Technology Drives Growth in Greenfield Banking
22 January 2013
According to a recent PWC report , most countries in Sub-Saharan Africa today have barely one bank branch per 50,000 people-leaving many "unbanked" populations at large. However, financial institutions in the region are poised for growth with an Economist Intelligence Unit (EIU) report estimating that the region's banking assets will more than double by the end of this decade to US $1.37 trillion by 2020. We talk to Niamh Albertyn, Manager of Misys Business Solutions Group for Banking - Middle East & Africa, to understand how "Greenfield" banking will help drive this development, and why new technology innovations are helping these institutions to address customers' ever-changing needs.
With "unbanked" populations estimated to be at least 80 percent of Sub-Saharan Africa's adult population, today's financial institutions are being challenged to look beyond their traditional markets and to new products & delivery channels that can serve these groups. This is perhaps most visible in the recent surge in "Greenfield" banks. Established in areas where no previous facilities existed, these banks now have a unique opportunity to capitalize on previously untapped market potential.
Those opportunities are further amplified as many in Sub-Saharan Africa are dissatisfied with their current banking services. Greenfield institutions can take advantage of the fact that many larger banks are not reacting quickly enough to changing customer demands, damaging their reputation and loyalty. Unlike their older, established competitors, Greenfield banks are not constrained by inflexible legacy systems and aging technology platforms. This allows them to overhaul the traditional retail-banking model by creating tailored products to meet customer demands that are price sensitive with convenient service points.
This is particularly true when it comes to mobile banking; a much desired service in rural Sub-Saharan Africa. The reality is that while few of these individuals have bank accounts, many have mobile phones. In fact, over the past 10 years mobile penetration in Africa has grown an average of 30 percent per year, forecasted to reach 72 percent by the end of 2012 and nearly 85 percent by 2015, according to the GSMA Africa Mobile Observatory report .
Greater alignment with social media channels will also be an increasingly important niche for these banks to attract the region's dissatisfied "Generation Y" population. In fact, global consultancy group Accenture estimates that approximately 90 percent of financial services firms will have been dedicating funds for social media initiatives at the closure of 2012. Sub-Saharan Africa also boasts the world's fastest growing Internet population with 58 percent of Internet users believing that social networking is the most important online activity .
For all these reasons, Greenfield banks are looking to invest heavily in new technologies so as to pioneer more agile service infrastructure and accelerate the reach of their offerings; overtaking their aging competition. In particular, we have found that there are four key areas where new IT technologies can give Greenfield banks an edge in the current market.
1. Innovative Products & Service Channels
Africa's unbanked masses represent a vast reserve of untapped capital waiting to be channelled into consumer and small-business loans. The aforementioned EIU report estimates that 95 percent of the nearly 500 million adults in sub-Saharan Africa that earn less than US$ 10 a day have no access to bank accounts. If they did, Greenfield banks could tap into as much as US$ 59 billion in new deposits. Delivering new, more niche banking products will be necessary in opening the doors for these low-income individuals to access financial services in a way that is easiest for them and can be delivered at a low cost of service to the bank.
2. Regulatory Compliance
Complying with global as well as local regulatory requirements, such as the Basel II and III Accords, can be quite complex for banks as the requirements for new products and services are often multifaceted. Banks are thus confronted with the challenge of not being able to work quickly enough in implementing changes to meet these regulatory requirements as well as meet their customers' demands.
Some banks confront this challenge through additional manpower or traditional, manual procedures, which for Greenfield banks can be extremely costly. However, successful compliance in capital standards, transparency, risk management and stress tests can today be more efficiently accomplished with investments in flexible IT infrastructure.
3. Productivity and Efficiency
Adopting the right IT infrastructure will also help Greenfield banks to ensure greater accuracy and consistency in customer data. This in turn provides bank managers with faster access to critical information and automated processes requiring little or no human intervention; allowing them to make more informed decisions about what their customers really want. Not only does the bank's productivity increase, but they are able to channel their investments more efficiently to the services in greatest demand.
4. Speed & Flexibility of Deployment
The ability to deliver products and services to the market quickly is critical for Greenfield banks to avail new opportunities. In addition, the capacity to launch a new bank in a phased manner-focusing on niche areas such as home loans or micro finance-is particularly attractive to Greenfield banks as it allows them to enter the market swiftly. The adoption of a modern standards-based IT system can give banks the power to do this, overcoming barriers to entry such as the integration with national payment & clearing systems.
While Greenfield banks can benefit from the overall economic development of Sub-Saharan Africa, their growth will hinge on successfully leveraging technological advantages so as to address today's dynamic customer needs. This will include delivering more relevant services to the unbanked masses and to those customers not currently satisfied by their existing financial institutions; done at a cost which brings a quick return-on-investment to the bank.