Tech & Compliance Trends in the Financial Services Industry in Africa

In the financial services industry, having a culture of continuous digital innovation is key to strengthening stakeholder relationships, fueling growth, ensuring compliance with existing and new regulations, and it is a run-way for creating a competitive edge in the market.

To achieve these, organizations in this industry specifically - Fintechs, SACCOs, Digital payment platforms, banks, non-banks, and credit reference bureaus have embarked on;

• modernizing legacy systems to improve agility and scale,
• harnessing data to drive business growth and innovation,
• have become customer-centric,
• invested in the implementation of robust ISMS programs to build confidence in and secure their customer data, and
• compliance with existing and new regulations
• etc..

Below are some of the incredible Tech & compliance trends that organizations in the financial services industry have unveiled, invested in, or and currently pursuing…..

1. Everything digital:

It takes me a while to hold cash in my hands unless if am traveling outside of the country because mobile money cash transfers, mobile banking, and mobile money payments make it seamless to transact via various digital channels like USSD, Mobile Apps, Internet banking, STK push method, etc., In addition to this, some financial institutions in Africa support Digital account opening where no physical presence is required at the bank premise, 100% digital transfers, Speedy bank transfers, fair and transparent transfer fees, Anti-fraud protection, instant transaction notifications/alerts, multiple daily transfers, minimal transaction limits, and no virtual accounts required for transfers.

It is now easier to open global accounts in another country and transact without requesting unrealistic paper-work. - all you need is a smart phone/device to open a free account in a foreign bank with no minimum balance required. This takes a maximum of 72 working hours for the account to be available.

There is an evolution of more financial technology (FINTECH) companies instead of traditional banks. These companies provide everything from straightforward mobile payment apps to complex blockchain networks housing encrypted transactions.

Digital banking continues to grow because of easier access and the ability for consumers to manage their money, request and pay loans, and purchase insurance through digital-first banks. This simplicity and convenience will likely drive additional growth in this sector, with the global digital banking platform market expected to grow at a compound annual growth rate (CAGR) of 11.5 percent by 2026.

Freezing of printing of automatic/electronic receipts / Digital receipts Vs printing paper. From agency banking outlets, and ATMs. This has been welcomed given the high demand on the part of customers wishing to help protect the environment, most financial institutions now no longer automatically give out till receipts. This decision has helped save several thousand kilometers of paper every year

2. Robust Information Security Controls:

a) Multi-factor authentication: this multiple-authentication process adds extra layers of security to keep the customer’s money safe during every transfer, and other stakeholders gain confidence in the business processes. The additional security layers make it harder for unauthorized users to gain access to personal and confidential data

b) Secure API integrations: APIs have presented exciting business opportunities to financial institutions to deliver products faster, improve customer experience, and securely without slowing down innovation.

c) Use of encryption in online banking is a critical element to prevent unauthorized alterations during transmission, ensuring that the information received is exactly what was sent. This integrity is important for accurate financial transactions and record-keeping, preventing errors and fraudulent activities. Financial institutions are prioritizing encryption despite the cost that comes with it to ensure protection of customer data.

d) Cybersecurity awareness training for all stakeholders to ensure collective responsibility. Financial institutions send frequent alerts to external customers via text message or email on cybersecurity awareness tips, inform them of any new forms of cyber fraud, and also train their internal customers on the security requirements.

e) DDoS Attacks: Nobody wishes to have a headache or panic attack when they can't access their account details or are unable to make transactions for whatsoever reason hence, financial institutions understand the importance of AVAILABILITY of point-in-time services to the stakeholders

3. New Regulations

a) ISO 20022: Purpose of Payment (POP) Codes.

In Kenya, the most recent regulation is the requirements by the Central Bank of Kenya for banks to implement the ISO 20022: Purpose of Payment (POP) Codes. The ISO 20022 is an international standard for financial messaging that enables more structured and detailed data exchange. PoP codes provide additional information about the payment’s purpose, enhancing both transparency and efficiency. As of yesterday 11 October 2024, the Central Bank of Kenya (CBK) mandated all Banks to include the PoP codes for Real Time Gross Settlement (RTGS) payments i.e. all RTGS payments sent to a Bank must be accompanied by a valid Purpose of Payment (PoP) code. This means that - Single payment initiation: a new mandatory field has been introduced on the single payment initiation screen where customers are required to select a valid PoP code from the provided list of values. It is important to note that for Electronic Funds Transfer (EFT) file formats, the PoP code will only be required when the payment amount exceeds Kenya Shillings One Million (KES 1,000,000).

b) Digital Lending Regulations:

Mobile lending has been a thing since 2012 in Kenya, and the Central Bank of Kenya recently issued a Regulation on Digital Lenders in Kenya. This was later amended and the CBK Amendment Act and the DCP Regulations apply to digital credit providers (DCPs) except those regulated under other laws. New DCPs are required to obtain a license from the CBK and already existing DCPs have a 6-month grace period to apply for the license from the CBK.

4. ISO 27001 Certified

The majority of the banks in Africa have embarked on acquiring the ISO 27001 certification, and have implemented robust ISMS programs. In Kenya, we have seen recent announcements regarding ISO 27001 certifications for financial services institutions as published in the media

5. Partnerships with key stakeholders

Financial services institutions have partnered with global tech companies and Card payment providers to boost Payment Solutions for Fintechs to enable fintechs to issue their card propositions. These are some of the strategic agreements that enable financial services institutions to provide payment cards to tech-enabled companies including FINTECHs to issue their card propositions through banks using advanced technologies.

6. Adoption of emerging technologies

a) AI

Financial services institutions have heavily invested in revolutionizing the industry through adoption of emerging technology to supercharge customer-facing chatbots, prevent fraud, and speed up time-consuming tasks such as developing code, responding to customer queries, analyzing data to get valuable insights, and summarizing regulatory reports for timely submission.

It's no longer about - I don't know what I don't know, it's now the ability to generate new data and information by learning from existing datasets.

b) Cloud Computing

One of the inherent risks that financial services industries face is the risk of Fraud in various forms. For example; fraud in the financial industry can include identify theft, applying for a loan under a false name, direct theft of funds, collusion of staff, creating a fake bank account, money laundering, attempted tax evasion, and speculator trading.  In addition to saving costs on manning physical data centres, financial services institutions are leveraging cloud technology for fraud detection by analyzing massive amounts of data from diverse sources which helps them detect potentially suspicious or dangerous activity and address it before it causes damage. The next-gen baking solutions are becoming cloud-based

These trends are providing the stakeholders the confidence to transact locally and globally with peace of mind and to the business owners, its continued return on investments.

To be continued...............................