South Africa receives a large number of migrants from Africa and particularly from the SADC region. This in itself presents a problem to the authorities from both a regulatory and financial control perspective. A variety of institutions have been very vocal and made representation to the authorities to assist migrants in remitting their hard earned money. Organisations such as the PASSOP (People Against Suffering Oppression and Poverty) have also made submissions to the South African Reserve Bank (SARB) and the Government (Re FICA).

The SARB has taken into considerations and concerns raised by all parties and it is expected to make an announcement regarding adjustments to the current regulations in the not too distant future. We feel that these regulator changes will provide an opportunity to both banks and 3^rd party remittance providers.

Proposed Exemption to the Financial Intelligence Centre Act 38 of 2001

The purpose of the proposed exemption is to provide remittances across the border at a low cost and without much impediment to the service provider and the remitter. It is often criticised that the financial industry has been shouldering much of the severely rising AML/CFT (Anti-Money Laundering / Combating of Financing of Terrorism) compliance costs throughout the globe.

The exemption will be applicable to all organisations as listed in Schedule 1 of the Financial Intelligence Centre Act 38 of 2001.This proposed exemption will enable the accountable institution to remit funds across the border  with a limited threshold and certain other conditions.

The exemption refers to a single transaction that would enable a client to send or transfer funds to a destination outside of the Republic in an amount not exceeding a predefined maximum amount per day and a maximum amount in a calendar month. This means the client may be permitted to send monies out of the country with certain maximum restrictions in terms of the amount sent per month and per year. As long as the client remains within these limits the transactions will be allowed.

The exemption provides that all accountable institutions will be exempt from compliance of obtaining and verifying the income tax number and residential address of South African citizens and residents. This is also applicable to persons who are citizens of another country but not residents in the Republic. The source of an individual’s income does not need to be recorded or queried to send a remittance. This represents a radical shift in the way that these regulations have been implemented from the past.

The exemption does not make provision for an exemption of obtaining and verifying the names; date of birth; identity or passport numbers as well as the transaction details; namely the amounts involved; the parties to the transaction and the accounts involved. This obligation as well as the record keeping obligations pertinent to the above information will still be applicable to all the accountable institutions in a single transaction.

The exemption is subject to the condition that the accountable institution must apply enhanced measures over and above its normal procedures to ensure that on-going transaction activity is monitored or scrutinised. This will ensure that the accountable institution will be able to identify and report suspicious and unusual transactions to meet its obligations under section 29 of the Act.

If you take into consideration the Financial Surveillance Department legislative change which addresses the improved access and competition to cross-border money remittances, money transfer operators will be regulated independently and the requirement for money transfer operators to partner with existing Authorised Dealers in foreign exchange and Authorised Dealers in foreign exchange with limited authority is not obligatory.

These changes are clear indications that the SARB is willing to facilitate in the guiding and assisting both the Authorised Dealers and Money remitters in furthering their business. These possible changes will no doubt present a huge opportunity to the banks and remittance providers to enter the remittance market which has historically been dominated by informal channels. Formalising the informal remittances sector presents an opportunity for market players in the formal sector to bring the “Taxi Money” into the mainstream.

Remittances thus represent a market opportunity for financial institutions ready to provide downstream services on a profitable basis.

SystemicLogic acknowledges that this is merely a proposed exemption and that the act as currently reads does not allow for the activity as we have described.

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Companies are faced with the enduring challenge of maintaining activity, interest and regular spend from clients. Services firms who provide intangible offerings where there is not a constant ‘touch’ factor need to understand the various behavioural aspects that impact interaction decisions. In the financial services world this is true in the case of account dormancy where the initial hype of opening an account is soon replaced by the dullness of interacting or the client simply forgets about the account.

The economic impact of understanding human behaviour should not be underestimated. In the case of account dormancy banks should understand how human behaviour impacts the flow of cash in an individual’s ecosystem. The influences to increase account activity will be different for each individual depending on both economic and behavioural influences.

Figure 1: Understanding behavioural incentives

The figure above is a high level reflection on how clients would think about and rationalise over a purchasing decision. In (A) we look at how price sensitive someone is when making a purchase decision and how that would relate to the loyalty that a person feels to a specific company. An example would be if an insurer offers a better deal to a specific client and he/she switches without much hesitation. Contrasting to that is someone who falls into (B), this individual has an expected client service level and puts a perceived expected amount of service to the price he/she pays. Whether this is a justified perception or not can be debated but this individual would be prepared to pay a premium for added service benefits.

It should be noted though, that these two absolutes are not working in isolation to one another. All purchasing decisions are made through a combination of the above. The combined view we see in (C) is an attempt to map out how clients can be influenced in different ways depending on which quadrant they fall in. Each of the different quadrants above will appeal to different individuals who make different purchasing decisions in varying combinations of (A) and (B). For banks to target specific individuals with different incentives and strategies to maintain account activity becomes easier when behaviour is understood.

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We often engage with our clients on a regular basis, on and off consulting projects, with a view to understanding their business’ better. One of the most recent recurring themes across various Banks, has to be around dormant accounts. To paraphrase – are there any opportunities that may be explored with inactive accounts?

The Innovation Agency’s Banking Innovation Studies, over the years, provides some insight into how this phenomena occurs. One of the Study questionnaires asks respondees to indicate whether they had switched Bank accounts in the past 12 to 18 months. The results showed that the respondees who had switched accounts, also held secondary accounts. This correlation may allude to the fact that customers rarely close their accounts when switching Banks. There are several possible causes for this occurrence and perhaps this is where the problem lies; by the time the Bank realizes that an account has gone dormant it may be too late.

Account Dormancy, therefore, must be a phenomenon that Banks think about throughout the customer lifecycle; from the time they onboard a customer and all the way through to maturity and actively take steps to minimize accounts becoming dormant. At each of the three broad identified stages, there are various components that Banks require to prioritise that result in customer experience that aims to minimize Account Dormancy.

The SystemicLogic Research Institute has begun an investigation into this subject matter and will base upcoming articles on this framework that will provide strategic guidance to tackling Account Dormancy.

The framework concentrates on three key components within the customer life-cycle:

Customer touch-points: Includes both staff-assisted and digital touch-points such as call centre, mobile phones, tablets, etc.
Usability: Focuses on the digital channels and provides insight into how to create the ‘stickiness’ factor on various platforms
Incentives: Includes both reward and loyalty programmes that aim to encourage certain customer behavioural characteristics

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We have recently undertaken Corporate Banking projects here at SystemicLogic, where one part of the deliverables was to capture and understand competitor products. During the research, it became apparent that the Banks themselves understand their products differently. The result of these differences, from a customer perspective, is incomparable data.

There have been some strides made to standardise certain information, particularly in the Retail Banking space, where the descriptions given to bank charges have been standardised. This is particularly helpful when shopping around for the most suitable product, across different banks. We can certainly appreciate the often complex nature of Corporate Banking products whereby asking for standardisation on a cost level would be too much. However, is it unreasonable to expect, at the very least, some basic standardised information on a product level?

The following three inconsistencies, we found to be the most common:

Some information was just not advertised

Just to be clear, this is not a issue of having to navigate through pages and pages of a bank’s website just to find one simple thing (which is frustrating in its own right…); this is frankly about not finding the information! One of the South African Big Four banks offer Cash Management solutions; however, we could not find any evidence of this on their website. We conducted similar searches with international banks and the plethora of information available was amazing when compared to our local banks.

Categorising of products

This was by far the biggest issue that we encountered when going through this exercise; the categorisation. We have observed that many of the international banks categorise their offerings by nature. Not only does this make it easier to find products, but it also makes it easier to understand what the product is and what it can do for you, as a customer. Some of our local banks do not even have Liquidity as a category, even though they offer Liquidity solutions.
There may be varied reasons that offerings are categorised differently and one of the reasons is segmentation. Card as a product, for example, often includes Card Acquiring. Structurally, inside a bank, Card is typically a retail-based offering but you would also find the Acquiring business which is meant for the business customer. The question here perhaps should be; who is the primary target audience for advertising this information? Whilst categorising the offering according to the internal structure is not incorrect, but as a corporate customer looking for an electronic payment collection solution, I would not look under Retail Business Banking.

Product descriptions

Corporate products are often very complex but one wonders, reading through the descriptions, how much time was spent writing / describing what each of the products are and their capabilities. In some instances, acronyms were used such as ACH and SWIFT without explaining their meaning. Owing to the complex nature of Corporate Banking, the model heavily relies on establishing relationships on a one-on-one basis, but perhaps additional time could have been taken on improving product descriptions.

Is there any Corporate Banker out there who is willing to heed this call?

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Why we’re for Open Source

Here at SystemicLogic Technologies (SLT), we like to consider ourselves platform and language agnostic, but, over time, we’ve pretty much only used Free and Open Source (FOSS) platforms. Philosophical arguments aside, some practical elements make FOSS extremely attractive for us, and increasingly, our clients.

The name says it all:

Free. Free to obtain, copy, extend and modify. For us, this mostly means that, should we need functionality or an environment, it can be found and downloaded from the web, without the need for licensing or negotiations. Developers are up, running and producing faster. Free leaves more room in the budget for service, development or other activities.

Open Source. We are free to dig around in the internals of whatever systems we’re running, extending or integrating with. In truth, this is not something we typically have to do, but every now and again, we will come across either a bug, or behaviour we want changed, and quick tweaks allow us to do this. On the whole, forums are abuzz with plenty of smart maintainers and developers of the systems we use, and they’re extremely receptive to requests for changes and fixes.

Our clients too, have been looking to FOSS to cut operational and licensing costs, and the trend is toward a more FOSS friendly enterprise.

Of course, proprietary systems will still exist and be used – there’s no reason to abandon software or services because they perform their task better than anything else out there. Ultimately, making software bugs the problem of multinational corporations with lots of smart people on tap, and having them commit to concrete SLAs is a good way to mitigate risk.

From our point of view though, because we’re evolving at a rapid pace all the time, and constantly refining and inventing products, we find that we’re able to turn things around that much faster without that sort of encumbrance.

When you’re a large enterprise, dealing with a well-defined process, much like that of your peers, and you need extremely tight vertical integration, so you can execute that process better than anyone, going with a proprietary stack looks extremely attractive. In a world where milliseconds count and single missed task could make the difference between advantage and loss, it pays to mitigate risk by having professionals handle things for you. You most likely have to pay a premium, but it’s a fair trade in exchange for guaranteed SLAs and a clear promise to help you keep your business running smoothly.

But, in an environment like ours, with processes being redefined and tweaked at a rapid pace, the requirements are different. We need to be able to have fine grained control over every aspect of any system we build. We need to be able to integrate with other, often proprietary systems quickly, and change the nature of that integration as client’s needs evolve. Our developers are particular about the tools they’ll use, and don’t want to have to be tied to any specific IDE. Proprietary systems, by their opaque nature, don’t allow us to do this. Sure, we consider ourselves platform and language agnostic, and if it is required that we use a proprietary stack, we’ll roll up our sleeves, get stuck in and deliver, but the truth is that it’s nice to have options. FOSS has been able to give us options. And we haven’t found a compelling reason to use anything else.

FOSS vs. Commercial software

We’re choosing through our actions. The FOSS vs. Commercial software argument is a long, colourful one, and I’m not going to try and weigh in either way – there are experts on both sides to confuse you with all sorts of fear, uncertainty and doubt (FUD). I’m just going to observe what our actions say. Ever the pragmatists, we will use whatever tools will work to get the job done, but on the whole, we end up using Linux, Apache, Mysql and PHP. Techies call this the LAMP stack. In reality, we’ve tended toward using software we can download off the web, but more importantly, doesn’t cripple us with a 30 day trial period or limit functionality for not buying a license. It’s also handy to be able to talk to the actual developers of packages, for assistance with issues. Inevitably, FOSS is software that has been created to solve problems, rather than take advantage of a market. Also – developers are a peculiar breed, with distinct tastes, and SLT values the opinions and judgements of its developers. So the system is awash with tools, packages and scripts useful to people who like to tweak and explore. FOSS allows this.

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Moves into Africa

In recent years international companies have increasingly reached out into the African market – more specifically banks. Many international banks have focused their investment on African countries and as a result have expanded their African footprint. Various African presence strategies are evident – some banks have chosen partner-banking (with African banks) some are considering increased shareholding in major African banks, while others are trying to establish a small footprint and grow more conservatively.

Who’s moving?

Last year, Barclays Africa moved its African headquarters from Dubai to Johannesburg. ICBC (Industrial and Commercial Bank of China) on the other hand has opened its first representative office in Cape Town. International banks that have already established a presence in Africa continue to expand into other African countries. Banks such as Barclays, Citibank, Standard Chartered, FirstRand and Standard Bank are largely focused in the Sub-Saharan African region with very little focus in the Middle East and North African region; except in Egypt, where Standard Chartered and Barclays have a presence and Citibank in Algeria and Morocco. These international banks have also ventured into territories such as South Africa, Tanzania, Zambia, Botswana, Ghana, Kenya, Nigeria and Uganda.

What are they moving?

International banks have been heavily focused on growing their wholesale banking divisions, whereas the majority of African banks are more focused on growing their retail divisions. FirstRand generates more profit in its retail segment compared to its wholesale operations in Africa.
Standard Chartered operations in Africa are more profitable in wholesale banking compared to its retail banking operations. Other banks like Citigroup generate more revenue from transactional products and services including Trade and Cash Management. Looking more at wholesale banking, a lot of payment and mobile capabilities have also been introduced in the past 3 years which include:

• Payroll services
• Integrated payment processing
• Contact-less cards
• Commercial cards
• Trade advisory services
• Banking apps

A key observation made from studying the various banks is that the corporate international banks are more profitable in the African market as compared to their global reach. This illustrates that banks need to adapt to the different countries they operate in. What works in European/Western markets might not necessarily work in the African markets. Banks need to be able to adapt their offerings to the different markets.

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In a market where companies are experiencing constantly increasing levels of competition, value network integration has become one of the primary strategies focused in generating new forms of revenue. Few (if any) companies can afford to keep innovation focused internally – instead, most successful companies today follow a more “open” approach whereby partnership capabilities are leveraged to complement, extend or reconfigure their current value propositions.

One of the major trends that have surfaced in the last 2 years relates to the increased focus on creating new platforms for customer acquisition by augmenting banking value propositions with telecommunication offerings (or vice versa). The South African context presents both interesting and unique options in terms of value network integration through issued Electronic Communication Network Service licenses (ECNS) and Electronic Communications Service Licenses (ECS). Various banks in SA have already started leveraging the capabilities enabled by these licenses with varying degrees of success.

Mall strategies present a unique option for value network integration. The mall strategy consists of a mall using its dominance of real estate to create an Open Access Service layer in the mall, limiting other service providers to have fibre access inside the premises, also providing aggregated Internet access to tenants and finally activating rewards systems and competitions in the mall through new media. The mall strategy’s value network integration is mapped between a bank and a Telco. The Telco’s role is to provide the electronic communications network. The bank will provide the electronic communications services such as content provision, portal access, ID and billing, value added services and providing hardware. This illustrates the extensive role the bank will be playing in the traditional Telco value chain enabled by the ECS and ECNS licenses.

Fundamental changes in the established value propositions and companies altering their role in the existing value network will result in further market consolidation in the near future as well as disruptive business model innovation.

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Emerging markets have long been on the radar of large corporates as high growth high
potential opportunities. The potential of these markets, specifically Africa, are now greater
than ever. Africa is becoming a new and renewed focus for many companies wanting to
grow their businesses and extend their footprint, particularly post financial crisis. Consider
that over the past 10 years, six of the 10 fastest-growing economies were in Sub-Saharan
Africa, and in the next five years, seven Sub-Saharan economies are expected to make the
list. If we look at the financial market specifically we see that most of the continents financial
service sectors are growing at a rate that is outperforming the GDP’s of those countries.
There is large potential for companies willing to take the effort to develop a long term growth
plan for Africa.

So how do you enter and sustainably capture this large potential market that is Africa?
Financial service providers have a profound opportunity to impact the continent and drive
and support the growth with sound direction, practice and leadership. In order to capture
the African market it is vital to understand how the external factors will influence the internal
strategic decisions that will need to be developed.

Firstly, an African strategy should not be aimed at Africa. There are 500 ethnic groups, with
over 2000 languages in 53 countries; developing a strategy that blankets all of these (or
even just a portion of them) is a journey into the unfathomable. Each country has unique
nuances that need to be taken into consideration, legislative differences and political
stability differences. The second important point is the social aspect. Across the various
countries it is important to remember that grouping people according to financial wealth in
an African context can be highly misleading and even incorrect. The social aspect should
rather consider people and potential target markets based on behaviour. Understanding
human behaviour and how specific cultures would accept one aspect but reject another is
vitally important to entering a country. Lastly the current infrastructure shortage and rise of
mobile phone adoption provides an interesting challenge and opportunity, because although
there is a lack of basic infrastructure, the mobile phone uptake presents major potential if
approached correctly.

The path into Africa may be a turbulent one but understanding that each country has
specific differences with changing social behaviours and varying rates of infrastructure and
technology adoption will enable companies to grow Africa into the powerhouse it deserves to
be. The importance of understanding the external environment and how they influence the
development of a sustainable and organic growth strategy for Africa could be the difference
between success and failure.

The post Into Africa appeared first on SystemicLogic International.

• Transforming organisational culture is a complex task
• Finding the right place to start with a group-wide innovation approach can be daunting, especially considering that organizations are different – a difference that need to understood well.
• Realizing that traditional funnel-based innovation approaches are fundamentally flawed, we set out to apply new ways in to integrate innovation into the core of the organisation

Case Study

• Our activity over the past few years in aiding organisations to become more innovative has taught us that re-thinking innovation requires strong leadership and the will to pursue the journey towards becoming recognisable force in the market.
• Our implementation journeys involved the launching of several programmes and campaigns with a clear and directed roadmap that covers the innovation journey end-to-end – this includes key components that draws from success patterns found across multiple services industries
• Gaining insight into the “real” organisation required the ability to probe behavioural constraints and catalysts. Our teams conducted network archetypal analysis to identify critical structural and procedural intervention opportunities – thereby pinpointing areas that provide quick-wins and longer term transformative actions
• Technology-enabled tools seldom provide value without a strong methodology – By combining our own social-based innovation approach with a supporting technology-enabled platform, we were able the innovation process from idea generation and capture through to realization – without the bottlenecks.

Outcomes

• Our social-based approach involved the interaction of a broader set of individuals that contributed to realizing innovation – bringing ideas, domain knowledge and implementation know-how together in a network that is focused on the delivery of real business benefit

The post Making Innovation Real appeared first on SystemicLogic International.

• In an increasingly competitive environment, organizations are forced to fast-track their learning. Instead of over-engineering solutions  through extended “it has to be perfect” planning cycles, organizations need to be able to plan and execute in a more integrated and pro-active way – and learn as they go.

Case Study

• Recent initiatives in selected banking Card divisions has set out to combine mobile-enabled client facing scenario development and prototyping to support our Card Issuers and Acquirers in controlling the risks associated with broad market exposure by ring-fencing sample segments and testing digital concepts hands-on.
• The initiatives involved the development of a scenario framework involving considerations for bank-driven, location-driven and retail-driven options
• A combination of end-to-end scenarios were constructed with trade-off analysis to rank the key options that focused on benefits to both cards issuers and merchants in a location-based setting
• A digital sample prototype was developed and tested in a ring-fenced environment enabling rapid learning that would serve as a key foundation for enhancement
• Requirements were fed then fed through to the business to roll-out the solution on their own platform without the risk of adding “yet another vendor solution” to existing IT system portfolio mix

Outcomes

• Higher degrees of hands-on involvement and learning in testing solutions (clients are actively involved)
• Ability to explore and implement “never before seen” ideas in support of first-to-market drivers
• Cost efficient testing of solutions that provide a rich set of reusable and thought-through requirements at implementation time

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