[BLOG] Barry Coetzee Column: Banking in the Dark
In preparing a paper for a conference this week I finally captured the data required to prove a statement I have been making instinctively for years. “In Sub-Saharan Africa the percentage of formally banked population of a country will closely correlate with the Urban Population percentage of that country.”
I had arrived at this conclusion while trying to solve the question of why the banked populations of Sub-Saharan Africa (SSA) are so out of kilter with everywhere else on the planet. Even other Developing/Emerging economies. From a technological point of view we (SSA) have the same access to technology that everyone else on the planet has, but not the same outcome.
The first clue I got was when I looked at World Bank urbanisation numbers and predictions. SSA is an exception to the rule on the planet as far as rural/urban population percentages are concerned. The majority of our populations live in rural areas. Then I looked at the demographics of the countries that were supplying SSA banks with technology. Without an exception their populations were mostly urban. Also their major customers were over 90% urban. It then struck me. This technology is designed to be efficient in countries that have very high percentages of urban populations. In SSA banks were investing in technology that was proven in countries that were fundamentally different to those at home. I then looked at whether these technologies were efficient in urban areas within SSA. The answer is yes. The technologies performed just as well in SSA urban areas as they did anywhere else on the planet.
This then highlighted a couple of issues.
The first was that the Return on Investment (ROI) for this technology in Africa would be less than everywhere else as the ROI was designed for a 90% urban population. To try and achieve an ROI on a 30% urban population, regardless of the actual numbers, was going to be very, very difficult, remembering that the cost of the technology is pretty much the same, whether you are in Europe or SSA.
The second issue is that all the banks were restricted to the urban areas with their imported technology. This is obvious as the technology was only really efficient in the urban areas. So competition in the urban areas was fierce, and almost non-existent in rural areas. Once again, having an impact on ROI.
The obvious question is, why would the technology only be efficient in urban areas. The answer is simple; the technology requires a lot of infrastructure, - power, networks, easy physical access, etc. This is really only found in urban areas. The majority of SSA is underserved as far as infrastructure is concerned. This is beautifully and graphically shown in the famous NASA “Earth’s City Lights” photograph (http://eoimages.gsfc.nasa.gov/images/imagerecords/55000/55167/earth_lights.jpg). This picture is actually a graph of infrastructure, and SSA is dark.
The mobile network operators were the first to overcome this Urban/Rural inefficiency. They used cellular and battery technology to very efficiently put their networks and handsets across entire countries. This is one of the reasons why they have been so successful. The obvious question now is, can banks do the same, or are they going to continue being prisoners of their urban technology?
A lot of banks are moving into Mobile Banking and harnessing the infrastructure of the mobile network operators in this way. This is good and will increase the market that is available to them. However, speak to any banker and they will admit that Mobile Banking is being used almost exclusively by people who are already banked as an additional channel.
To fundamentally grow businesses they have to get branches into the rural areas. A branch is where you assist customers; where you explain your products; where you sell additional products; where you look after your customers. The problem is that branches are expensive and need a lot of visits in order to generate a ROI. Never mind a lot of infrastructure. Mobile phones will never be a substitute for branch banking as they fundamentally lack security with which to protect the data of both the bank and the customer.
I now know the answer. We need secure devices (like ATM’s) that can sun on batteries and connect to networks (like mobile phones) and that can be moved into rural areas. As a matter of fact, I predict that the new MPOS technology that is making such a stir in merchant acceptance is slowly going to be adopted by banks as the new mobile branches of the future. The difference is that the technologists that make this new paradigm available are going most probably to come from SSA. The reason? The problem does not exist anywhere else. I am convinced this technology is going to enable banks to start banking in the dark.
Author: Barry Coetzee,
South Africa
Barry Coetzee is a regular columnist on Africa Business Communities
