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Regulation blocks cloud opportunity for African FSPs

African financial service providers (FSPs) stand to benefit hugely from cloud banking but are limited by regulations.
African financial service providers (FSPs) stand to benefit hugely from cloud banking but are limited by regulations.

African financial service providers (FSPs) stand to benefit hugely from cloud banking but are limited by regulations.

This is according to a recent report Cloud Banking in Africa: The Regulatory Opportunity put together by Genesis Analytics and Orange Business Services.

Cloud banking can unlock value for the providers and users of financial services by reducing costs and improving efficiency such as through the integration of data across business units and geographies, and with external third-party providers to deliver more innovative products to customers, the report argues.

It also has the potential to change the scale economies of the financial sector.

Yet, providers are not as free to optimise their technology infrastructure as they would like - though access to financial services plays a key enabling role in getting more Africans economically active - because many of the decisions governing ICT infrastructure and its physical location are dependent on financial and national regulations.

This has contributed to decades of financial inclusion interventions not being able to stop more than 710 million adults in Africa from being financially unserved or underserved as the high cost of providing financial services has forced many providers to remain focused on serving wealthy consumers.

According to the report, mobile network operators (MNOs) are a competitive force.

Richard Ketley, Director: Financial Services Strategy at Genesis Analytics, said: ”In the recent past MNOs have been much more successful in most markets in Africa at expanding the number of low income consumers that use their services.”

Six MNOs serve approximately 75% of all customers with active mobile money accounts across the continent while 774 banks operating in Africa serve approximately 245 million consumers - though Ketley notes that South Africa stands out as a bit of an outlier as a high level of financial inclusion has been achieved using bank products.

However, regardless of the rise of MNOs and their mobile money products which the report says began in response to the poor financial services infrastructure provided by banks in many markets, most countries in Africa still have financial inclusion below 45% and mobile money penetration under 50%.

Ketley said African regulators' need a change of approach to correct the situation by encouraging FSPs to implement cloud banking in their operations to overcome barriers of entry to the financial sector and provide sustainable and competitive low-cost digital services as businesses globally move to the cloud.

But it may not come overnight.

“This change is already happening in some countries as a result of demands from industry and innovators. However, as our report highlights, some very big changes are required in the ‘what and how’ of regulation, and this will not happen overnight. It will require a considerable investment on the part of regulators and their learning partners. Fortunately, regulators are able to learn and, in some instances, copy approaches that have been developed in other countries to accelerate the learning process.”

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