The Innovation of Payments Systems in Sub-Saharan Africa

  • David Bee, Head of Client Coverage and Markets, Crown Agents Bank

  • 16.09.2020 09:48 pm
  • 3

Financial IT: Please introduce us to your company.

David Bee: Put simply, Crown Agents Bank moves money to, from, and across developing, emerging, and frontier markets. For many countries, we provide vital access to the international market by offering payments and foreign exchange, as well as trade finance. We are uniquely positioned with both the unrivalled trusted heritage of an established financial institution of almost two centuries, and the digital capabilities and agility of a fintech.

Financial IT: Who are your major clients?

David Bee: We work with governments, international development organisations, commercial banks, central banks, payment companies (non-bank financial institutions) and pension schemes. We operate primarily in Africa, the Caribbean, and Asia Pacific, acting as a commercial gateway for entities seeking to operate in these regions. One UN entity recently informed us that we are its number one bank, executing nearly 40% of its HQ trades, and we are proud of this as a boutique player. Our settlement reliability and processes are what set us apart.

Financial IT: What is the USP (unique selling proposition) of Crown Agents Bank?

David Bee: We pride ourselves on serving frontier and emerging markets that most other players cannot. Many players do not have the adaptability or the unique relationships and expertise that we have built up over our long history, which is part of why it is crucial we continue to serve these territories. We offer direct access to over 100 currencies, supporting trading across more than 400 pairings – many being illiquid or rarely-traded tender – such as Central African Franc and Liberian Dollar. This enables our clients to safely and securely move money where it is needed most.

Financial IT: Can you tell us more about your activity in Africa?

David Bee: We have served many African markets through economic and political volatility and natural disasters, so we understand the unique challenges that many of these regions face. We offer FX in 40 different countries across the continent, adding 11 new currencies in the last two years alone. 

One example that stands out to me is the team’s work with mobile wallets in Uganda. A charity identified high costs of digital bulk payment adoption and unsaturated FX pricing as important constraints on the growth of the Ugandan digital payment ecosystem. Our team partnered with the charity and used its expertise to successfully deliver a reliable, affordable and scalable mobile money solution for the Ugandan economy.

Focusing on technical solutions for some of the most remote places on the planet, the mobile wallet, supported by our Empower FX e-trading platform, can tackle safety issues around cash, and the distribution of aid payments - both pain points for non-profit businesses.

In particular, an organisation which empowers low-income women creating and selling jewellery in rural northern and eastern Uganda, showed the important result of the partnership. Our portal allowed the business to start making digital payments the same day the contract was signed, with no additional technical or process investment required.

Financial IT: What are the trends in the financial services industry in Sub-Saharan Africa?

David Bee: Since the 1990s, Sub-Saharan Africa has been among the world’s fastest-growing regions, both economically and technologically. In the past few years, mobile phone penetration in the region has become world-leading in terms of adoption and volume, with 84% of the population predicted to have access to a SIM connection by 2025.

It is no wonder then that the rapid penetration of mobile phones has contributed to the fast rise of mobile banking in Sub-Saharan Africa and, in reaction to this, growing interest in the region’s fintech scene. The total venture capital invested in fintech in 2019 was more than four times of the next most-funded sector in Africa - cleantech. After several record-breaking years for investment, we’re expecting to see some significant exits in the near future. I think that fintech’s potential is still being realised, so it is a really exciting time to be working in these regions.

Financial IT: How is digital technology allowing emerging markets in Africa to leapfrog traditional financial processes?

David Bee: Some of the most prohibiting factors to financial inclusion include the limited transport infrastructure and low bank penetration in emerging markets, making it physically difficult to reach a bank and open an account. By removing some of the biggest obstacles, namely having to physically be at a bank, digital finance like mobile wallets directly offers an accessible way for people to fulfil their financial needs. As a result, we have seen it overtake traditional banking methods that are not fit for purpose in these regions and, in the past few years, digital payments in Africa have experienced a surge in volume and adoption.

According to a recent report from McKinsey, the African electronics payments industry generated approximately $19.3 billion in revenues in 2019 and there’s no doubt that COVID-19 will accelerate the pre-existing trend towards digital payments.

Financial IT: What are the ways to address low liquidity and lacking financial services infrastructure?

David Bee: Strong knowledge and trusted relationships are vital to serving markets with low liquidity. For example, when the Reserve Bank of Zimbabwe abolished the use of foreign currencies with immediate effect, we had to use our unique network to provide liquidity when others could not. We acted quickly and worked with a trusted local bank to provide currency efficiently and at a low cost, updating international organisations of the change. In the past three years, we have grown our currency capabilities with pace, adding 32 new currencies and 55 Nostros.

To overcome lacking financial infrastructure, pairing a solid network with advanced technology is critical. It allows providers to keep costs lower, send funds faster and reach more people than traditional banks. For CAB, our payments gateway enables IDOs to reach individuals directly by allowing them to pay into mobile wallets.

Both these strategies need to work in tandem, and with local regulators and governments, to keep emerging and frontier markets connected to the global stage.

Financial IT: In light of COVID-19, why should governments and regulators acknowledge the efficiency and cost-effectiveness of digital payments technology and how can they be incorporated in the future?

David Bee: It is well documented now that digital pay-out methods have seen a significant incline in adoption. Health concerns over cash and local lockdowns have meant that digital payments have been crucial in keeping economies running.

Governments are already working to reap the benefits of digital payments; M-Pesa and the Kenyan government have been encouraging the use of digital payments over cash. The East African telecom allowed SMEs to increase their daily M-Pesa transaction limits from 70,000 Kenyan Shillings to 150,000 (≈ $700 to $1,500). Countries which have this kind of widespread digital infrastructure have been much more able to respond quickly with economic relief measures like this and keep money moving into countries even when people cannot. The benefits are difficult to ignore.

By continuing to increase broadband access, regulation that protects the consumer and mobile phone ownership across the continent, governments can help to facilitate the further integration of digital payments. We often help institutions in emerging markets to meet global regulatory standards so we know this is not simple, but it is crucial to achieve financial inclusion. 

Financial IT: How did Corona pandemic affect your business? What are the challenges and opportunities you are facing during these tough times?

David Bee: CAB has been an intermediary between OECD and developing markets for nearly two centuries. Over this time, we have seen a range of regulatory changes, difficult conditions and liquidity crises which make it difficult to move money into and across countries. COVID-19 is particularly damaging as the global economic impact coupled with the logistical restrictions around movement make moving funds almost impossible. We have found that our expertise has rarely been more important than in the past few months.

The most important role we have played so far during these troubling times has been to continue providing tailored support, services and settlement as usual. When so many other elements of the ecosystem are disrupted - from logistics and transport infrastructure to foreign capital investment - ensuring our clients have access to liquidity and that payment corridors stay open is crucial. We shifted almost overnight to remote working, with our IT team working incredibly hard to ensure service could continue at the same level.

Financial IT: What is next for Crown Agents Bank?

David Bee: Crown Agents Bank has been undergoing a considerable journey of digital transformation in the last few years, and we are not slowing down. Our ambition is to become an FX and digital payments powerhouse and you can expect to see us continuing to expand our partnerships, currency capabilities and technology offering in the months and years to come. We want to keep moving money where it is needed most as quickly, reliably, securely and cost-effectively as tomorrow’s technology allows.

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