rbz governors speech - 2016 - agent banking and digital financial services

Key Note Address

By

Reserve Bank of Zimbabwe

At the Agent Banking and Digital Financial Service

Conference 2016

Theme ‘‘Leveraging Technology to Achieve Socio-

Economic Transformation’’

Hosted by Mtilikwe Financial Services

14 July 2016

Distinguished Guests,

Ladies and Gentlemen,

Let me start by thanking Mtilikwe Financial Services for

organising this conference and secondly for inviting the

Reserve Bank to speak on this occasion.

It is indeed an honour and great privilege for me to speak at this event

on “Agent Banking and Digital Financial Services Conference

2016” especially during this time when Technology is taking over or

has taken over.

1. Essentially, digital financial services and new technologies offer

great potential to overcome massive developmental challenges

and make significant contributions towards achieving universal

access to financial services in the country. With easy access to

financial services comes development and economic growth.

2. Agent Banking refers to the provision of banking services, as

approved by the Central Bank, on behalf of a registered banking

institution under a valid agency agreement. It involves the

delivery of banking services outside traditional bank branches,

through strategic arrangements with existing retail businesses. The

brick and mortar strategy for presence is long gone. In comes

technology (mobile or web-based technologies) and agent

banking.

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3. Digital Financial Services (DFS) therefore offer fast, easy and

convenient access to financial services by permeating the

geographical distance barrier to financial services, and reducing or

doing away with time required to travel to an access point.

ACCESS. What is also critical in all this is the cost of that service.

4. The digital financial services industry in Africa has grown

tremendously in the last few years. Demand for financial services

has been spurred largely by the emerging middle class (Techno-

savvy group), which has tripled over the past 30 years to more

than 34% of the continent’s population, according to a 2013

Report on Financial Inclusion in Africa by the African

Development Bank.

5. To this end, domestic, regional and international financial services

groups are re-focusing their efforts to expand the menu of digital

financial services to meet the growing needs of different classes of

consumers. The thrust of Financial Inclusion is now quite topical

in most jurisdictions with most countries now adopting strategies

that involve Inclusive Economic Growth and Development.

6. According to estimates by the AfDB, digital banking in sub-

Saharan Africa is projected to grow by 15% per annum by 2020,

bringing the sector’s contribution to GDP to 19%. (Refer GDP

contributions).

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7. Over the last few years, the growth in digital financial services in

Africa has largely been triggered by a boom in mobile

technology. In 1998, there were less than 4 million mobile phones

on the continent. By the end of 2015, that figure had risen to 841

million and is projected to continue growing, establishing Africa

as the second-largest mobile market by connections after Asia,

and the fastest-growing mobile market in the world.

8. In its pursuit to achieve financial inclusion, Zimbabwe launched a

comprehensive National Financial Inclusion Strategy (NFIS)

early this year. The major objectives of NFIS are to increase the

overall level of access to affordable and appropriate formal

financial services within the country to 90% by 2020. It is also

intended to increase the proportion of banked adults from 30% in

2014 to 60% by 2020.

9. The NFIS proposes specific measures and targets that enable

prioritisation of the currently under-served and marginalised

groups. It revolves around four pillars namely: Financial

Innovation, Financial capability, Consumer protection and

microfinance. Financial Innovation intertwined with the Digital

Financial Services.

Agent Banking and DFS Landscape in Zimbabwe

10. The Reserve Bank has, in the past, instituted a number of

initiatives to broaden access to financial services embracing the

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rapidly evolving ICT consistent with the ZIM-ASSET, sub-cluster

of Monetary and Financial Reform Measures.

11. Zimbabwe has witnessed the agent banking and DFS being

employed as effective tools to bring on board the poor, low-

income households, marginalized demographic groupings such as

women, youth as well as Micro, Small and Medium Enterprises

(MSMEs) through the financial inclusion agenda. 22% of adult

population is financially excluded; 30% of adults are banked:

FinScope Consumer Survey 2014). (Refer Steward Bank using

the Ecocash platform)

12. Increasingly, Agent Banking model is being recognized as

efficient and cost effective delivery channel of financial

products and services. The time for Brick and Mortar presence is

gone. And that model was expensive – imagine the cost of the

building/rental; maintenance, water and rates; insurance; security;

CIT; numbers of workers among other costs. No wonder bank

charges in Zimbabwe remained high - there are too many

overheads to be covered.

13. There are currently over 3,000 Agent Banking outlets operational

country-wide and these have increased the proximity of financial

services to clients, particularly those previously unbanked. (Refer

spate of branch closures which took place in the early 2000s -

international banks started consolidating their branch networks).

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Most of these branches were inherited/bought by indigenous

banks some whose fate we all know. That meant some areas

which previously had banks were now without any banking

services when the indigenous banks headed west.

14. Allow me, Ladies and Gentlemen, to just talk about something

which has been with us for a while but its use was limited to the

main city centres – Use of Cards (Plastic Money). Zimbabweans

like cash transactions and until the advent of the cash shortages

very few people used plastic money. The distribution of the

infrastructure which includes POS and network systems as well as

the costs associated with such payment platforms were the major

factors contributing to low usage. The improvement in network

connectivity and power supply has seen an increase in the POS

machines from 3,000 in 2011 to around 18,000 as at the end of

June 2016.

15. Mobile payment agents have also grown significantly from 6,900

in 2011 to over 39,000 by end of June 2016. This amply illustrates

the power of the mobile phone in the modern world and how far

the mobile phone can go in enhancing financial inclusion.

16. The Bank will be issuing Agent Banking Guidelines in due

course. The Consumer Protection Guideline is currently at

stakeholder consultation level before it is issued to the market. It

is important to note that innovation and technological

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advancements always precede legislation.

17. In addition, the banking sector has since enhanced their delivery

channels through the introduction of digital financial services

related products leveraging on the active mobile and internet

penetration rates of 96% and 48% respectively as at 31 December

2015.

18. While banks previously thought the MNOs were encroaching into

their domain, they have since realised that given the current

technological developments, they cannot sit by. They have now

embraced the MNOs and there is a lot of co-operation between the

two sectors. At the end of the day it is the customer who should be

satisfied with the products being offered.

19. In support of the DFS, Zimbabwe over the years has also

modernised its payment, clearing and settlement systems. Both

large value time critical systems (RTGS) and retail systems

including card, mobile and internet banking are already

operational.

20. The financial sector players in the country have all adopted use of

modern electronic payments means which have brought

convenience to the transacting public.

21. The glaring examples are the collaboration with non-banking

institutions which include three mobile payment providers

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(Ecocash, One Wallet and Telecash) and international (VISA,

MasterCard, Union Pay International) as well as Zimswitch the

local switch.

22. The local statistical data shows that, the payment systems volumes

and values have increased considerably in the recent past. For the

year ended 2015, a total of 22 million e-payment transactions

valued at $5.2 billion were processed, a phenomenal increase

from a mere 3 million transactions valued at $367 million in

2010. The number of cards issued is standing at 2.6 million and

continues to grow.

23. Parallel to that, a total of 228 million mobile payment

transactions valued at $4.6 billion were processed in Zimbabwe

in 2015, an increase from around 400 000 transactions valued at

$1.2 million in the 2010.

RESERVE BANK AS REGULATOR

24. Central banks across the globe, are involved with digital financial

services in three main ways, which are capacity, supervisory and

regulatory roles.

25. Ladies and Gentlemen, the Reserve of Zimbabwe, as the

regulator of the payment systems and the banking sector,

continues to encourage payment system providers and banking

institutions to embrace new technology and put in place necessary

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risk management structures to mitigate risks associated with

technology-based products.

26. The Bank continues to shape the regulatory framework in line

with the ever-changing financial services landscape in terms of

technology and related banking products. The major thrust for the

Bank is ensuring an inclusive and stable financial sector.

27. The Bank is currently seized with the development of an

Electronic Transactions Guideline which is all-encompassing.

The Bank is working with all key stakeholders including

Technical Assistance from the World Bank to have the guideline

ready before the end of 2016.

28. In this respect, we are co-ordinating and cooperating with other

financial sector regulators and other public authorities for

telecommunication, information technology, consumer protection,

competition, amongst others. The Bank has MOUs with other

regulators and this helps as the new products being launched cut

across regulators. This ensures that there is no regulatory

arbitrage.

29. In the digital financial services arena, recent developments have

resulted in the reduction of transacting charges which will

enhance the usage and promotion of a cashless/cashlite society.

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CONCLUSION

30. In concluding, Ladies and Gentlemen, the Digital Era is here and

if one does not embrace it, there is a serious risk of being left

behind and left behind for good. Institutions need to continue to be

innovative and come up with products which benefit the

consumers.

31. The Central Bank stands ready to provide a supportive regulatory

framework which allows for innovation taking cognisance of our

thrust for inclusive growth by ensuring that the unbanked and

under-served populations in the economy are brought into the net.

We also remain focussed on ensuring that the country’s financial

sector remains safe and sound.

32. I am confident that deliberations at this conference will focus on

strategies that will enhance the development of digital financial

services in Zimbabwe.

I Thank you

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rbz governors speech - 2016 - agent banking and digital financial services

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