Digital financial services could fast-track UN SDGs

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The world is going through unprecedented challenges caused by a novel, rapidly transmitted coronavirus. Experts predict difficult times ahead with shrinking economies, loss of life and livelihoods and some structural changes — a new normal. 

Change is afoot in Africa as governments work tirelessly to identify their most vulnerable citizens for emergency disbursements. Banks, mobile money operators and Fintech firms are providing innovative solutions to meet their client needs and this may be a significant opportunity for lasting positive change. 

The increased adoption of digital financial services being observed could lead to the accelerated achievement of several United Nations Sustainable Development Goals (SDGs).

Access to financial services creates new possibilities. The efficiency gain improves business opportunities and alleviates poverty. The coronavirus outbreak is encouraging adoption of digital financial services and mobile money operators have made it easier for individuals to register. The pandemic, according to GSMA, may be a catalyst for high adoption of mobile money

Those individuals who previously did not have access to financial services are also getting included in the financial system and some African regulators are aiding the process. For example, Bank of Ghana recently relaxed mobile money KYC requirements by allowing all registered SIM holders to use existing mobile phone registration details to onboard digital financial services. 

It is feasible to conclude that financial inclusion rates may improve in a post-pandemic world. To be sure, there are other structural barriers such as access to data service, electricity and smartphones which limit adoption of digital financial services.

The crisis has spurred an increase in the use of digital payments. For example, in Nigeria there was a 34% increase in digital payments in March 2020 compared with the same period last year. The use of contactless payments have been recommended by the World Health Organisation warning that cash as banknotes may be spreading the coronavirus. Seeking to avoid the exchange of cash and close personal contact, more SMEs have adopted digital payments. 

In a post Covid-19 world, it is expected that the use of contactless payments will remain as entrepreneurs become accustomed to a new normal. The increased use of digital collection solutions creates a treasure trove of transaction data which may be analysed for lending decisions, giving small-scale enterprises access to affordable credit. 

According to Global Entrepreneurship Monitor, the highest rate for entrepreneurship for women is found in sub-Saharan Africa with 22% of females running businesses. Access to financing has long been a challenge faced by women entrepreneurs, however with the rapid adoption of mobile money and other digital financial services, alternative data such as airtime purchase patterns, social media posts and geospatial data are being used to assess eligibility for loans. Studies have found that more women get access to credit when alternative scoring models are used. 

Governments are also going digital, for example Togolese authorities are making monthly electronic payments to the country’s most vulnerable citizens affected by measures implemented to fight the virus outbreak. Named “Novissi” which means solidarity in the local dialect, Ewe, the initiative is a money transfer program in which eligible citizens receive funds from the government into digital wallets. This cash transfer helps the poor with their immediate needs but also may become the basis of programs to identify the most vulnerable. 

Cash-to-cash international remittances are expensive, a big contributor to the costs being the costs of moving and handling cash and maintaining an agent network. With advances in technology and the ubiquity of mobile devices, an end-to-end digital international funds transfer is now possible. 

According to a recent report from the World Bank, the cost of remittances to Africa remains the highest in the world at 8.9% and some of the most expensive remittances corridors are in Southern Africa with fees as high as 20%. Today there are several remittance apps serving African corridors including Mukuru, Rapidtransfer and WorldRemit with fees for transfers into bank accounts as low as 3%.

The lockdown of commercial hubs forced businesses to become innovative about how to serve customers through alternative channels. E-commerce companies delivering essential goods are experiencing a surge in demand and these shopping habits are likely to stay with consumers into the future. In South Africa, a recent Nielsen study on the impact of the lockdown on consumer behaviour found a sharp increase in South Africans shopping online with 37% of respondents stating that they were shopping more online. 

In Nigeria, restaurants accustomed to hosting corporate events and serving the well-heeled elite on their premises have quickly adopted delivery services to stay afloat. 

Daniel Maison, CEO of Kenyan e-commerce platform Sky.Garden, in an interview said that “basket sizes have increased as customers directing more of their spending power towards online shopping”.

The year 2030, the target year for achievement of UN SDGs, is just around the corner. In Africa, we have an opportunity to accelerate the attainment of some targets by rapid adoption of digital financial services leveraging technology for payments and collections. 

These will not necessarily outweigh the impact on health and education, for example, but progress in times of uncertainty is critical. The pandemic has caused many challenges but may also have presented some opportunities.

Osahon Akpata is the chief operating officer of Group Consumer Bank, Ecobank Transnational Incorporated

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Osahon Akpata
Osahon Akpata is head of consumer payments at the Ecobank Group. He writes in his personal capacity.

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