Globally, the financial services industry has expanded exponentially over the past few years, and there is no sign of growth slowing. From the introduction of mobile payments, online banking, and lately crypto currencies, the sector is now faced with a new ‘disruptor’ known as “Fintech” or financial technology in full.
In its latest annual report, the central bank ÔÇô Bank of Botswana (BOB) notes the importance of fostering healthy competition, cost effective access and introduction of fintech, which is considered to be a necessary agent for financial development.
While on one end the central bank admits that Fintech has the potential to deliver economic benefits by lowering the cost of operations and enhancing competition, and societal benefits, by boosting financial inclusion and delivering more convenient financial services, it is on another end calling on the government to consider setting up ‘regulatory sand boxes’ for appropriate licensing and monitoring practices within the domestic financial sector.
This call for ‘regulatory sand boxes’ comes at a time when globally regulators around the world are also targeting “optimal regulation” ÔÇö an environment that encourages providers to harness emerging technologies without weakening the financial system or eroding consumer protections.
This attitude, according to a Fintech team at Ernst & Young Advisory Services is common to all markets, regardless of the maturity of existing financial regulations. For instance, the UK’s Financial Conduct Authority (FCA), created in April 2013 during the wake of the global financial crisis, and has fostered a collaborative relationship with innovators in the financial services industry to ensure both consumer protection and market competition. In 2015, the FCA launched the world’s first regulatory “sandbox” for FinTech startups at its London headquarters, allowing innovations to be tested under controlled conditions set and monitored directly by the regulator. The UK, already one of the world’s most mature financial regulatory environments, is now an established Fintech hub.
“In order to encourage participation of fintech companies in the domestic financial sector, appropriate licensing and regulatory practices through the so called ‘regulatory sand boxes’ (experimental regulatory approaches) could be adopted. This would accelerate the pace of adoption of technology in the delivery of innovative financial products and services”, reads part of the BOB notes on Botswana’s financial sector.
The BOB researchers also emphasised in the bank’s annual report the need to ensure that a supportive licensing, regulatory and business environment is in place to accelerate the penetration of mobile, agency and internet banking, including through the promulgation of electronic payment services regulations.
Elsewhere, innovation within the financial technology industry has transformed the financial services market.
BOB says a key lesson from other experiences is that countries, such as Kenya, Rwanda India and Malaysia, have allowed non bank institutions in the telecommunications and retail sectors to offer financial products and services, thereby creating competition and making it possible to improve access for the underserved and unbanked communities.
While rapid changes and innovations in technology, especially the spread of mobile smart phones, have been driving financial access and inclusion in some countries, Botswana is reported to be lagging behind.
The Bank of Botswana recently said that international experience shows that Botswana lags behind in several respects including financial institutions and market depth, financial access and size relative the economy.
The bank however admits that Botswana’s high mobile phone connectivity provides an opportunity for a more inclusive financial sector that offers low-cost financial services to the unbanked and underserved within an appropriate regulatory framework.
Despite recent changes in legislation, the BOB research shows that Botswana generally lags behind high income countries and its Upper Middle Income Countries (UMIC) peers on access to both financial institutions and financial markets. The BOB research department says only 64 percent of the population in rural areas in Botswana have access to formal financial products and services compared to 90 percent and 81 percent in Mauritius and South Africa respectively.
At the same time, official figures show that the proportion of households with no access to any form of financial services declined from 31 percent in 2009 to 24 percent in 2014. The figures also indicate that the proportion of households with access to formal banking increased from 45 percent to 50 percent driven by the increase in mobile and internet banking and payments channels.
Dr Tshokologo Kganetso, head of the Research and Financial Stability at Bank of Botswana says accelerated integration of technology in the provision of financial services is amongst the available options for Botswana.
Local financial services experts said this week that while budding fintech start ups could be assisted to penetrate the market, their biggest hurdles could be the big four banks which share amongst themselves a huge chunk of the market.
“The big banks, even outside the country generally see Fintechs as disruptors, so they would either want to take over the business themselves or block growth of such”, said one expert based in the capital Gaborone.