A mere five years ago, almost 90% of foreign currency trades in South Africa happened over the telephone. “Today, despite challenges around illiquidity and complicated political and capital control environments, approximately 75% of trades are conducted digitally with a mere 25% conducted on the phone,” says Tim Hutchinson, head of digital for financial markets, Standard Bank.
With 57.6% of the world’s 174-million active registered mobile money accounts in sub-Saharan Africa, the continent is becoming a world leader in fintech generally - and mobile money in particular.
The foreign exchange flows that Africa’s expanding fintech culture supports are very important to the continent’s financial services providers, most of which are developing capabilities or partnering with the most popular or effective home-grown African fintechs to ensure that they capture this flow.
“In order to function as an effective market maker, we need to source liquidity in market. We also need to, instantly, formulate risk-based pricing in an ever-changing world. Thereafter we need to distribute price,” says Hutchinson.
In Africa, this requires developing solutions that allow retail, corporate and institutional customers to access foreign exchange markets across multiple jurisdictions. At the same time in most markets, “we also need to show central banks what we are doing. All transactions need to be transparent and electronically traceable so that local authorities are prepared to approve digital trades,” he says.
Today, however, banks are not only expected to provide the systems and networks to facilitate basic transactions but are also required to provide insight and guidance beyond pure execution by offering additional value-based services across research, hedging and, most importantly, settlement capability. Currency research for example, is increasingly a big client requirement.
In addition, banks are also increasingly required to inform and guide clients through the broader economic, legal and political landscapes in which transactions occur. For example, how to combine market intelligence and research with real-time pricing, trade execution and post-trade services. Today it is not enough just to execute trades. “It is equally important that we advise and inform the broader universe in which trades happen,” says Hutchinson.
From a technology point of view, regulatory technology (regtec), for example, is assisting Africa to manage new regulatory developments in heavily currency-controlled environments. Similarly, the rise in robotic process automation (RPA) and artificial intelligence (AI), has allowed develop solutions that leapfrog traditional business problems.
Digital trading in Africa is also evolving in its own often very different way. “We have found that it is not just a question of importing developed world systems. Our approach with clients is to work with them to help understand their internal needs in terms of governance and operational efficiency. We then partner with clients to develop and implement digital solutions that talk to the heart of their business need,” he says.
From an institutional perspective it’s very important to be able to offer customisable solutions to clients managing money on behalf of their investors.
While Africa’s record in digital adaptation and innovation is impressive, the technology part is often the easier part to implement. Bank employees, customers and regulators all need to undergo fundamental cultural shifts in how they do things and understand the world. “The human and cultural systems, and client behaviour changes, required to give this digital evolution life – like getting customer analogue systems to start pricing electronically to make trades visible 24/7 – is often a lot harder to achieve than the technology upgrade,” says Hutchinson.
