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What emerging markets can teach about banking

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Technology assists innovation leaders in developing nations to create their own solutions on demand, instead of waiting for a solution from the developed world and then adapting it to their own situation. In the banking industry, the developing world is now creating solutions that the developed world is making use of.
A report on retail banking in emerging markets, compiled by Orange Business Services and the European Financial Management Association (EMFA), looks at the reasons for the strong innovative drive in the developing banking world.
“It is a focus for many countries to increase the number of people becoming banked and entering the formal economy, and we have seen that the limitations imposed by a country’s infrastructure can be a massive driver of innovation in this regard,” says Mark McCallum, director and head of global services Africa at Orange Business Services. “However, many banking systems in the developing world are every bit as sophisticated as those in developed markets, with South Africa and India being two cases in point.
“However, even in these markets, there has to be a dual innovation approach to add more sophisticated services to the product offering on the one hand, and include more unbanked customers on the other. The approaches to achieve both of these objectives are vastly different and require intensive planning to ensure that focus on the one does not come at the cost of a loss of focus on the other.
“These approaches are vastly different from developed countries, where new customers are hard to come by and tend to be more conservative. The focus is less on gaining new ground and more on attrition with the competition.”
South Africa is a proven hotbed of innovation, with banks starting out as micro-financiers and slowly expanding their service offerings to become fully-fledged financial institutions. In another development, payments made possible over handsets have brought a large number of previously unbanked individuals into the formal market sector.
Banks in developing markets have jumped at the opportunity to position themselves not only as service providers, but also emphasised the human element, which resonates with first-time bankers. Depending on the unique circumstances associated with the maturity of different banking systems in different countries, different levels of adoption prevail. Banks in developing nations are therefore obliged to take a lead in the training and education of potential and existing clients to increase their business.
To achieve this, banks in developing nations have had to enter into partnerships with telecommunications companies, which required a paradigm shift.
“Telcos can often be viewed as a threat to the banking ecosystem, and competition from non-industry players can make it difficult for the banks to maintain the esteemed position they traditionally held in the industry,” says McCallum. “This makes it vital for telcos and banks working together to align their objectives, operate transparently and share a win-win attitude. This also raises the importance of security integration and the overall integration of the service offering of both parties, to engage in a successful partnership.
“Because of the obvious benefits for both parties, banks and telcos should move towards becoming true business partners through aligned business objectives and goals, that work together to generate innovative business ideas and plans to benefit both parties, not to mention the consumer. Although banks and telcos are dependent on governments in terms of the extent and speed of bandwidth, it is improving daily.”
As competition in this sector increases in Africa, consumers will benefit more. Banking costs on the continent have been cited as prohibitively high, but telcos’ infrastructure can increases the ease and lower the cost of banking. This in turn incentivises banks to reduce their fees to get ahead of the competition. In addition, as connectivity increases, the amount of capabilities that can be added to an account increase.
Banks that do not adopt the latest technology risk losing customers to the competition. As handset proliferation increases the technical and technological knowledge of more consumers, they are going to ask more questions of their banks. Banks need to have the answers ready, or lose customers.