INSIGHTH INTO DOING BUSINESS IN SOUTH AFRICA AND AFRICA IN THE FINANCIAL INDUSTRY. Chippy Wood February 2015

Transcription

1 INSIGHTH INTO DOING BUSINESS IN SOUTH AFRICA AND AFRICA IN THE FINANCIAL INDUSTRY Chippy Wood February 2015

2 Agenda The Financial Services Industry is too broad to provide a bird s eye view into each business area. This Agenda is a journey that focuses on Nelson Mandala s influence and South Africa s banking with an emphasis on payments. Along the way look into Markets Macro country infrastructure Payments core Company governance Payment governance Payment opportunity areas Banking competition and bank response Technology opportunity macro insight Doing business in Africa Considerations Examples

3 South Africa - 3rd and 1st World Markets Wealthy, High Net Worth, Upper Middle Market, Black Diamonds, Middle Market, The Poor, Rural Families. Large Corporate Market, Corporate Market, Medium Corporate Market, Business Market, Small Business Market, SMES, Stockvels, Rural Substance Farming. Government, Provincial Governments, Local Councils, State Owned entities.

4 Shopping Centre

5 Warehouse

6 Logistics

7 South Africa Pre President Nelson Mandala 1. A well accepted fact that Apartheid disallowed inclusion of all. 1. This restricted banking with the focus on the White community. 1. The Banking core infrastructure was built to world class standards. One of the few Countries that have no float with all transactions settled same day. Good Bank Account Systems, Electronic Distribution EFT (Salaries, Credit and Debit Orders) now Real-time available, ATMs, POS with cash-back, Telephone Banking, Internet Banking, SWIFT, etc. Supported by BankservAfrica and STRATE switching and settling transactions locally and SBV managing wholesale cash countrywide. 1. Employed white South Africans had a Bank account to receive a salary. This allowed electronic debit transactions creating volume. 1. Corporate Companies put pressure on Banks to increase Black Bank accounts, to allow a wide distributed electronic collections.

8 South Africa President Nelson Mandala Mandela s influence helped South Africa win major International Events. African Cup of Nations, Africa Games, Rugby World Cup, World Summit, Cricket World Cup, Cricket IPL, Football World Cup, Many World Conferences, etc. This resulted in the world overseeing the Infrastructure Projects. These include new - Houses, Hotels, B&Bs, Highways, Stadiums, Media facilities with massive increase of Bandwidth, Police Training, Airports, Passport Control Systems, Aircraft, Tourist facilities - grading standards, Transport trains, busses, taxis, private couriers, Restaurants, Banking changes, Opening the internet to business, now a priority banks focus. A massive increase in tourism has resulted, etc. A Rainbow Nation of different races, languages and cultures was created.

9 Inclusion Share the Money 1. BBBEE Black Empowerment 2. Banking Services in Rural areas 3. Lending to the poor

10 The Rainbow Nation change to banking The introduction of BBBEE to bring about the process of Inclusion. This was the birth of the Black Diamond Market. Great contribution to GDP through the increased money multiplier. The Banking Charter was signed to deliver banking services to within 20 kms to all South Africans and deliver BEE within the Banking Industry. Social Responsibility Grants to 13 million people paid into bank accounts with an EMV Debit Card - accepted at all ATMs and POS (purchases / cash-back). New regulations to govern Lending, particularly Micro Loans. The National Credit Act (4300 Registered Lenders) and NPS - EDO (Early Debit Order) to create responsible lending and preferential collections. Simply, Irresponsible Lenders cannot collect their debt. Responsible Lenders use EDO with electronic contracts, first debit following a salary credit. Banks contracts (asset finance, credit cards, personal loans, home loans) do not get preference Banks use EDO. South Africa has a vibrant stock exchange supported by a CSD (electronic register and settlement). The Fais Act has been introduced to protect Investors which requires all advisors to be certified before providing investment advice.

11 Broad-Based Black Economic Empowerment BBBEE is a form of Economic Empowerment initiated by the South African government to rectify apartheid and create inclusion (Black African, Coloured or Indian). The goal of Broad-Based Empowerment is to distribute wealth across a broad a spectrum of previously disadvantaged South African society. Broad-Based Empowerment Scorecard: Elements Weighting Compliance Target Equity Ownership 25 25% Management Control & 40% to 50% Employment Equity 15 3% NPAT Skills Development 20 6% Payroll Enterprise & Supplier Development 40 70% + 3% Development Socio-economic Development 5 1% NPAT Total 105 No fronting allowed.

12 Broad-Based Black Economic Empowerment Generic Enterprises Generic enterprises are those enterprises that have a turnover of greater than R50 Million. It is estimated that 4% of South African Enterprises Fall into this category. Generic Enterprises must apply all five pillars to the Generic Scorecard. Qualifying Small Enterprises (QSE) QSEs are enterprises that have a turnover between R10 Million and R50 Million, QSEs can choose the best four of their five elements, with each element accounting for 25% of their scorecard out of 100. Exempted Micro Enterprises (EME) EMEs are enterprises with a turnover of less than R10 Million. EMEs automatically qualify as 100% contributors towards Preferential Procurement. If they are greater than 50% black owned they qualify as 110% contributors towards Preferential Procurement.

13 Legal Foundation for the SA National Payment System South African Reserve Bank Act National Payment System Act (SARB Directives, Position Papers & Criteria) PSOs PASA Constitution SOs PASA Directives & Policies Payment Clearing House Agreements Members Customer agreements Terms and conditions TPPPs PCH Clearing Rules Service Level Agreements

14 NPS Participants the Onion Layer Model Intensity of regulation increases from outer to inner core

15 PASA members & registered stakeholders PASA Members (Banks) There are 26 authorised PASA members PCH System Operators (PSO) There are 4 authorised PSO s BankservAfrica Low value Visa & MasterCard Low value STRATE High value System Operators (SO) There are 81 SO s Third Party Payment Providers (TPPPs) There are 77 registered TPPP s Most Adults are banked and the game is focused on electronic money Banks are fully integrated with automatic reconciliation to Corporates Banks are integrated via internet banking to many businesses Banks are integrated to various Government Departments.

16 The Payments Value Checklist Customers use delivery channels based on their needs which most times follows the value checklist. Convenience refers to both place and time. Ease of use includes, completing the transaction, knowing the balance and reconciliation later. Technology is about cost and reliability including set up. Price, pay for what value, consumers have less bargaining power. Security, including am I safe? Convenience Ease of Use Technology Price Security & Risk Merchants & Business expect the delivery channel to seamlessly integrate in to their business processes. Convenience, ease of use and technology are all linked to their processes, integrate payments to information keeping payments efficient. Sometimes training and reconciliation is overlooked. Price relative to their costs, including cash flow is the biggest stumbling block, what is value? Security relating to loss of business/fraud/stock, etc is a major factor. This is more difficult if the delivery channel is not integrated. Electronic Delivery Channels have expanded the Banks reach and improved service

17 Payments Products Channels of Growth Concept Competition with Inter-Bank interoperability is a catalyst for growth

18 Informal NPS Credit-Linked Payment Systems Buy-Aids RCS Retailer Cards etc. Deposit-Linked Payment System Loyalty/Vouchers Pre-paid Cards Etc.

19 Prepaid in the formal and informal NPS Legislation Formal NPS Informal NPS Legislation Open Closed Banks Act NPS Act FICA Consumer Protection Act E-Money Position Paper Interoperable/Interbank Cash, goods and services SARB, PASA and other regulators Visa and MasterCard/bank branded debit cards Not interbank Goods and services only SARB and other regulators Shopping mall or merchant specific vouchers, cards, etc. Consumer Protection Act E-Money Position Paper

20 Formal NPS - Future View Dynamic & Growing Relatively Static Focused innovation in outer core

21 The Activity & Innovation New players Continuous innovation e.g. mobile as channel Traditional Sustainable Innovation (Overserved market) Attractive customers New technology Unfulfilled market need Disruptive Innovation (Underserved market) Other factors Regulatory framework Competition Extent of existing payment service sophistication Less functionally rich, disparate solutions Necessity is the mother of innovation! There are underserved needs!

22 Competition Direction Fierce competition is driving innovation in the Financial Services. Directions recently observed: Competition Commission oversight (Office of Fair Trading) Merchant acquiring POS and support products launches of Pocket POS, Pebble. Card issuing with new card product launches into Prepaid, tap and go Transportation Acquiring and Cards - tap and go Mobile Banking advances but mostly closed loop solutions. Switching Accounts, using great value add offers and competitor attack adverts, supported with interbank solutions to make account transfers easy. Value add key products are Loyalty, new apps, insurance, service standards, bundle fees, personal interest rates both loans and investments, etc. New Branch of the Future built like an Apple istore to capture the electronic device market into banking for control of the internet. FNB distributes and finances (as part of bank charges) more smart phones and tablets than Mobile Companies. Banks in direct competition for broadband data sales.

23 Gift Cards

24 Loyalty

25 Travel Insurance

26 Lost Luggage

27 Concierge services

28 Roadside Assistance

29 Disaster

30 Technology Platforms An Opportunity Load Stations Customer Service PC Issuing Aggregator LVP Switch Merchant Validation Routing and Switching Merchant Management UPIP Account Management System Real-time Fee Calculation - Load Agent Management Anti-Money Laundering Financial Postings (GLs) Bank/s Retail POS ITS Central System Acquiring Aggregator Transaction Processing and Logging Security Card Data Generation Treasury Framework Authorisations MIS & Reporting Aconite PPVM Transit Operators Retail/Transit Environment EVD Warehouse for Transfer Loads Financial Environment Banks and other players acknowledge that Technology Investment is essential to ensure renewal and development of new products / services This extends to other needs support systems, training, consulting, etc

31 Doing Business in South Africa / Africa Considerations. 1. Understand the difference between 1. Growing your Business Sales 2. Invest Capital in the Business for a later return, mostly needed in Africa 3. Donor funding is used in many African countries (can be South Africa) for key projects. This allows development but takes time to arrange and contract. Various Donor Organisations are active in Africa supplying large capital amounts, World Bank, Gates Foundation, US Aid, etc. 2. Travel costs to sell, negotiate contracts, set-up, start-up, customer support. This is due to the distance and associated cost from Ireland to South Africa /Africa 1. Strong Customer relationships are needed beyond walking in to do business. It is necessary to create an environment of trust first particularly in Africa. 1. Many African countries insist on a balanced contract with jurisdiction in their own country. You can waste many months of delays negotiating a Master Servant contract. The CEO can not help as the Legal Executive reports directly to the Board in these cases.

32 Local support / partnerships Distance electronic support could work by way of phone calls, video conferencing, internet processes, etc. In practice his may not be the case, due to the relationship, culture, competition, time delay, cost particularly of overseas resources, misunderstanding of the need, customer staff skills, staff changes, business changes, implementation of enhancements / upgrades, product usage monitoring, etc. can be difficult to manage from out of country. Before you know it your business is going no where, despite your perceptions. Local support is essential for various products / services in many African countries. A local Company can be opened. The main considerations are compliance and cost effectiveness, especially if using Irish paid staff. The compliance overhead can be a burden and not fit with your way of working, BBBEE or tax compliance in South Africa. Use of local resources in Namibia, etc. Partner with local consultants and or a company with skills in your business. This implies an add-on business for the local company.

33 Pricing - Considerations Africa s currencies are devalued when compared to the Euro, US $, GBP. In Ireland costs of procurement of solutions including hardware, resources, other material is in Euro. Customer pricing is in Euro providing balance. If procurement is in US $ and customer price is in Euro there is a profit productivity gain or a lower customer price. In Africa if costs of procurement of solutions are in Euro and customer pricing is in Rand there is high customer pricing or a needed productivity gain. Both situations exist where the market value commands the higher customer price balance and where without higher productivity the product is a loss. In South Africa ATM business a 35% volume increase per ATM was needed to be profitable compared to volume per ATM in the USA. Population plays a key role in volume generation to manage price and profit. This is effected by the population wealth and density, the state of the infrastructure and number of businesses. Government strategy support position.

34 Apple and istore Apple is a great example. Apple has local istores staffed by local resources. BEE compliant. The Apple product range is world class. The distribution process to istores and other retailers works. The sales are well supported by trained staff in both the istores and retailers. Apple market the value and command a premium price. Apple allow selected retailers to introduce special prices, ebucks has discounts to up to 50%. Sales support and implementation is provided by trained staff. Customers can use istores or retailers for support. Data conversion from a competitor product or previous Apple product is free. One off questions are answered immediately. Group basic training is provided free. One on One customer training is a charged service. Warranty is up held against service standards. Customer survey requested.

35 Technology in the Mass Market. Leap Frog opportunities exist. Have been successful in the Mass Market for technology to be used by the population with limited education. Two examples. ATMs in Umtata, South Africa (Mandala s home town) South Africa accepted that ATMs could not be used in rural towns due to limited education with large numbers unable to read or write. This proved incorrect when all these people could use a telephone and remember the number to be dialed. In Umtata 8 ATMs were installed, each dispensing hundreds of thousands of Rand per day. These ATMs processed the highest volume in the world surpassing the then World Trade Centre records in New York. Mothers to Mothers (an AIDS Charity Organisation in South Africa) Mothers, in deep rural areas, service the community to avoid and manage AIDS. Mothers use Smart Phones to create a medical record, arrange AIDs tests, record the results, administer support re drug suppliers and follow up visits and in bad cases manage the children. These medical records are up loaded into a central management system. Hospitals now use these records in place of paper.

36 Thank You and Wish you every sucess Chippy Wood February 2015

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