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Digital Banking? Look To Asia And Africa For Leaders

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Digital Human is Chris Skinner’s third book about digital banking, which in this volume he has placed in a larger historical, evolutionary, geographic and even archeological context. But for now, I am going to focus on digital banking and the sharp contrasts between the speed of adoption in the developing world -- Asia and Africa in his account -- compared to technology deployed in banking in most of North American Europe. He is more than a little skeptical about banks that slap a digital label, or a digital executive position or two, onto a legacy IT architecture and a legacy organizational chart.

If you’re just looking at North America, the appointment of a Chief Digital Officer might look like the cutting edge — of something or other.  But Skinner isn’t buying.

Courtesy of the author

Banks need a digital officer who reports to the CEO or who is the CEO, he wrote. Skinner, who has been flying around the world speaking about digital banking, judging digital banking contests, consulting, listening and blogging daily (The Finanser), has examples to share.

(In the U.S. digital banking is limited to a couple of players like Simple, Moven, Ally and maybe some of the online investment firms like Schwab that offer banking services.)

Africa is leading the world in financial innovation, said Skinner, who says he has been repeatedly surprised at the amount of innovation he has seen in several trips to the nations of the continent.

The best known innovator in Africa, of course, is M-Pesa which started in Kenya through a telecom, Safaricom, that introduced a way to move money with a mobile phone, and transform messages into cash at shops and mobile outlets across the country. Now a decade old, M-Pesa has spread to 10 countries with 29.5 million active users who conduct 614 million transactions per month over the network. There are at least 19 countries with more mobile money accounts than bank accounts and most are in sub-Saharan Africa, Skinner wrote.

In China, India, Africa and in other Asian countries such as Indonesia, banking is going mobile-first because the countries have little or no legacy to overcome.  The potential impact is huge — 90% of the world’s poor are covered by a mobile signal, and digital accounts cut the cost of transactions by as much as 90%. That means financial organizations can make profits on very small accounts and provide transactions and loans where the transaction costs are a fraction of a cent.

(Skinner posted links to some videos of discussions with Barclays and Ant in which he concluded a digital bank is 30-40x more  efficient than a leading traditional bank. )

“Serving the poor with finance is not charity when you do it with digital and mobile,” Skinner noted. And the macro impact is apt to be huge:

‘McKinsey said digital finance could increase the GDP of all emerging economics by 6 percent or $3.7 trillion by 2025…adding an economy the size of Germany, or one that’s larger than all the economies of Africa.”

Digital Human devotes almost a book-length section to Ant Financial, the Alipay subsidiary which has combined the latest tech (it started as a fax-based escrow service providing sitting between buyers and merchants to guarantee that they would receive the goods they ordered and the payments they were due), but it has updated that technology — repeatedly. Skinner is doing a book launch in New York at 6 p.m. April 12 -- you can register for it here.

Ant Financial is the only company trying to build a global financial inclusion program, it aims to support two billion users by 2025, Skinner said. And because their technology has driven down costs, Ant can serve poor customers profitably.

In North America, banks are debating ("struggling" would imply action) what to do about legacy systems that are 40-plus years old. In China, that could be four or five generations of technology.

Ant Financial has refreshed its system four times in the past 12 years, and it ks now working on its fifth release. The differences in a modern, light-weight banking systems are startling. North American banks have a hard time making a profit on loans of less than$2 million or so, leaving an opening for SmartBiz Loans which offers software to banks to help them do Small Business Administration (SBA) loans cheaply.

In China, a beef jerky shop uses MYbank microloans for amounts ranging from 50 cents to $8,000 and has had 3,795 loans in the last five years. It can turn an order into a microloan.

Ant Financial's cost per transaction is about $0.015 and they plan to continue lowering the costs. They replace systems by running in parallel for a time and regard continual refresh is the cost of doing business.

Everyone, notes Skinner, has a technical boss and a business boss, and a domestic boss and an international boss.

“We have to make everyone richer,” said Jack Ma. “If you are the only rich person in a village of paupers, the paupers will kill you.”

Ant is also a majority shareholder in India’s Paytm,

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