Africa, as it is in the USA.

Initially, it was just a gimmick in South Africa, attempting to cash in on what was a purely American tradition of insane sales on the Friday after Thanksgiving Day, which occurs on the third Thursday of November every year. It is followed by Cyber Monday, making the entire weekend one of major promotions and great bargains.

It has grown every year in South Africa since its first introduction about six years ago, and last year it broke into the mainstream, with numerous high profile retailers embracing it, and many consumers experiencing it for the first time. 

It is now positioned as the prime bargain day of the year for consumers, and many wait in anticipation for it, as they do in the USA. Along with Cyber Monday, it provides an excuse for retailers to go all out in their marketing, and for consumers to storm the display shelves or web pages. South African shoppers, clearly, are easily enticed by bargains.

Word of mouth around Black Friday has also grown massively in the past two years, driven by both media and shoppers who have found ridiculous bargains. As news spreads that the most ridiculous of the bargains are to be had online, even those who were reticent of digital shopping will be tempted to convert.

The Online Retail in SA 2019 report has shown over the years that, as people become more experienced in using the Internet, their propensity to shop online increases. This is part of the World Wide Worx model known as the Digital Participation Curve. The key missing factor in the Curve is that most retailers do not know how to convert that propensity into actual online shopping behaviour. Black Friday will be one of the keys to conversion.

Carry on reading to find out about the online retailers of the year.

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Reliable satellite Internet?

MzansiSat, a satellite-Internet business, aims to beam Internet connections to places in South Africa which don’t have access to cabled and mobile network infrastructure, writes BRYAN TURNER.

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Stellenbosch-based MzansiSat promises to provide cheap wholesale Internet to Internet Service Providers for as little as R25 per Gigabyte. Providers who offer more expensive Internet services could benefit greatly from partnering with MzansiSat, says the company. 

“Using MzansiSat, we hope that we can carry over cost-savings benefits to the consumer,” says Victor Stephanopoli, MzansiSat chief operating officer.

The company, which has been spun off from StellSat, has been looking to increase its investor portfolio while it waits for spectrum approval. The additional investment will allow MzansiSat’s satellite to operate in more regions across Africa.

The MzansiSat satellite is being built by Thales Alenia Space, a French company which is also acting as technical partner to MzansiSat. In addition to building the satellite, Thales Alenia Space will also be assisting MzansiSat in coordinating the launch. The company intends to launch the satellite into the 56°E orbital slot in a geostationary orbit, which enables communication almost anywhere in Africa. The launch is expected to happen in 2022. 

The satellite will have 76 transponders, 48 of which will be Ku-band and 28 C-band. Ku-band is all about high-speed performance, while C-band deals with weather-resistance. The design intention is for customers of MzansiSat to choose between very cheap, reliable data and very fast, power-efficient data. 

C-band is an older technology, which makes bandwidth cheaper and almost never affected by rain but requires bigger dishes and slower bandwidth compared to Ku-band connections. On the other hand, Ku-band is faster, experiences less microwave interference, and requires less power to run – but is less reliable with bad weather conditions.

MzansiSat’s potential military applications are significant, due to the nature of the military being mobile and possibly in remote areas without connectivity.  Connectivity everywhere would be potentially be life-saving.

Consumers in remote areas will benefit, even though satellite is higher in latency than fibre and LTE connections. While this level of latency is high (a fifth of a second in theory), satellite connections are still adequate for browsing the Internet and watching online content. 

The Internet of Things (IoT) may see the benefits of satellite Internet before consumers do. The applications of IoT in agriculture are vast, from hydration sensors to soil nutrient testers, and can be realised with an Internet connection which is available in a remote area.

Stephanopoli says that e-learning in remote areas can also benefit from MzansiSat’s presence, as many school resources are becoming readily available online. 

“Through our network, the learning experience can be beamed into classrooms across the country to substitute or complement local resources within the South African schooling system.”

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