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Mobile wallets accelerate financial inclusion across Africa

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El Hadji Malik Seck, Ria Money Transfer’s Managing Director Africa

 

Without a doubt, technology in general has made many of our lives easier and more comfortable. The global proliferation of financial technology is helping foster greater financial inclusion among previously unbanked populations, and this is especially true for millions of people across Africa. Access to electronic instant payment platforms, digital banking, and mobile wallets has offered people easier inroads to the financial system and afforded them greater financial independence.

 

Traditional access to finance

Traditional financial institutions have struggled to make financial services, such as bank accounts, accessible to many people around the world, including many Africans. Across the continent, account ownership figures vary greatly; in 2021, 91% of adults in Mauritius and 85% in South Africa had their own bank accounts, while the same was true of just 27% in Egypt and 29% in Sierra Leone – according to the International Association of Money Transfer Networks (IAMNTN).

Malik Seck

Beyond account ownership, adults in these regions may also face barriers to conducting simple financial tasks, such as withdrawing cash for everyday transactions. On average, there are 35 ATMs per 100,000 people in the Middle East and North Africa and seven per 100,000 people in Sub-Saharan Africa, compared with 63 in the European Union and 210 in North America. This is a gap that puts Sub-Saharan Africans at a disadvantage when it comes to accessing financial services.

Cross-border money transfer companies maintain extensive physical networks so they can serve people everywhere, whether they have a bank account or not. The shift towards digital alternatives is also helping more people enter the financial system for the first time and increasing the delivery methods money transfer operators can offer.

 

The mobile wallet revolution

The pandemic made it especially difficult for people to send and receive money via traditional ‘brick and mortar’ facilities such as local bank branches and money transfer stores. As a result, mobile wallets became a safer and more convenient means of making international financial transactions, accelerating the adoption of digital payments.

The introduction of mobile wallets in markets that have traditionally been underserved by the financial sector has revolutionised access to finance for millions of individuals, granting them the financial independence to engage with their communities and acting as a catalyst for financial inclusion. Today, consumers have grown accustomed to the ease of access that mobile wallets provide, as well as the ability to receive and send funds instantly.

One example of this can be seen in Kenya, where mobile phone-based money transfer services are now used by more than half of the country’s population. These services are used by small businesses, shops, and restaurants across the country. This represents a wider trend across Africa and the Middle East, where mobile wallet adherence has reached nearly 323 million total users in 2020 and is expected to reach 798 million by 2025.

 

Mobile wallets drive remittances

Africa serves as a significant corridor for international remittances, and mobile wallets have become a staple for sending and receiving money from abroad. Egypt, the top receiver of remittances in Africa and fifth overall in the world, saw its total number of remittances increase in 2020 and 2021 when compared to previous years despite Covid-19. In 2021, total remittances to Egypt reached $32 billion, amounting to 7.8% of the country’s GDP.

It must be noted that most remittances received in African countries do not come from overseas, but rather, from other countries within Africa. About 40% of African migrants are still living in Africa. South Africa, for example, hosts many migrants from Mozambique, Zimbabwé and Zambia, while east African migrants flock to Kenya to work, and west African migrants to Cameroun, Congo DRC and Equatorial Guinea. The exception is northern African migrants, many of whom migrate to Europe, America or the Gulf countries. Last year, remittances sent by migrant workers to and within Africa totalled $85 billion and benefitted over 200 million people.

The increase in remittance payments reflects a global trend that started in the third quarter of 2020. In 2021, global remittances to low and middle-income countries reached $605 billion, a year-on-year growth of 8.6%.

Remittances continued to be a significant economic force in regions such as Latin America, Africa, and the Middle East, both during and after the economic shock of the pandemic. Latin America and the Caribbean saw the highest year-on-year increase in remittance payments (25%) following initial Covid-related economic downturn. For the Middle East and North Africa, remittances increased by 7.6% in 2021 and 6% in 2022, while Sub-Saharan Africa saw an uptick of 14.1% in 2021 and 7.1% in 2022.

It is estimated that 75% of remittances to and within Africa are used for essential needs such as food, education, and healthcare.

 

The future of payments

The rise in global remittances to, from, and within Africa, along with mobile wallet adoption facilitating local and international transactions, do not indicate a move toward a totally cashless society. Cash still plays an important role in societies all over the world due to traditional value and trust meaning mobile wallet users themselves still demand cash-in and cash-out options. In fact, despite the success of M-Pesa’s mobile wallet, the company also maintains more than 40,000 pay-out locations in Kenya alone, making its success due as much to the physical network it maintains as to the technology it provides customers.

The future of remittances in Africa will mean mobile wallets and electronic payment platforms walking hand-in-hand with cash across Africa, with players such as Ria, M-Pesa, South Africa’s Flash, and Leaf Global Fintech demonstrating how traditional finance and fintech innovation can coexist now and collaborate in future.

Banking

How Banks Can Boost App Innovation, Speed and Compliance

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Steve Barrett, Senior Vice President of International Operations, Delphix 

As new finance and banking applications disrupt the market each day, and customer expectations around speed, privacy and quality continue to grow, financial organization CIOs and DevOps teams have to innovate quickly to bring new apps and updates to market, while remaining strictly compliant to a myriad of regulations. DevOps innovation in financial services requires fast access to accurate, compliant test data, and as anyone who touches the industry knows, data privacy is a highly complex, critical process woven into the everyday world of finance.

Banks and financial services organizations collect vast amounts of data, but using that data for innovation can be challenging due to the vast size and complexity of test data. These challenges can inhibit the adoption of new and transformative technologies and hinder innovation if they are not addressed head on. To address these challenges, many organizations are integrating the use of highly innovative test data management (TDM) tools within their DevOps ecosystems. DevOps TDM provides access and delivery of lightweight, compliant data for DevOps initiatives including digital transformation, software upgrades, cloud migration, artificial intelligence and machine learning (AI/ML), and analytics.

Data – the last automation frontier

Historically, application teams manufactured data for development and testing in a siloed, unstructured fashion. Over time, large IT organizations began consolidating TDM functions to take advantage of innovative tools to create test data. With the rise of modern development methodologies like DevOps and CI/CD that demand fast, iterative release cycles and end-to-end API-driven automation, legacy TDM approaches are often no longer sufficient.

Reliance on a traditionally manual, ticket-driven, request-fulfill model creates time drains during test cycles and slows the pace of application delivery. Consider the payments industry, in which agile technology companies using optimized DevOps processes can release new code hundreds of times per month. In contrast, traditional banks with slow IT ticketing systems may take months to release new features. These manual, legacy TDM approaches exist in contradiction with modern DevOps practices and CI/CD processes that depend on automation and fast feedback to development teams.

TDM for the DevOps Era

DevOps teams rely on TDM to evaluate the performance, functionality and security of applications. However, while processes including storage, compute, and code have all been automated, data has eluded the reach of most DevOps toolchains.

Now, DevOps TDM can help accelerate app releases and increase compliance.by automating the delivery, provisioning, and compliance of data. These practices provide both development and testing teams with data APIs, including the ability to refresh, rewind, bookmark, group, tag, branch, and share test data, to accelerate DevOps productivity and improve application quality. DevOps TDM also includes copying production data, and the masking (anonymization) and virtualization of data through the DevOps pipeline, which helps accelerate app releases and increase compliance.

And as the pace of application development quickens, so does the pace of privacy regulations and efficiently ensuring compliance in DevOps has become a significant challenge for enterprises. Non-production data used for testing software applications, reporting, and analytics can contain up to 80% of an enterprise’s sensitive data. To solve this, DevOps TDM provides integrated data masking to de-identify personally identifiable information (PII) and other sensitive data in non-production environments, eliminating the risk of sensitive data exposure.

The World Quality Report 2022-2023[1] by Capgemini stressed the importance of an enterprise wide approach to test data provisioning (a core component of TDM). The report states, “Over the years, with stringent regulatory and security requirements around data, organizations have increased their focus on provisioning test data safely and securely.”

The report shows that secure test data provisioning remains a challenge, with only 20% of respondents having a fully-implemented enterprise test data provisioning strategy in place to address security and compliance requirements.

Data is the catalyst to innovation

Automation is fueling myriad digital transformations within the financial services sector, but without the right data, these application innovations cannot succeed. DevOps TDM can help further accelerate DevOps initiatives by automatically delivering fresh, complete, and secure test data wherever and whenever it is needed, in minutes. With DevOps TDM, banks and financial institutions can innovate faster, reduce time-to-market for updating legacy applications, and accelerate development and testing of disruptive fintech.

 

[1] Source: https://www.capgemini.com/insights/research-library/world-quality-report-wqr-2022/

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Is traditional business banking the best option for SME finance squeezes?

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Airto Vienola, CEO, AREX Markets 

The pressures facing business and personal finances alike have been well documented.

Stories are now starting to emerge about how smaller enterprises around the UK – which make up well over 90% of the companies in the country – are coping with that mounting stress. The picture starting to emerge suggests, not well.

Personal borrowing is bridging gaps in business books

One survey released recently suggested that one in five of the country’s small businesses have taken out personal loans by the business owner to try to cover gaps in their incomes and profit margins. A further 43% said they were considering doing the same. This rush to secure additional funds by any means may be understandable for businesses feeling the pinch, but it’s neither sustainable nor savvy. Many of these enterprises are already burdened with additional debt from the Covid relief scheme, and given rising interest rates, soaring energy costs and rising cost of goods, taking on additional debt is not an attractive prospect. Add to that the fact that rates from traditional business banking providers are proving steep, smaller enterprises could be forgiven for looking to personal means to shore up the balance sheet. A recent study from members of the Federation of Small Businesses found that one in five small businesses are struggling to find business lending rates under 11%. To help these companies to survive, something clearly has to give.

Not all Alt-Fi options are equal

Alternative finance services have been proliferating in recent times, and yet almost half of small business operators have concerns about pursuing this option, despite actively seeking additional funding support. Clarity over terms and conditions is an often-cited reason for this reticence, which is only natural when undertaking proper due diligence on financial lending. This is a wise choice, especially as it has become so easy for business owners to quickly and simply access new services through embedded finance services, just a few clicks away on existing digital accounting and bookkeeping services. Many of these are still not clear about any detailed fine print, lengthy contract terms or potentially high fees, and yet these too can look like accessible and viable options to business owners facing mounting financial issues.So, it can be hard to pick the right provider without a lot of research. Those wary of the long tail of taking on debt should be particularly careful when it comes to business Buy Now Pay Later or BNPL offers, which are currently entering the UK market, though that isn’t to say that other alternative financing services won’t suit their specific needs whilst mitigating fears over risk.

A fresh perspective on an established technique

So, if debt should not be an option, and embedded finance can have downsides, where should SMEs turn if they don’t want to kick the can of cashflow problems just a few months down the road? One area to reevaluate, which has seen a tremendous shift given the fresh thinking from alternative finance is invoice financing or spot factoring. No longer the imbalanced option of last resort it was traditionally perceived to be, the option has become much fairer to the SME, in addition to providing a swifter and more flexible alternative. In years gone by, invoice financing was the purview of the banks, which led to low rates of return for businesses looking to unlock the value in their organisation, and often much better value flowing back instead to the lender taking on the risk. This is no longer the case. Likewise, invoice financing earned a bad reputation among some for tying businesses into lengthy contracts – another area which current services in the market have since addressed. Our service for example allows businesses the flexibility to access cash back on just a single invoice of their choosing – which could be the difference for struggling SMEs between dipping into loss or keeping the lights on.

One answer to the late payments problem?

Perhaps the most important area which services like invoice financing assist is overdue invoices – the bane of the British SME. Barclays claimed earlier this year that over a quarter of SMEs are finding late payments to be on the increase, and this was an already notorious issue for many business owners. Estimates show that SMEs on average have £6500 in unpaid invoices at any given time. Financing these invoices ensures that the cashflow of these strapped SMEs is healthier, gets the money back into the business without the concerns of lengthy payment terms or endless chasing, and certainly in our case, has no impact on the relationship with the other organisation. Our platform acts as a marketplace between SME and likely investors, with extensive insight provided to make sure that those investing in the invoice are matched to the right businesses. We take on the intermediate risk – removing any suggestion or potential concerns around unwanted debt collection, for additional business owner peace of mind.

While the pressures may be mounting on the SMEs around the country, one thing is clear. No business should rush into making long term financial decisions simply as the cashflow is drying up. Any savvy business would be well advised to make sure they understand the implications, short and long term, of any lending solution they look to employ. However, knowing that there are options and the business’ bottom line does not simply have to rely on traditional banking services, should provide business owners with a lot more options at their disposal to help them to face the coming months with greater cash liquidity confidence.

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