The annual Sibos Conference and Combined Exhibition is regarded as the world's premier annual conference specifically catering to the needs and concerns of the world's financial community.
It is organised each year by SWIFT, to facilitate debate, networking and collaboration for business in the payments, securities, cash management, and trade finance markets as well as in financial crime and regulatory compliance. The 2018 conference attracted over 8,000 delegates, more than 180 exhibitors from major financial institutions and solution providers from 150 countries.
The theme for the 2019 edition is “Thriving in a hyper-connected world” and our subject matter experts have profiled key topical trends around the CFTA’s Trade Agreement, Payments across Africa as well as innovation in the FinTech space. As a transactional bank of choice, this is just one of the ways we are giving the world access to a corridor of possibilities
Making payment easy across Africa (and beyond)
By:Thabo Makoko - Head: Transactional Services Africa.
Lack of sophisticated payment systems when it comes to the financial services industry – and the patchy, often inefficient nature of those systems that do exist – has for too long acted as a major drag on African development, not just in an economic sense, but also a social one.
In a vast and diverse continent characterised by large geographical distances along with piecemeal and unreliable physical infrastructure, traditional banking services have struggled to take root, and cash is often king. Payments across large distances – and cross-border payments in particular – usually present a headache in terms of complexity, inflexibility and cost. These factors often make transactions prohibitive for the average individual – and that’s in cases where any solution exists at all. In many places and situations across the continent there is simply no, efficient, mechanism for moving money around in a way that is often taken for granted in some developed economies.
Depending on where you are solutions do, of course, exist. Organisations like Western Union and its brethren have been active in various geographies for some time. More recently, the advent of modern digital telecommunications technology has created a wave of enthusiasm for a new generation of solutions, predicated on widespread adoption and usage of mobile devices. An array of firms from inside and outside Africa, from large international banks through to small fintech disruptors, are racing to deploy a variety of digital, mobile-based solutions with a view to transform the continent’s payments landscape.
This enthusiasm is well-placed. But there is still some way to go, and it’s worth reflecting on what exactly is needed in the years to come, what the ideal solution needs to incorporate, and where the focus needs to be to get there.
One major drawback of both current and incoming solutions is that they are invariably built for larger transactions, with a focus on commerce, and are ill-equipped to deal with microtransactions, if they can support them at all. Yet microtransactions – the stuff of everyday life – are a key part of the puzzle and will need to be a central focus of any future infrastructure. Trade is important but this is about far more than just trade. More Africans are travelling and working across borders and regions than ever before, and people increasingly need a convenient and easy way of making payments for personal reasons as much as business-related ones. Medical bills, school fees, sending salaries back to families – these important social needs are not being met by the current menu of options.
As well as allowing for these sorts of payments, the solutions that win out will need to be squarely focused on one overarching principle: removing friction from the process. From the point of view of the sender and beneficiary, the process needs to be as simple and user-friendly as possible, and involve the fewest possible steps, with all complications and technical elements ‘hidden under the surface’ as it were.
This principle of removing barriers and friction can be broken down into three broad areas: transparency, cost, and ease of use. The more traditional existing services, however useful they may have been historically, fall well short of what is needed on each point. Transactions are complicated and involve multiple intermediaries – often requiring finding a local agent to physically move cash between locations, which in turn involves other nebulous third-parties along the way. Even for those with the means to use such services, the process can be daunting and off-putting – on the transparency front, it involves extended ‘black box’ time periods where neither the sender nor beneficiary is aware of where their money is, or who has it. The gap between the sender pressing send and the beneficiary being able to access the funds should be as narrow as possible, and the period of time in between that the funds are held by third-parties needs to be minimal or, ideally, removed entirely. At present some of the more traditional solutions have an absurdity to them – moving funds between geographically adjacent nations can involve sending the money on a holiday around the world leveraging existing networks , owing to a lack of technical connectivity between neighbouring nations.
The wave of newer technologically-enabled solutions are of course much further advanced in terms of ease of use, convenience and efficiency when compared to these more traditional systems. However challenges remain. In terms of cost, for instance, it isn’t just a matter of ensuring cost-effectiveness for microtransactions and affordability, but also allowing for flexibility. Many current solutions, for example, require the beneficiary to burden some of the cost in terms of collecting the funds at the end of the transaction – this is less than ideal for, e.g. a worker trying to send earnings back to their family, who may lack the means to pay on their end. Cheapness isn’t everything either – a slightly more expensive but more transparent process will drive adoption quicker than a bargain system that nonetheless involves the user handing their hard earned money over to a byzantine and opaque process, or one that incurs significant delay. Balancing these factors is crucial.
Ease of use and convenience relates to the user interface issue as previously mentioned – ideally the process should be as simple as pressing a couple of buttons on a mobile device and seeing the funds drop into the beneficiary account almost instantly. The more complicated and convoluted the interface and process, the less widespread adoption will be. This is as much, if not more, a question of design and user-focus as it is a technical one.
But UI aside, ease of use also pertains to the scope and size of the network that the solution is plugged into. There’s not much point in having the simplest and smoothest UI and process if it can only be used by a few individuals in a few places and locations, or if the beneficiary can’t access the funds.
Zimbabwe presents a neat use case that highlights the potential complexities of the challenge here, as well as the importance of the network element. Around 3 million Zimbabweans currently work abroad in South Africa. However due to domestic issues cash is very difficult to access in Zimbabwe. On the plus side, this has forced the country to speedily adopt mobile and digital payment infrastructure. But for a worker in South Africa trying to send money back to their family, this presents a problem. A lot of the current options are off the table, because they rely on the beneficiary accessing cash in their location to receive the payment. What’s needed here, by contrast, is the ability to digitally transfer funds that can then also be spent digitally across Zimbabwe’s ecosystem, in shops and other outlets.
All of this underlines the extent to which the main challenges going forward are not, in fact, technological per se. The technical element has come a long way, and give or take a few niggles that will be ironed out, the technology required to underpin fast, transparent and cost-effective mobile payments infrastructure is already in existence. The real challenge is instead one of design and effective network-building. The solution will not come about thanks to this or that revolutionary platform alone. Building a convenient payments structure that can be used by millions for everyday transactions across 54 countries is necessarily a matter of collaboration and partnership.
Those firms that end up dominating the space will be those that are currently working hard to form these alliances and connections – between financial institutions, governments, outlets, telecoms companies and so forth. Banks will also have to form a kernel of the network – while there is a lot of excitement about the potential for fintech disruptors to sidestep traditional banking infrastructure, pre-funded accounts will have to be part of the answer for driving initial adoption, and large banks are best placed to provide this essential element.
While there is still some way to go, progress has been rapid, and it seems likely that a new age of payments infrastructure is about to dawn across the continent. The eventual winners will be those that focus on these principles of user-friendliness and network-building. And for those that can get ahead in Africa, the opportunities don’t stop there. Africa is far from the only place in the world that suffers from patchwork, archaic and inefficient cross- and intra- border payments infrastructure. Thanks to the continent’s advanced telecoms infrastructure and lack of traditional banking services, it is in many ways the ideal proving ground for systems that could end up transforming the entire globe. Those that can get their strategy and approach right now will gain a critical advantage in the emergent landscape.
CFTA trade agreement has potential benefits for South Africa and rest of Africa
By: Bohani Hlungwane - Regional Head of Trade & Working Capital (ex-South Africa),Transactional Services.
The new African Continental Free Trade Area agreement (AfCFTA) presents a unique opportunity to grow intra-Africa trade as a proportion of total African trade, and diversify the continent’s exports to the rest of the world. At a point in time when Africa is poised to become a hotspot for global growth (currently boasting six of the fastest growing economies in the world) – AfCFTA will ensure that African countries are able to maximise the benefit of this growth by becoming suppliers of various good and services across the continent.
The trade agreement is the biggest of its kind since the World Trade Organisation was established in 1994, and represents Africa’s most significant step towards the regional economic integration already achieved elsewhere
As communicated at the launch, the agreement will be fully supported with well-defined rules of origin; schedules of tariff concessions in trade in goods; an online continental non-tariff barrier monitoring and elimination mechanism; and a Pan-African digital payments and settlement platform as well as an African Trade Observatory portal.
The AfCFTA has the potential to boost intra-Africa trade to much higher levels, to the benefit of the continent’s economic ecosystem. Intra-Africa trade currently remains low compared to other global regions, amounting to an average of 15% of global trade across both imports and exports as of 2017. With customs procedures eased under the CFTA, intra-Africa trade is expected to grow to 21.9% by 2022 and at least 53% by 2040, thus effectively contributing in the region of $70.0 billion to the continent’s GDP. This growth will ensure that an increasing proportion of Africa’s more than US$2 trillion economy is traded internally.
To support the expected increase in intra-Africa trade of $119.6bn by 2022 will require nearly $40 billion in trade financing alone. This is a big challenge for African banks in particular. The African Development Bank already estimates that there is a trade-financing deficit of at least $90 billion in Africa as of 2018. African banks, especially regional banks like Absa Group, Standard Bank and Ecobank, will need to adopt new ways of assessing risk in trade in order to support corporates as they look to capitalise on the new era of growth and trade opportunity. Experience warns this to be crucial: strong regional banks have proven a vital ingredient of progress on the matter of intra-regional trade in other areas of the world A country like
Given South Africa’s anaemic economic growth over the past few years, as well as its persistently high unemployment rate, the timing couldn’t be better - in addition to hopes of broader and deeper regional economic integration, AfCFTA will specifically opens up new markets for South African exporters. Because of its sophisticated economy and relatively more established industrial base, South Africa will be in a unique and advantageous position to grow and diversify its exports to the rest of Africa, as trade and tariff and non-tariff barriers are eventually relaxed or removed entirely. AfCFTA is expected to increase regional value chains, enhancing opportunities for goods and services consumed in Africa to be produced and manufactured there too.
The rest of the continent is already the second largest and fastest growing destination for South African exports after Asia (26.2% in 2017). This is a much larger share of the whole than for imports (just 9.9%). The pattern follows from South Africa’s distinct position as Africa’s most industrialised economy – its exports to the rest of the continent comprise mainly of manufactured goods (84% in 2017), in contrast to its Asian exports much of which are minerals (59%).
When it comes to imports however the pattern is largely reversed, with most of South Africa’s imports from the rest of Africa (51%) being minerals, mainly crude oil from Nigeria and Angola. The removal of tariffs and other constraints will benefit South Africa on this side of the ledger too. By enabling other African countries to develop their manufacturing capacity in line with their inherent competitive advantage, the agreement will also help South Africa reduce its dependency on expensive manufactured imports from regions further afield such as Europe and Asia.
Growth aside it is also expected that the AfCFTA will help diversify South Africa’s export destinations within the continent, given that more than 85% of South Africa’s exports to Africa are destined for the Southern Africa Development Community (SADC) and thus concentrated in just a handful of countries. Exports to the other two largest economies in sub-Saharan Africa (Angola and Nigeria) together accounted for just 4.3% of South Africa’s total exports to the rest of Africa in 2017. Additionally, and partly in response to the growing risk of global trade protectionism, South Africa will increasingly prioritise the development of its trade with the rest of Africa, a goal laid out in the 2018/19 Industrial Policy Action Plan and the National Development Plan (NDP).
As it is with any agreement involving many different countries, the key will be in implementation and the speed of execution. There is no doubt that some elements of the AfCFTA will erode member governments’ powers to design and implement national policies, in the process reducing the politicians’ powers to influence electoral results in their own countries. There will have to be a willingness to lose in the short term in order for the continent to benefit through increased intra-Africa trade and bigger markets in the medium and long term. The continent will also have to make sure that the benefits do not only accrue to bigger economies such as South Africa, Nigeria, Egypt, Angola and Kenya if it wants to avoid its own “Brexit” from some of the countries as the agreement matures. This will require a careful balancing between opening markets up and protecting smaller players. At the end of the day, the AfCFTA’s success will boil down to political will, discipline in execution, and the active management of conflicts that arise as implementation continues.