My son’s nanny has just opened her very first bank account. She’s 34. Helping her through the process and chatting to her about what she plans to do with this new financial resource, she explained that just having a secure place to store her money was a big win. When I offered to show her how to use the account to send money to her family living in Malawi, she told me that they don’t have bank accounts either. There are no banks or ATMs in their community and the cost of travelling to the nearest bank is uneconomical for them because it’s too far away. Her reality is the reality of so many people living throughout Africa. Data from the World Bank shows that around 45% of people living in Sub-Saharan don’t have access to a bank account, which means that almost half a billion people lack access to the financial services most Brainstorm readers use every day.
According to Sergio Barbosa, CEO of FutureBank, not only does this mean that millions of people can’t transact conveniently, it also means that they can’t access the capital they need to start a business, study further or buy their first home. “Financial inclusion really comes down to being able to secure credit from a regulated financial institution. When people can’t do this, economic growth and economic opportunities suffer,” he says.
While there are several reasons so many people are unbanked across Africa, one of the major hurdles preventing people on the continent from opening accounts is an inability to verify that they are who they say they are. KYC (Know Your Customer) protocols are tough to follow on the continent because so many people don’t have any official form of identification. The problem with traditional KYC verification processes is that they aren't designed to accommodate informal social structures, which are commonplace across Africa. In fact, they're very much designed with the First World in mind, where most people have the documentation needed to prove different particulars about themselves, he continues. “This is not the case in large parts of Africa and so a lot of people are prevented from accessing these basic financial services.”
But strides are being made to challenge outdated KYC verification standards. For example, several savvy fintechs across the continent are enabling financial institutions to do due diligence on their customers using biometrics and facial recognition. These brands pull data from national identity card, voter registration and driving licence databases and from telecommunication companies and government institutions to verify the identity of customers and validate theses identities so that banks know with whom they’re interacting.
Know your community
One of the big knock-on effects of half the population being unable to access traditional financial services is that there is a lot we don’t know about these people, notes Barbosa. This means that businesses are unable to provide them with the products and services they really want and need. But there are creative ways to deduce things about customers and to ‘know your customer’ in new ways, he adds. If, for example, you leverage data from the merchants and services that these people are using, you may be able to ‘know’ enough about them. “People often say that Facebook or Google know everything about everybody, but I believe that when you know what someone spends their money on, as opposed to what they're clicking on the internet, you know a lot about what they like, what is important to them and what they value.”
When you consider that there are more people in Africa with a mobile phone than a bank account, we can assume that telcos know a fair amount about Africa’s unbanked population. “Mobile operators in Africa have a wealth of insights around customers because they know how people use their phones – a device that we rarely do without – so they can make certain assumptions or deductions about them,” he says.
People often say that Facebook knows everything about everybody or that Google knows everything about everybody, but I believe that when you know what someone spends their money on, as opposed to what they're clicking on the internet, you know a lot about what they like, what is important to them and what they value.
In essence, this behavioural information could be used to help banks assess an individual’s financial risk profile, confirm that a person or business is low risk and assess if a person is bringing ‘good money’ into the financial system. Here, there are opportunities for entrepreneurs and fintechs started by people living in these communities to work with banks. “Traditionally, banks – and I mean no offence to banks – aren’t great at innovating outside the bank, but they are great at innovating inside the bank. Perhaps they should leave the former to entrepreneurs who can work alongside them to come up with the technology interfaces needed to open new ways for people to bank.”
This idea of different people coming together to boost financial inclusion ties into Barbosa’s beliefs about the value of what he dubs ‘community banking’. In the same way that a stokvel sees members regularly contributing to a group savings pot, community banking will see a community of people vouching for, or standing surety for, an individual so that a bank or financial institution has some kind of guarantee regarding who they’re doing business with. “Who knows, maybe this kind of thing could even bring about a new approach to customer verification – from ‘know your customer’ to ‘know your community’,” he says, highlighting how we’ve seen the significance of community with digital currencies and central authorities like cryptocurrencies and blockchain.
Who knows, maybe this kind of thing could even bring about a new approach to customer verification – from ‘know your customer’ to ‘know your community’.
Once people are ‘banked’, Barbosa explains that open banking holds incredible potential for Africa because it creates a standard that will allow third-party developers to access customer information (with their permission, of course). These third parties can then use the data to build applications and services that meet customer needs and provide greater financial transparency for account holders. “Open banking is a first step in creating easy ways for technology providers and entrepreneurs to embed financial services into whatever it is that they're doing to the benefit of the customer, which will ultimately drive the economy forward.”
When it comes to banking and financial services, you need to remember that every region is different. Each region has a whole different set of problems. “There’s no cookie cutter answer to any of this,” he says. “This makes the problem an intimidating one, but also an exciting one.”
* This feature was first published in the October edition of ITWeb's Brainstorm magazine.
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* Article first published on brainstorm.itweb.co.za