For established banks
that want to expand into the mass market, digital financial services are an
obvious choice. What the digital financial services (DFS) strategy and
implementation should look like is less given. There are many options in terms
of business models, technology and approaches, and it is easy to get lost in a
rapidly evolving market environment.
Digital financial
services have fundamentally changed the financial sector in Sub-Saharan Africa.
The number and variety of financial service providers have increased as a new
market for affordable and accessible services and products have emerged. Long
gone are the days when banks were exclusive buildings on the Main Streets of
larger cities only, catering mainly to corporate and wealthy clients.
Low-income people, small-scale entrepreneurs and rural populations that were
previously considered too risky and too expensive to the bank are now the
growth market.
This blog focuses on a commercial bank in Africa, providing
a broad range of banking and financial solutions to large corporations, small
and medium-sized enterprises, public sector institutions, and retail customers
through a network of 26 branches and over one hundred ATMs across the country. It aspires to be a large retail bank of choice through the delivery of
quality service, using innovative technology and skilled personnel to achieve
sustainable growth and enhanced stakeholder value. In 2016, it turned to our
organization for guidance on how to launch a digital financial services
strategy to expand its retail services and rapidly increase its retail base.
The bank already had quite
advanced ideas of how to reach out to the mass market by deploying a Mobile
Virtual Network Operator (MVNO[1]), an
approach that is relatively untested and fairly expensive. During an
introductory workshop held with the bank, we shared knowledge around information
systems planning and examples of similar institutions in Sub-Saharan Africa
whose goal was to mobilize cheap retail deposits and how they went about
delivering a mass-market proposition in their respective markets. Several ways
were explored but we zeroed in on the (Mobile Virtual Network Operator) MNVO
approach which the bank was strongly considering. There was no indication why
this was the preferred approach which elicited further
inquiry. While the MNVO approach had been used by one
financial institution in another market to great success, the conditions in
that market and the institution were very different. We, therefore, proposed
that the bank opt for a tried and tested model, agent banking, as a first step
to going mass market. It’s far cheaper and quicker to deploy and can
deliver similar if not better acquisition results.
The Bank’s primary goal to
employ (Digital Financial Services) DFS was to attract new customers
and new depositors. After reviewing the MVNO vs agent network
approach, it was presented that the agent banking approach would be more
strategic as it allows the bank to target new customers directly with financial
service products, without having to first acquire them as a mobile phone
subscriber (as an MVNO). Also, the level of effort to set up agent
network, as opposed to MVNO, was significantly lower, in terms of cost,
regulatory approvals, and infrastructure development time, and wouldn’t require
negotiating hard-to-reach service agreements with an MNO. The
cost of investment was approximately 10 percent of the MVNO and the time to
market was less than half. The proposal immediately resonated with
the bank team, and the bank agreed to launch its agent banking solution in late
2018. It’s expected to reach millions of clients in a couple of years most of
whom would never have had access to banking services using a brick and mortar
approach.
Our engagement with the
bank set out to emphasize the importance of working out a strategy before
selecting a technology to deliver it. This allows for planning for holistic
resourcing and support throughout the implementation of the DFS strategy, from primary
market research and the design of the agent model to customer acquisition
activities and risk management. Such an approach would exemplify the
comprehensive approach required to launch a DFS implementation from zero.
Formulating the strategy is the first and most crucial step that includes
developing scenarios, a business case based on the long-term goals of the institution, present capabilities and capacity, current market position, and
regulatory conditions.
Market research is
equally very important and helps establish the target market and where to
locate good agents. An analysis of existing customers can be useful to discern
existing behavioral trends that can be leveraged to enhance the design and
delivery of the new channel and products over the channel. An agent delivery
model needs to be designed to benefit all parties in the value chain, plus the
necessary support structures within the bank to manage the network. This often
requires substantial staff training. In terms of IT infrastructure, the agent
model will need to be supported by a call center, an agent management system
and CRM.
The launch of DFS also
introduces new risks and amplifies other existing risks, often making it
necessary to overlook and strengthen risk management practices. Once the
channel is ready to launch, customer acquisition will require education and
registration campaigns via above and below-the-line channels to bring new
customers onboard and encourage existing bank clients to adopt DFS.
DFS is relatively new in
most markets in Sub-Saharan Africa, so for a lot of institutions, a DFS
implementation requires new knowledge. It is important to fully examine the
available options upfront, and devise a strategy that resonates best with the
institutions existing capabilities and the goals it has for launching DFS.
Unless this is fully established upfront, it is highly likely that
implementation will suffer along the way.
[1] Mobile Virtual Network operator - A mobile virtual network
operator (MVNO), virtual network operator (VNO), or mobile other licensed operators (MOLO), is a wireless communications services
provider that does not own the wireless
network infrastructure over which it provides services to its
customers.
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