The Impact of New Technology and Mobile Banking in Africa. A Case Study of the Standard Bank South Africa


Term Paper, 2019

9 Pages, Grade: A


Excerpt

Table of Contents

Table of Contents

Introduction

Analysis and Discussion

How Standard Bank can move forward after the 2008/9 financial crisis

Domestic opportunities for Standard Bank South Africa

Targeting low income domestic market segments

Response to HSBC’s offer of 25 percent in Standard Bank

Diversification

Conclusion

References

Introduction

Technology has immensely transformed business-to-business and within business transactions and interactions. Technological applications are enabling reconfiguration of design, production, marketing, and service delivery in most businesses. For instance, the design reconfigurations have allowed for the implementation of online marketplaces, mobile business activities, such as mobile banking, and better risk assessment. In the emerging financial markets of Africa, disruptive market innovations and reconstituted value chains have become key drivers of the growingfinancial services industry (EY, 2018). Despite the huge benefits of financial innovations, conventional financial services providers, such as banks, finance companies, microfinance institutions, and insurance must be wary of the new risks and challenges posed by these financial technologies. For a major bank like the Standard Bank, financial innovations, such as e-banking and mobile banking present both new opportunities and threats to its core businesses (Mugano & Le Roux, 2016). In this regard, the researcher explores the impact of new technology and mobile banking in the entire financial sector in Africa. The paper focuses on the case of Standard Bank South Africa to assist in understanding the challenges faced by the major commercial banks in adopting new banking technologies in less developed worlds, such as Africa.

To realize the primary goal of this paper, the researcher discusses how technology can help Standard Bank to move forward in the aftermath of the 2008/9 financial crisis and the new opportunities for the bank to grow its financial service businesses. Furthermore, the research suggests how new technological applications in the financial services sector can help Africans to escape poverty and if diversification is appropriate for a diverse bank, such as Standard Bank.

Analysis and Discussion

Standard Bank is the largest financial services group and Africa’s biggest lender by assets. The bank is headquartered in Simmonds Street, Johannesburg and has operations in more than a dozen other African countries as well as in India, China, Russia, and the United Kingdom. In October 2007, the Industrial and Commercial Bank of China acquired a 20 percent stake at Standard Bank worth $5.5 billion. Half of the stake was acquired by purchasing existing shares while the other half was purchased through new shares. This allowed ICBC to get two seats on the board of directors. Just like any other major bank around the world, the operations, profitability and competitiveness of Standard Bank South Africa were negatively affected by the 2008/9 financial crisis.

How Standard Bank can move forward after the 2008/9 financial crisis

The 2008 financial crisis negatively affected the expansion plans of Standard Bank and its business strategies. Though the 2008 financial crisis led to reduced trust in financial institutions and also led to strict regulations that hampered the ability of banks to innovate, it created new opportunities for less regulated non-bank institutions in emerging markets to thrive. These institutions could now offer credits more cheaply and efficiently than conventional banks who were burdened with legacy infrastructure and new regulations (EY, 2018). This digital transformation in the financial services sector created a new competitor to traditional banks as consumers became more comfortable with tech-based solutions. Consumers are also increasingly demanding for immediacy and customized financial products and services.

Despite the challenges and new competition as a result of the digital transformation in the financial services sector in the emerging world, these technological applications also present unique opportunities for banks in the domestic market. For instance, the digital transformation of banking services allows for an expansion of access by leveraging on digital channels and customer information as well as reconfiguration of product and process value chains so as to create new products and offer services to the customers more efficiently (Oluwafemi & Anthony, 2014).

Domestic opportunities for Standard Bank South Africa

Before considering international or regional opportunities, Standard Bank South Africa should first be able to address the four main challenges facing financial services industry in South Africa. These challenges include low levels of formal financial services, low-income levels, underdeveloped technology and value chain ecosystems, and weak infrastructure. To address these challenges, banks can take advantage of innovations, such as mobile money to ensure that sustainable financial services can be dispatched to low-income populations. For instance, the bank is already implementing the Standard Bank Mobile initiative. Standard Bank Mobile is a new virtual mobile network operator (MVNO) which will piggyback off the Cell C network. The MVNO is only available to Standard Bank clients. The service currently rewards customers with subscriptions for free airtime and data for doing their banking. Customers also earn free data every time they use credit, cheque or debit cards (McLeod, 2018). However, using technology this way only strengthens the loyalty of the existing customers and does not lead to penetration into new low-income market segments.

Targeting low income domestic market segments

The low income market segments wants financial products which are convenience and they can use during their day to day activities. Among the low-income communities, the bank must develop features that enable easy access to financial services. For instance, banks can take advantage of the rapidly increasing mobile network penetration in Africa to introduce unique local value propositions, such as what CBA did with the M-Shwari in Kenya (EY, 2018). In Africa, mobile money has become a vital component of the financial services landscape. Mobile network operators (MNOs) dominate mobile money services in most African countries. Most recently, banks established a solid footing in this market and are now competing aggressively for the mobile banking customer (Yosifov & Dimitrova, 2015). Some have chosen to ‘got it alone’ by creating their own mobile money services platforms while others have decided to form partnerships with MNOs to gain the market faster. In doing so, there are at least five approaches that the banks can adopt to take advantage of mobile technologies. First, the bank can adopt the MNO-dominant approach. In this approach, the MNO is responsible for most of the stages in the value chain while the bank only acts as the deposit holder. Some of the already successful MNO-dominant platforms in Africa include M-Pesa in Kenya, MTN Mobile Money across 15 countries, Orange Money in 14 countries, and Tigo Money in five African countries (Ekekwe, 2016).

Second, the bank can enter MNO-led partnerships. In this model, the bank supports the MNO to provide services beyond payments, such as small consumer loans and savings. The leading example of this approach in Africa is the M-Shwari in Kenya, which is a partnership between Safaricom (Kenya’s leading telco) and CBA (a mid-sized bank). Third, the bank can enter bank-led partnerships with MNOs (Oluwafemi & Anthony, 2014). The best example of this model is Equitel, which is a partnership between Equity Bank and Airtel in Kenya. This service allows customers to transfer money from their bank accounts to any bank account in Kenya, take loans, and maintain deposits using their mobile phones. Equitel also helps customers to buy airline ticket prices and information on consumer-interest topics (Ekekwe, 2016). Fourth, there are bank models, such as banking apps for smartphones and text-based money transfer services using basic handsets. In this model, the sender must be a customer of the bank while the recipient does not necessarily have to be a customer of that particular bank. One of the best examples of this model is the FNB’s banking app with an approximate of two million customers in South Africa (Mugano & Le Roux, 2016).

To effectively serve the low-income populations in Sub-Saharan Africa, who are the majority, banks must also invest in low-cost retail banking products. Low-cost retail banking products are vital for banks to lend into lower income segments. Conventionally, most commercial banks are reluctant to serve this customer segment as it is costly to manage a high volume of low-value transactions (Mugano & Le Roux, 2016). However, with limited growth in mature high-income market segments, banks now see the unbanked poor populations as a real growth opportunity. Banks have also recognized that many traditional products are inappropriate in addressing the needs of these low-income populations thus they must develop innovative products that can match customer needs at a lower cost to both the customers and bank.

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Excerpt out of 9 pages

Details

Title
The Impact of New Technology and Mobile Banking in Africa. A Case Study of the Standard Bank South Africa
College
Kenyatta University
Grade
A
Author
Year
2019
Pages
9
Catalog Number
V508256
ISBN (eBook)
9783346073075
Language
English
Tags
impact, bank, standard, study, case, africa, banking, mobile, technology, south
Quote paper
Difrine Madara (Author), 2019, The Impact of New Technology and Mobile Banking in Africa. A Case Study of the Standard Bank South Africa, Munich, GRIN Verlag, https://www.grin.com/document/508256

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