While technology emerges as a short cut to financial inclusion in Africa, various obstacles have been preventing the development of technology-based financial services at a large scale. These include:
Stringent regulation: Several African countries are still missing regulatory frameworks that govern the activities of technology-based financial services, including mobile financial services. For instance, M-payments require the accepted use of electronic signatures, such as a PIN number to authorize transactions. If the e-signature is not legally valid, the transaction could be challenged. There is therefore a need to provide status to electronic transactions equivalent to that achieved by physical signature. Moreover, international Anti Money Laundering/Combating the Financing of Terrorism (AML-CFT) standards require that adequate customer due diligence (CDD) be undertaken on all new accounts and on single payment cash operations to identify suspicious transactions. National laws and regulations in Africa typically require verification of: (i) client identity using an official document and (ii) client’s physical address. This constraints the outreach of technology-based solutions as only 22% of African households receive mail at home and a large share of them does not have identity documents.4 This calls for clear regulatory frameworks for technology-based solutions and flexibility in the application of CDD requirements.
Limited interoperability: Reaching an optimal scale for a provider of technologybased financial services requires interoperability at many levels. The ideal situation is to have a widespread access to a point of sale to allow customers to perform a large spectrum of operations. According to the outcomes of the Global Payment Systems Survey conducted in 2010 by the World Bank, less than 20% of the products were reported to be fully and partially interoperable. This limits the attractiveness of technology-based solutions to customers and leads to a low level of usage.
Scarcity of qualified Agents: The ability of agents to drive transaction volumes, educate customers on how the service works and deliver error-free transactions have major bearing on the success of a technology-based financial solution. The 2011 GSMA Global Mobile Money Adoption Survey shows that agents of the eight fastest growing mobile financial services deployments had significantly more activity (up to 64.8 transactions per active agent outlet per day) relative to agents of other services (average of 3.8 transactions per active agent outlet per day). Well qualified agents are not always easy to find in Africa. It is only through well trained agents that success of technology-based solutions can be ensured.
Low levels of financial literacy and income: Africa holds one of the lowest literacy rates in the world. In this context, the population’s ability to understand technology-based financial services is not optimal. Hence, financial literacy programs are needed to inform 114 customers and show them how these services work and the risks involved. In addition, adoption of solutions tailored for smartphones will eventually become widespread in Africa but so far smartphones are unaffordable to a large share of the population.
Growth in mobile phone penetration has revolutionized the delivery of financial services in Africa. Specifically, the emergence of mobile money transfers and mobile banking put Africa firmly at the forefront of the global mobile money industry. However, regulators have the difficult task of striking the right balance between supporting growth-enhancing innovation and implementing prudent regulation and effective risk-based supervision. This partly explains why new electronic or technology-based financial services have so-far gained momentum only in a handful of African countries, and in some of these with regulation thus far kept to a minimum. In Africa where financial services are a distant dream to millions of people there should be considerable lead from the government and other financial institutions to foster the financial inclusion agenda. Nevertheless, successful experiences implemented in Kenya, Tanzania and South Africa have shown that mobile financial services have the potential to significantly reduce the number of unbanked in Africa. This could boost domestic savings, incoming money transfer from diaspora and lower the cost of doing business by SMEs and the overall private sector, all of which should help Africa achieve greater development and move out of poverty. This requires among others: · Provision of conducive regulatory frameworks: This would allow operators to pursue innovative approaches to reach the bottom of the pyramid. Governments should also design policies that enforce regulation set by central banks regarding financial inclusion strategies. This could entail for example the implementation of a ceiling for acceptable cash payments. For example, in WAEMU, all payments due by or owed to the government, in the reference amount or above, must be paid by a check, wire or any other scriptural payment method at a post office or a bank. The reference amount is set by a ministerial decree to 100,000 CFA francs in the Union.
Data collection to underpin strategies: There is a strong need to gather sufficient and reliable data in order to better understand the baseline and starting point of access and usage of financial services. Country level data and diagnostic assessment can inform the design and sequencing of a strategy and can be useful to the private sector to adapt the design and delivery of financial services.
Promotion of Mobile Government-to-person payments (G2P): According to a CGAP/DFID note, only eight African countries have been involved in technology- based G2P transactions in 2009. Governments are important payers and all payments such as salaries, social benefits, pensions, and student scholarships could be processed using technology-based solutions such as mobile financial services. This would reduce delays, errors or fraud, and 115 other risks related to G2P transactions. However, the sustainability of such payments is as crucial as their implementation mechanisms. This relates to the fact that a lack of a paired infrastructure for continuous use (merchant network) and awareness campaigns can provoke G2P failures as it has been the case in some Latin American countries and in India.