The information for this article was sourced from Andre Hugo, head of Deloitte Digital at Deloitte South Africa, and written and published by Finweek.
Born again: financial institutions must drink the elixir of youth
While governments, traditional banking institutions and big businesses have always been the gatekeepers of the financial industry, they now compete against complex, yet nimble virtual platform businesses in low margin, micro-payment ecosystems.
These financial ecosystems embedded in online and mobile social media environments have seemingly leapfrogged the traditional banking business models and are eating away at the markets these institutions have always thrived in.
Many digital financial products available today, over and above banking and payments, mimic professional investing (covestor; eToro), payment and funding (Square; Funding Circle), DIY investing (Alpha Clone; Betterment) as well as external business to consumer products that facilitate impulse purchase of virtual commodities (Facebook; and mobile application market places offered by Apple, Google, RIM (Blackberry), Nokia and Microsoft).
Many of these virtual financial solutions, like PayPal and BitCoin, are free from the confines of current foreign exchange regulatory frameworks and point of access, such as the Internet. Digital commerce has branched out to include mobile currency as the number one enabler, and is spearheading the transformation of trading currencies for the ‘unbanked’ who do not have access to traditional bank accounts or desktop/laptop computers but have access to a mobile device.
Mobile platforms today provide the link between the digital divide of traditional monetary systems for the youth and the unbanked, the most notable being micro-payments using airtime as the de facto entry-point to digital currency.
Enter M-Pesa, a mobile-phone based money transfer and micro-financing service developed by Safaricom in Kenya and deployed through its parent company Vodafone across Africa and Asia.
M-Pesa is touted as the most developed mobile payment system in the developing world and allows users to transact using their secret pin and the recipient’s phone number to deposit and transact using a mobile device. The system later evolved to cater for remittances, where money can be sent across country, or to pay for services rendered. Today, users of M-Pesa can deposit and withdraw money, transfer money between users and non-users across borders, pay bills, purchase airtime and transfer money between the service and a bank account. M-Pesa’s markets now span Kenya, Tanzania, South Africa, Afghanistan and India.
Another success story is Vodafone Qatar, offering the world’s first international mobile financial service, which was developed with Fundamo and clearing house G-Cash. The country has high mobile penetration but lacks ample banking facilities which presented an opportunity to deliver mobile financial services for the unbanked. The service targets migrant workers from the Philippines with a service that enables cheap and efficient cross-border remittance payments via a mobile phone. Users in Qatar can receive their salaries on their mobile phones, send money overseas, transfer money within Qatar, pay bills, buy airtime, make purchases at shops as well as transfer foreign exchange payments, for example.
This new economy represents a huge opportunity for bold South African financial institutions that want to step up to the plate to deliver innovative financial products and services to the youth and unbanked.
During 2012, one of South Africa’s largest financial institutions, Standard Bank, partnered with Mxit to bring to market Mxit Money, which allows users in South Africa to transfer money and pay for services as discounted rates. Users can also transfer money to each other and withdraw the funds, through MXit’s virtual currency known as Moola.
Other financial institutions are slowly dipping their toes in the digital currency pond, but it is still a market for the taking.
With this in mind, Deloitte Digital commissioned a survey on popular social media platform Mxit, through independent survey company Pondering Panda, to gauge the youth markets’ understanding of and attitudes towards saving and investment.
Consolidating the results of over 5700 participants, the survey concluded that the youth market has its own ideas when it comes to saving and investing and are mostly risk adverse.
Some of the highlights include:
The youth markets are very aware of the importance of saving and investing, but want access to funds anytime, anywhere
As expected, close to half of the same make use of bank accounts
More than half of the respondents save monthly, followed by those who prefer weekly savings
Monthly investors prefer restrictions on their once-off withdrawals
The more savings a person has, the less likely they will keep it in cash
Education seems to be top of mind for respondents of the survey, either for themselves or their children, followed by money for unforeseen circumstances, events or opportunities rather than direct investing where risk in involved
Trust in banks decreases slightly as income grows, while alternative sources of investment in different currencies increase. Mobile network operators are also kept in relatively high regard when it comes to trust in storing money, just below MXit
Insurance companies are only used when a certain threshold of available spending is reached
Think global, Act local
These results show that the mobile youth market offers unprecedented opportunities for those financial players who understand the needs and wants of their consumers.
The digital disruption of financial markets requires a total rethink of how financial institutions fit in and engage in this modern volatile economic conditions. It requires vision. There is no one-size-fits-all approach to tap into the market demographics across the globe. Companies must think global, but act local. Financial products and services must have local cultural and social relevance that resonate with the youth which mostly differ between countries and continents.
To achieve this, I believe financial institutions must seek to partner with trusted industry professionals to pioneer ventures that optimise their business of the future in the digital space. Financial institutions need to gain a deep understanding of the interdependencies between the financial systems and how they interact with each other and the consumer to ensure the right experience for the right device or platform. Those that get the mix right, will be the real game changers in tomorrow’s economy.
If you would like to have a more detailed discussion with Andre Hugo, feel free to contact him at firstname.lastname@example.org
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