An Interview with the Chief Payments Officer at BankServAfrica on SA’s National Payment System

With the Fintech world immersed in events at Sibos, we at Daily Fintech had the opportunity to speak to Martin Grunewald, Chief Payments Officer at BankServAfrica. We discussed the future of National Payments System (NPS) with Martin, and he provided key insights on the approach, challenges and the work that remains to be done across Africa, not just South Africa.

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BankServAfrica is the largest automated payments clearing house in Africa. They process payments across 40 banks, about 34000 ATMs, with peak volumes in 2016 reaching R10.5 Trillion (includes electronic, POS and ATMs). The National Payment System is the infrastructure that BankServAfrica have been working on to facilitate interoperability between banks, ensure regulatory compliance and reduce complexity in the industry.

Martin has been at the forefront of the NPS redesign initiative and is hosting a community session with McKinsey at Sibos. The interview we did with him touched upon the following areas,

  • Drivers and Approach to modernising NPS
  • M-Pesa in South Africa
  • Impact on the unbanked
  • Fintech, Blockchain and NPS
  • Interoperability across Africa

What do you see as your role at Sibos this year?

Sibos is the gathering of about 8000 Financial Services and Fintech stakeholders across the globe. I will not only be representing BankServAfrica and South Africa, but also the whole African continent. I am keen to engage with the global community, share ideas and also learn from the rest of the world on how they are solving problems with the digital economy.

I would also be discussing and sharing ideas around addressing the unbanked and improving financial inclusion across the world. We will be flying the African flag and engaging with the globe.

Why do you need NPS to be modernised and what are the drivers?

NPS modernisation is a very interesting space and we are working closely with the Payments association of South Africa to make it happen. SA is a two-economy country where payments infrastructure has mostly served the middle class and the corporates.

Statistics are distorted when they claim that 70% are banked in SA, as they include 12 Million government grant earners who have bank accounts but are mostly unbanked. Without this population, the banked percentage falls to 57%.

We are redesigning the NPS so that it can be used by a wider audience. A redesigned NPS alone will not automatically provide financial inclusion for the unbanked. But we can definitely ensure that the design doesnt inhibit the process. 

For example, SA has had a real time payments system from 2008, for higher value transactions, that are priced that way. Even fraud detection is designed around high value transactions. A motorbike can be bought using real time payments, but not a 2 Rand transaction. NPS redesign problems such as this.

What was the approach to the NPS redesign?

We have taken a three staged approach to the NPS redesign.

First step involved looking at international markets. Countries like US, Canada, EU, UK and Australia act as comparable ecosystems economically, where there have been different approaches taken to address different functionalities. For example, RTGS has been addressed differently across these countries.

We also performed a comparison across developing economies such as Brazil, Mexico, Nigeria and India on how they are achieving modernisation of their payments infrastructure. For example, India is moving towards a pay by proxy style mobile payments infrastructure.

Second Step was to interview about 50 key stakeholders across these economies that included, banks, retailers, regulators, mobile operators and getting their views around the key problems we were trying to solve in SA.

Third Step was to arrive at actionable insights from the data gathering and execution of the actions. We have now kicked off modernisation of the NPS based on the results of the analysis.

What are your thoughts on M-PESA and its role in SA?

M-PESA has done well in West Africa, particularly in Kenya and Tanzania. However it has failed to penetrate SA, twice. From a SA perspective we need to open up the NPS system to other players. SA has an entrenched banking system. Kenya can’t be easily replicated in SA.

West Africa (Tanzania/Kenya) has closed loop systems running their course. Economies cant scale on closed loops systems. Payments for SA and for rest of Africa should be open and cater for other players that scale. 

How will the Fintech, Blockchain and Telecoms revolution influence NPS?

New Fintechs can create leap frog moments using new technologies, but when it comes to NPS the challenge is that there are legacy software and processes involved. They have to be open ecosystems that can interoperate, and not siloed. I see many tech solutions going into environments, without taking a top down approach.

Next generation of payments infrastructure cant ignore mobile. 10 years ago we couldnt have imagined a life without mobile. Its a key channel for transactions going forward. Informal set ups would depend on mobile for connections. Payment systems that do not make mobile friendly customer journeys will fail.

There is a lot of activity happening in the Blockchain space. While across other industries, applications are starting to emerge, within Financial Services it is still a great piece of technology looking for a problem to solve. 

How do you see your role across Africa?

I think Africa needs interoperability with the payments infrastructure. Financial inclusion has vastly improved in some countries, thanks to Fintech. However, they are currently quite closed ecosystems. We are working with the Gates Foundation and the World bank on our vision for Africa. We are working towards an open ecosystem that provides seamless interactions across Africa.


It was a very insightful conversation with Martin, who gave us time at short notice. An open payments ecosystem across Africa would be nirvana state, and if achieved would act as a template for other developing regions of the world to follow.


Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.


 

 

 

Battle for customer data heats up – Banks and Tech Giants lobby against each other

Data is the new Oil. The European regulators brought PSD2 into force with a mandate for all banks to get compliant with the regulation by next year. I also discussed in one of my previous articles that GDPR could be an excuse that banks would use to not stick to the spirit of PSD2 and open banking standards.

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The UK has gone one step further to create the Open banking framework that helps create data sharing capabilities within banking and an engaged developer community. However, in the US, banks have been notoriously lobbying against data sharing since Consumer Financial Protection Bureau (CFPB) released a set of questions on this topic for the public to answer.

Based on the responses to this public survey, it is pretty clear that customers wanted to own their data, and also would like to decide who the banks can share their data with. And they want the data to be shared safely and securely. It is widely believed that most banks (not all of them) in the US, would create enough bureaucratic barriers for small innovative companies to get access to their customer data.

The other technique they might follow is opening up data access to Fintechs just a few times a day. This might hurt the business models of many Fintechs that depend on real time availability of customer’s banking data.

On the other coast of the country, tech giants (Amazon, Facebook, Google and Apple) are gearing up to fight the banks to get access to their customers’ data. In the recent past a group called Financial Innovation Now has been setup by the tech giants, with a view to lobby for customers’ data.

These tech firms realise the opportunity they have in consumer finance, especially lending and loan intermediation. With a wealth of data around customers’ spending pattern, and on ecommerce peaks and troughs, Amazon for instance, should be able to recommend a financial product to the customer, and make an easy introducer fees.

Amazon and Paypal lobbyists have met with the  Office of the Comptroller of the Currency (OCC) to discuss “issues related to mobile payments and payment processing, financial innovation, and technology”.


Large technology firms are really interested in the intermediation piece, where you have access to all that data.

– – Paul Nash, the former senior deputy comptroller 


If firms like Amazon could get their hands on customers’ financial data through an API, they could be a serious threat in the consumer finance space. They just need to follow the path that Alibaba and Tencent took in China.

With the initial years of Fintech we saw many banks embracing (or pretending to do so) innovative technologies. However, with open banking, we may see reverse osmosis where the tech giants move closer to banking.

So banks now not only have to worry about Fintechs squeezing their top line, and regulators hitting their bottom line, but also have to worry about Tech Giants eating up their market share pretty quickly. Long Live Data.


Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.


 

An Interview with CEO of collectAI – for working capital management

Fintech for too long has been focusing on UX, and with the advent of AI, there have been many firms focusing on customer journeys, that would lead to closure of a transaction. However, in recent times, the focus has shifted to back office operations, and adding efficiencies to these processes.

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Germany based collectAI ​​automates ​and digitizes ​invoices, ​dunning ​and ​debt ​collection ​processes ​and ​is ​the ​first ​digital ​end-to-end provider ​in ​receivables ​management. They have achieved significant traction in Europe by processing €25 Million since launch in 2016.

We had a chance to talk to Mirko Krauel, CEO of the firm on their progress and plans, and here are the key points he mentioned about his journey with collectAI.

What led you to collectAI?

After a Diploma in Business Administration, I was working as a management consultant within digital innovation of Banking and Payments industry. During my corporate experience, I noticed inefficiencies in various back office processes. I also noticed that the Fintech startups at that time were mostly focusing on customer experience. I chose the problem to solve and I felt AI would have to be my go-to technology for the problem.

What was the best part of the journey and what were the challenges?

The best part of the journey was getting the team together, the initial days of getting the product design and getting to the MVP. We had quite a few challenges with the Go-To-Market strategy and our sales cycle was also too long. So we had to sit down and work out a way of going after mid-sized clients to have a few closures and build credibility. We also employed a few project managers who were able to bring deployments to closure on a plan.

The other challenge we had was getting access to quality data to build the software, but with time, we are getting better at that too. 

Tell us about the AI software you have developed

The AI software has got better over time as we have learnt and the software has done so too. It now evaluates

  • The best timing to send a message for the payment collection
  • Payment methods to include
  • The tone to be included (friendly, neutral, strict tone)
  • If SMS, Post, Email is better for a customer
  • If a payment plan should be offered

And as a result we end up with a customized communication strategy for every customer.

How do you measure performance of your AI program?

I think it would have to be based on the efficiencies achieved. We have introduced an intelligent​ email ​functionality that led ​to ​an ​increase ​of ​the ​collection ​rate ​of ​33%, ​while ​processing ​costs have ​been ​reduced ​by ​up ​to ​41%. 

It is a big market in Europe alone where about 23% of debts are not paid on time. We have managed £25 Million processed through collectAI in the last 12 months.

Those are big milestones that we have achieved within 12-18 months, and they wouldn’t have happened without the hard work of the team in building a capable software.

Where do you go from here, what is in pipeline?

We need to scale the team across various functions. We need a bigger IT team, enrich our operations team and also get a few PMs. I have also plans for developing some self service features within the product, which will help customer experience and conversion. 

There are a number of AI startups coming up across Europe focusing on back office operations. However collectAI are well funded by their parent company Otto Group, Germany’s largest online retailer, and they have also demonstrated execution in the last 12 months. There is serious competition across the Atlantic, however, they seem to have the advantage in the European markets.


Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.


 

The Battle for the Billion – Payments in India heats up with Google Tez

A week ago Google launched “Tez” (meaning “fast” in Hindi), as yet another player in the payments segment in India. Indian payments industry has seen major growth over the last few years, thanks to the e-commerce boom. And e-payments is projected to be $500 Billion by 2025 – a market that can definitely accommodate multiple winners.

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A few questions I have been trying to find answers to since the launch are,

  • How does Google Tez stack up against the first movers, and the major players in this segment?
  • Is it too little too late for Google?
  • Will it help/hurt Google?
  • Will Google be satisfied with just the conquering the payments on smart phone market?

Before getting into these questions lets discuss the two key payment services in play here.

Unified Payments Interface (UPI) and UPI based apps: UPI is a feature that allows consumers to perform funds transfer, where the sender doesn’t need the bank details of the receiver. The funds transfer happens between two virtual payment address. Key differences between UPI and the other key methods of payments (NEFT/RTGS) are described here. UPI is currently used by 50 Indian Banks.

Apps that are predominantly UPI based, just act as a pass through layer for payments to happen. Examples are Google Tez, BHIM, PhonePe

e-Wallets: These are apps that store money and act as digital wallets, and will need to be topped-up from time to time with cash from either bank accounts or credit cards. When a money transfer is made, it moves from the sender’s e-Wallet to the receiver’s e-Wallet. PayTM is an Example.

 

BHIM was launched by the Government of India, and had quite a lot of success due to its simplistic design and interface. It is an app that supports only UPI transactions.

PhonePe, since its launch has been giving BHIM tough competition. It has richer functionalities for consumers from sending money to paying bills.

PayTM, ofcourse, is the one to beat in the Payments sector in India. PayTM is an e-Wallet, and has a different use case, as explained above. It has the first movers advantage and big money via investors such as Alibaba, and the might to take on Google at this stage.

Google Tez Features:

Tez takes a different approach to the Payments customer journey, perhaps to steer clear of the competition with PayTM. Tez is built on top of UPI, so users transfer money from one bank account (connected to their Tez app) to another, without storing money within Tez.

Tez supports a “Cash” mode that allows money to be transferred from one Tez user to another using Audio QR technology (AQR), which is supposedly more user friendly and secure. This is what one would need to pay the shop keepers in the local market.

Apart from this Tez supports several Indian Regional languages, has a fraud prevention feature called Tez Shield, and also provides a chat like interface.

Are they late?

Why would Sundar Pichai, someone who understands the Indian market come to the party so late? And is there hope?PaymentsTrend

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I believe, Google has the following advantages,

  • They have positioned themselves cleverly in the UPI space which is not the strategy that PayTM are currently taking.
  • As a feature within Google Tez, they support “Cash Mode“- which allows users to transfer money to nearby Tez users through a QR Code. India loves cash and this approach differentiates Google from the rest of the UPI lot.
  • As a further advantage, google has better data about every smart phone user than the Government of India or PayTM. If they put that to good use, they would be able to provide more contextual customer journeys.
  • Sundar Pichai’s understanding of the market, and Google’s might is a definite advantage on top of these.

It remains to be seen if they can accelerate from here, to conquer the UPI segment first, and eventually the smart phone payments segment in India.

The Next Billion

There are ONLY 300 million smart phone users in India. There are close to 650 Million mobile users (including smart phone users) and about a Billion who don’t have a smart-phone in India.

That is one mammoth market that Google would not want to miss out on.  But the advantages Google have with smart phone users (consumer data), is not something they can extend into the next Billion. So, one way to do it is through acquiring a key player in that market.

There are a few trying to conquer this space that shouts out for M-Pesa like innovation, and MoneyOnMobile is one key player. When I met the CEO of MoneyonMobile earlier this week, I was surprised to learn (inspite of knowing the Indian market) about the amount of efforts and capital it took to get the Next Billion on board. However, as Bernard describes in his article on MoneyOnMobile, the winner will make it big. And to me, Google might have to conquer that market through acquisition.

Google are not the first movers, so they are always going to play catch up. But they could do it right first time. Watch this space.


Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.


 

Mexico, LATAM’s biggest Fintech ecosystem, implement Fintech regulatory framework

Mexico is now the largest Fintech ecosystem in LATAM with over 240 Fintech startups, a YoY growth of about 50%. In the last year it has overtaken Brazil in Fintech growth as per Finnovista’s Fintech Radar (July 2017). But more importantly, Mexico is soon to become the first LATAM nation to have a regulatory framework for Fintechs – a key milestone very few nations have managed to achieve.

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Mexico has always been a huge Fintech opportunity with about 60% of the 127 Million unbanked as per World Bank. With the country’s growth forecasts being revised upwards for 2017 and 2018 the momentum has always been there. A high Internet and smart phone penetration, a strong ecosystem of entrepreneurship and e-commerce, and a low banking penetration, are a few of the features of the Mexican market that make the country one of the most fertile areas for the development of the Fintech industry. It is currently the fastest growing Fintech nation in LATAM.

However, setting up a Fintech regulatory framework is stepping into a whole new league. The Mexican financial regulatory set up has the following stakeholders:

  • Comisión Nacional Bancaria y de Valores (CNBV)—National Banking and Securities Commission
  • Secretaría de Hacienda y Crédito Público (SHCP)—Secretariat of Finance and Public Credit and
  • The Bank of Mexico (Banxico)

The regulatory framework for Fintech being proposed covers the following aspects,

  • A Financial Technology Institutions Committee will be set up and will consist of two representatives each from SHCP, the CNBV and Banxico.
  • This committee will be responsible for granting Financial Technology Institutions permissions to operate in Mexico.
  • A standard definition of who would be considered Payments, PFMs, Crowdfunding, Robo-advisory firms would be published.
  • Bitcoins and Crypto currencies would also be addressed as part of the regulation, however its being proposed that Banxico would act as a referee for operations of these firms.

The framework is aimed at providing clarity on rules, and thereby creating efficiencies and cost savings for Fintechs and consumers. The proposed regulation will be reviewed by an external commission, and then be submitted to the Senate to be voted on. If the bill is approved by the Senate, finer details then would be put into secondary laws.

The sentiment around Fintechs in Mexico about this development remains positive. The Mexican regulators can take inspiration from the likes of FCA and their initiatives such as the Sandbox to help Fintechs within the country.

If implemented right, a light touch regulatory framework would go a long way in capitalising on Fintech within Mexico which has already seen 400% growth (highest in LATAM) in the sector in the last couple of years. And they may be the first to do so not just within LATAM but across the developing world.


Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.


 

Carbon risk management: Engaged Tracking (ET) Index sets gold standard

The Paris climate accord has brought carbon risk management under the limelight more than ever before. Nations are gearing up to provide better transparency around their carbon emissions, which in turn will put pressure on businesses to do so.

The world is on a fast track (and I would like to think so), to economy-wide decarbonisation. The G7 nations have committed to phasing out fossil-fuel subsidies by 2025 and renewable energy has arrived at scale. So, how can investors catch up?

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Engaged Tracking (ET) Index Research is a London based organisation whose mission is to help investors and corporates identify, understand and manage climate and carbon related risks. They offer solutions for investors who would like to reduce their carbon risks without compromising on performance.

In the past, businesses declared their carbon risks based on direct emissions from their own operational activities. However, as per ET Index research, direct emissions (termed as Scope 1 and 2), make up only 25% of a business’ carbon footprint. In order to get the full view of a business’ carbon efficiency, its essential to analyse the value chain of the business (termed as Scope 3).

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The ET Carbon Rankings calculate the carbon emissions of the world’s largest 2000 listed companies including scope 3 emissions – from transportation of raw materials to the use of the products they sell. Scope 3 emissions are critical because they typically make up 75% of companies’ carbon footprints and therefore reveal their exposure to increased costs across their value chain.


The top 2000 companies account for approximately $45 trillion in market capitalization and approximately 9.5 billion tonnes of CO2 indirect emissions. That exceeds the combined total emissions of the United States, Canada and the European Union


The ET Index Series reduce individual investor exposure to carbon risk by shifting capital away from high-carbon companies, while closely tracking the market. They reduce aggregate exposure to carbon and climate risk by indicating to the largest listed companies that they must decarbonise in order to move up the Rankings to gain weighting within the Index.

A higher weighting in the Index would give companies a larger share of invested capital. It also provides investors visibility on firms that are consciously moving up the rankings.

In March 2017, ET Index became a member of the Social Stock Exchange (SSX), which is the world’s first regulated exchange, dedicated to businesses and investors seeking to achieve positive social and environmental impact.

It is good to see that the low carbon transition is underway, with carbon intensity falling globally. As a result, investors will be/should be increasingly asking companies to disclose the risks and opportunities arising from climate change.

Thanks to ET Index, carbon footprint reporting will now include Scope 1, 2 and 3 emissions. Better reporting by companies is a must if markets are to identify and price climate risk and direct capital to low carbon opportunities. The US coal sector is in decline and the European power utilities face an existential crisis. It is clear that businesses that ignore the rapidity of the shift to a low-carbon economy will suffer financially. Good times ahead!


Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.


 

Can the Nordics sustain as the second largest Fintech Ecosystem in Europe?

The Nordics have always been innovation driven economies, probably better than most other regions in the world. The Global Innovation Index 2017 published by INSEAD ranks Sweden at number two in the world, and the rest of the Nordics within the top 13.

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Most of these economies have had the right ingredients to sustain their positions at the top of the innovation ranks. The R&D to GDP ratio for the region is the highest in the world, with Sweden. Finland and Denmark ranking 4, 5 and 6 in the world (as per World bank data). Non-Fintech firms included, Sweden is the second largest Unicorn-breeding ground in the world.

Where these economies have historically been found lacking is the scale. And often firms that conquer the local market haven’t been able to replicate the success in other parts of the world.

With Fintech, the Nordics have always been at the forefront with Stockholm providing the ammunition. While they have consistently managed to beat the UK at the innovation rankings, UK has led the way in Europe for Fintech, thanks to its Financial Services ecosystem.

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Some of the big names and big events in the region have been in Stockholm, Oslo and Copenhagen. KPMG set up a fintech innovation platform in Sweden. The Stockholm Fintech Hub launched earlier this year and is independent and not-for-profit.

Norway’s biggest bank, DNB  recently joined forces with a local incubator, StartupLabs, to launch the “DNB NXT Accelerator”, which incentivizes entrepreneurs to come up with solutions that the bank can use.

Copenhagen is a Fintech hotspot with its annual Money 20/20 conference, which gathers the world’s leading investors and entrepreneurs. It also has the “First Fintech Hub in the Nordics” that acts as a co-working space and is a partnership between the Financial Services Union Denmark, the City of Copenhagen and the Danish Bankers Association.

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With the ecosystem play heating up, the usual suspects of Fintech in the region namely Klarna, iZettle, Meniga etc., have seen major traction in 2017. Klarna recently reported impressive revenue growth, and announced a plunge into digital banking. They also closed major deals with VISA and Stripe with a plan to expand aggressively in the US.

iZettle, that provides a simple payment solution to small businesses is currently growing at about 1000 B2B clients per day. Apart from their presence in the Nordics, they have been quite successful in expanding into the UK, and have recently appointed a bank for their IPO (expected next year).

Meniga from Iceland is a PFM Ecosystem that makes digital banking amazing and transforms raw transactional data into valuable data. They serve over 40 Million customers across 18 countries in 4 continents. They recently raised €21 million to accelerate global expansion.

Similar stories from Trustly with €3.2 Billion in transactions last year and Tink securing $10 Million in funding last year for expansion, mean Nordic Fintechs are on a roll.

They (Nordic firms) have historically been great at pioneering technology and innovation. This time with Fintech, they have been able to create a local ecosystem, already have a handful of fiery fairy tales to inspire, and more importantly have demonstrated global expansion and execution capabilities.


Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.