Why cash is here to stay

Many assume that physical cash is on its way out of our financial system. You’d be forgiven for thinking this, given current advances in technology, widespread adoption of mobile phones, higher inclusion of people into the ranks of the “banked” and the broader FinTech revolution taking place. However, deeper reflection leads to a different conclusion…

Many assume that physical cash is on its way out of our financial system.  You’d be forgiven for thinking this, given current advances in technology, widespread adoption of mobile phones, higher inclusion of people into the ranks of the “banked” and the broader FinTech revolution taking place.  However, deeper reflection leads to a different conclusion:  As long as dire poverty exists in any society, cash cannot be done away with.

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Image credit: seemoreandmore.tumblr.com

Let me explain.

Any monetary value in our society is allocated to individuals in two ways – bearer instruments or registered instruments.  A bearer instrument is something that is assumed to be owned by the holder of the instrument.  An example is physical cash.  You don’t need to prove to anyone that the cash in your wallet is yours.  You have it and so you’re the presumed owner.  Registered instruments, however, are assets whose ownership is determined by referencing a database managed by a trusted institution (think houses at the Deeds Office or your digital money that is in your bank account).

Now let’s compare cash (a bearer instrument) with the digital money in your bank account (a registered instrument).  Even assuming zero bank fees, to access the money in your bank account incurs costs.  You either need to have a device with internet access (costly) or you need to travel to your bank branch (also costly) to access or spend the money in your bank account.  Physical cash on the other hand incurs no costs to be spent or accepted.

It is socially untenable for a government to require its poorest citizen to incur costs in order to accept value in the form of its currency.  As such, it follows that cash will remain in our society as long as the “access cost” to digital money is not insignificant to the poorest member of our society.  And of course, this assumes that fiat currency (i.e. government-issued currency) will last longer than it takes us as a society to eradicate extreme poverty! (More on this another time.)

by Farzam Ehsani

Kenya’s mobile money story: the runaway success of M-Pesa

Development finance and corporate banks alike have long wrestled with the issue of banking the unbanked in the developing world, which would encourage broad-based socio-economic development on the one hand, as well as greater product distribution for the private sector banking institutions.

http://martinpasquier.com/wp-content/uploads/2013/11/Mpesa-agent-shack-kenya-afrikoin-mobile-money-martin-pasquier-emerging-markets-innovation.jpg
Image credit: http://martinpasquier.com

Development finance and corporate banks alike have long wrestled with the issue of banking the unbanked in the developing world, which would encourage broad-based socio-economic development on the one hand, as well as greater product distribution for the private sector banking institutions.

However, bringing greater financial inclusion to the bottom of the pyramid no longer means universal branch bank account ownership. Nowhere is this more evident than in Africa, particularly in one of the continent’s emerging fintech hubs, Kenya.

http://asmarterplanet.com/blog/2011/04/kenya-leapfrogs-the-rest-of-the-world-with-its-mobile-money-services.html
Image credit: http://asmarterplanet.com

In 2006, before M-Pesa was launched, 25% of Kenyans had access to banking products. By 2014, this figure had jumped to 68%. Almost half of these users do not have a formal bank account, indeed, formal banking sector inclusion in Kenya remains as low as 23%. However, the M-Pesa platform performs the essential financial transactions:  deposit and withdraw money, transfer money to other M-Pesa users and non-users, pay bills and purchase airtime. M-Pesa agents are as ubiquitous as pavement airtime kiosks, whose owners have been duly trained and are incentivised by clipping a commission per M-Pesa transaction. This is the kind of distribution network that most ATM-driven banks can only dream about.

This context is not unique to Kenya. Small wonder then that Sub-Saharan Africa is a global leader in the use of mobile money technology. On average 16% of the adult population actively uses a mobile money product in the region; the global average is 2%. Of the 18 countries in the world that have more mobile money accounts than bank accounts, only one, Paraguay, is not in Africa.

The significance of M-Pesa and the mobile money products like it is the potential it holds for retail financial access in the developing world and the money to be made in doing so. As the trail-blazer in this innovation space, Safaricom now generates a reported 10% of its revenue through providing a transactional banking platform for that segment of the population conventional financial institutions did not consider worth it to bank.

[Reprinted with permission from Observer Research Foundation].

by Lucy Corkin

 

Read the full story originally published by Observer Research Foundation website here.

 

The Observer Research Foundation is India’s leading policy think-tank seeking to lead and aid policy thinking towards building a strong and prosperous India in a fair and equitable world. ORF has the mandate to conduct in-depth research, provide inclusive platforms and invest in tomorrow’s thought leaders today.

lucy-corkin-rmb1-cropped2Lucy Corkin is Business Manager at RMB Africa, having joined RMB as a Class Of in 2012. She has a PhD in International Relations from SOAS, University of London, and has picked up a couple of languages along the way, including French, Portuguese and Mandarin Chinese. She is a regular contributor for the Observer Research Foundation where she gets to share her thoughts on goings on in Africa, the world of banking, and anything else that grabs her attention.

Banking on the future

As we travel down the road to banking innovation and focus on attracting incredible talent, it’s becoming increasingly clear that we have a slight problem Houston…it seems that banks have a bad rap!

As we travel down the road to banking innovation and focus on attracting incredible talent, it’s becoming increasingly clear that we have a slight problem Houston…it seems that banks have a bad rap!

Where to lay the blame seems a little less clear…it could be the multiple crises over the last few decades, could be recent high-profile scandals, sensationalised movies and TV shows with hyper-villainous bankers, or tales of “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money” – whatever the cause, the reputation is certainly a little more tarnished than it was back in the day!

Now I’m not claiming that there is a whole lot of fireless smoke nor do I want to embark on a meaningless defensive diatribe, but I do feel compelled to encourage incredible talent back into the illustrious world of financial services.

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So, why is banking an exciting place to forge your career?

Firstly, banking has its heart in innovation – yes, innovation. Banking by definition sits in the middle of the economy and as much as that economy changes (all the time!) so must banking adapt. It is an industry that continually has to reinvent itself, continually innovating and redefining what it provides for its clients. Now, more than ever before, banks are feeling the pressure to reinvent themselves to thrive in a digital age and i future-proof the world of financial services. This is a great opportunity for innovators in non-traditional banking spheres to participate — engineers, developers, creatives, design experts — all have roles to play in the banking innovation ecosystem of the present and of the future. Diversity is essential for innovation. Banks are seeking talent from all walks of life and cultural shifts that have been slow in the past are accelerating as the industry recognises the need for great diversity of thinking.

Secondly, it’s a challenging and dynamic working environment. Banks are notoriously competitive, but it’s exactly that type of backdrop that allows you to participate in a highly stimulating career path. The opportunities for growth are immediate and long-lasting, and the energy and buzz that the environment provides create great opportunities for individual and team outperformance. Dynamic environments also have great scope for autonomy and mastery and, importantly, an opportunity to be part of creating a new future.

The industry is also one where learning is part of the everyday experience: banks are well known for structured in-house training, but they are also supportive of formal training programmes. Continual learning is essential for if banks are to continue to be innovative and is of great value to individuals working in the space as they follow their own development and leadership journeys.

And, lastly, we have fun! As we strive for lives where work and life come together, an industry that allows you to have fun while you work and that embraces your individual excellence in a great working environment is pretty appealing!

by Liesl Bebb-McKay

Listen to Liesl talking about RMB’s Athena programme on Classic FM here.  The Athena programme won the “Women Empowerment in the Workplace” award at the 2016 Gender Mainstreaming Awards.

 

 

 

Introducing the Spine Model

EMBARKING ON THE AGILE JOURNEY I’ve seen many organisations who have embarked on Agile journeys. The large enterprises are harder to shift than smaller companies and start-ups. A fundamental truth about enterprises is that they suffer from “silo sickness”…

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EMBARKING ON THE AGILE JOURNEY

embarkingonthejourneyv2I’ve seen many organisations who have embarked on Agile journeys. The large enterprises are harder to shift than smaller companies and start-ups. A fundamental truth about enterprises is that they suffer from “silo sickness”, a disabling condition that impedes the flow of value. Smaller companies are easier as they have fewer hand-off points as well as organizational silos. With start-ups one is always conscious to set up the organization right by applying the wisdom that only years of practical learning can provide.

silosicknesv2Enter “The Foundery”, RMB’s Technology Disruption Unit – this is where we want to showcase how to do it right. Being an Agile cheerleader, I wanted to help to shape the unit so that the entire unit is Agile – not only the technology component. My partners have already done some amazing work by creating an empowering and progressive culture. My contribution is to introduce the Spine Model. The Spine Model is a philosophy of thought that helps to set the framework that supports and enables teams wanting to improve their way of work.

I INTRODUCE: THE SPINE MODEL

spinemodelv2A key pre-supposition of the Spine Model is as follows: whilst hierarchy is sometimes useful it should only guide on what outcomes are needed and NOT how these outcomes are to be achieved. The ‘how’ is the mandate of the team. Autonomy is essential in a world of knowledge workers.

The Spine Model starts with the ‘what’. What is the need that each team is addressing?

We then flow to the values of the team: what does the team value? When talking at the value level, one must understand the organisational values, team values and values of the individuals. Self-awareness of these value drivers can be transformative. I would recommend reading the works of David Lapin on this subject.

Moving to principles: the principles that the teams establish become the means by which decisions are made. The absence of principles that the team agrees on puts the team into a place of chaos as decision making often defaults to decision by hierarchy.

Practices are often the place that people start their Agile journeys, “We’re going to do scrum and it’s going to solve all of our issues”. This is a common misconception and a mistake, the practice is far less important than the ultimate need that it supports.

Finally, we have tools that support the practices. I’m a great believer in tools, never do something more than once manually if it can be sensibly automated.

Simple right? Most things look good on paper, when the rubber hits the road then it becomes interesting. Look out for my next article on how you walk the spine.

by Jason Suttie

Bank of the Future: Quo Vadis?

History is littered with examples of derided radical thinkers, revolutionaries and heretics who challenged the status quo. One of the best known examples is the Roman Inquisition’s denial of heliocentricism. The concept of the earth moving around the sun…

WHAT DOES THE STATUS QUO MEAN FOR BANKS?

“Status quo, you know, is Latin for ‘the mess we’re in.” – Ronald Reagan

 

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Source: http://gettingsmart.com

History is littered with examples of derided radical thinkers, revolutionaries and heretics who challenged the status quo. One of the best known examples is the Roman Inquisition’s denial of heliocentricism. The concept of the earth moving around the sun contradicted the Roman Catholic Church at a time when the rivalling ideology of Protestantism heightened the need to defend the status quo. Consequently, in 1616, Galileo was instructed by Pope Paul V to abandon his opinion that heliocentricism was a physical truth even though the well-educated of society at the time accepted the heliocentric view as fact.

While the Catholic Church’s confrontation of heliocentricism was rooted in religious dogma, incumbent financial service providers are arguably stymied by systemic and architectural impediments that make shifting the status quo a near impossible undertaking. The existing conditions in banking are defined by siloed structures built around deep functional specialisation, legacy systems embedded in spaghetti architecture, unwieldy cost bases and a product-centric market-orientation.

Source: http://banknxt.com/wp-content/uploads/2015/10/Banks-vs-fintech-will-the-confrontation-continue.jpg

The elements of the status quo described here have a profound influence on our approach to dealing with the future. It is extremely difficult for incumbents to deal with the changes brought about by the proliferation of advances in digital technology that enable Fintech startups to challenge one of the world’s most established, tightly regulated, and mature industries.

The financial services industry is awash with more than 1,300 Fintech startups, across over 54 countries, that have attracted in excess of $80bn in funding since 2010 and they are attacking incumbent business models on the three fronts:

  • Pricing transparency through disintermediation of traditional service providers;
  • Democratisation of products and services previously reserved for exclusive market segments; and
  • Provision of a streamlined, intuitive customer experience that make the traditional service providers look like a shoddy alternative.

While the Fintech disruption has so far been more pronounced in the retail space, it would be naïve not to see this as an omen of a fire that will surely spread to corporate and investment banking.

THE ROADBLOCKS WE ENCOUNTER ALONG THE WAY

“Those things which I am saying now may be obscure, yet they will be made clearer in their proper place.” – Nicolaus Copernicus

 

Source: https://marketoonist.com/2013/03/where-complacent-brands-go.html

As clear as the threat and need to respond may be, the status quo can never be anything other than a feeble and flawed attempt of yesteryear to prepare for our future, fraught with uncertainty.

Our attempts to corporatise innovation and disruption are often informed by aspirations to emulate Silicon Valley. We all want to be more like Amazon, Google, Uber or Airbnb, so we strive to imbue our organisations with the same dynamism, appetite for failure and creative culture we regard as the panacea for deficiencies in our ability to innovate and disrupt.

What we forget is that as noble as our intentions may be, any disruptive play will face the resistance of the status quo in all its varied manifestations. Roadblocks to challenging existing conditions emanate from the vested interests of its custodians, their emotional attachments, outdated heuristics, the fear of lost revenues, cannibalization and obsolesce. These obstacles are not easily overcome.

BREAKING THROUGH TO THE OTHER SIDE

“The riskiest thing we can do is just maintain the status quo.” – Bob Iger

 

To be successful in transforming the status quo, you need to begin by planting a seed at the heart of the organisation and nurture it. That seed is recognising the palpable risk implicit with defending the status quo at all costs. This recognition must occur at the highest levels of leadership, the custodians of the status quo who have the power to shape it. It’s well documented that the most common reason for failed initiatives is the lack of executive support. Solve this problem up front, and you have already won half the battle.

A word of caution though, recognising the risk of maintaining the status quo is only part of the solution as it does not address the systemic challenges faced by banks. For an innovation and disruption unit to be truly successful it must, as far as possible, operate within its own governance framework, unconstrained by the parent organisation’s existing circumstances. Furthermore, banks must be prepared to embrace open innovation principles and collaborate with their would-be fintech challengers. The growing trend towards collaboration between fintechs and banks is well noted and is most prominent in the corporate and investment banking domain.

These pieces of the puzzle are far more difficult to solve but are nevertheless the only way banks can break the shackles of the status quo, innovate freely and keep up with the pace of digital disruption determined by their agile couterparrts.

Counterintuitively, running an innovation and disruption unit such as RMB’s Foundery is less risky than sitting back and taking a wait-and-see approach. The Foundery is a bold declaration of RMB’s intent to challenge the status quo, at both an organisational and industry level.

by David Krawitz

Blockchain: The Beginning

The advent of the Information Age in the 1970s allowed humanity to evolve to a point where information flowed freely, unhindered by national borders, and without the need for intermediaries such as post offices, libraries and universities. We’re now moving into an age where not only information, but value can flow freely without the need for trusted intermediaries…

HOW IT ALL STARTED

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Source: http://dribble.com

The advent of the Information Age in the 1970s allowed humanity to evolve to a point where information flowed freely, unhindered by national borders, and without the need for intermediaries such as post offices, libraries and universities. We’re now moving into an age where not only information, but value can flow freely without the need for trusted intermediaries such as banks, deeds offices and central securities depositories (CSDs). The technology that has allowed this digital peer-to-peer value transfer revolution is called Distributed Ledger Technology (DLT) or, as it’s more commonly known, blockchain technology.

WHAT IS BLOCKCHAIN?

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Source: http://strategy-business.com

Blockchain initially emerged as the technology that allowed Bitcoin, the cryptocurrency, to operate without a trusted intermediary but through a network of participant computers (or nodes as they’re called), working together to validate peer-to-peer transactions. These transactions are time-stamped in a distributed ledger that all the nodes have access to and collaborate on. While blockchains are relatively new (the first was the Bitcoin blockchain in 2009), they are a product of technologies that have been developing over the last half century in the fields of computer science and cryptography. In essence, a blockchain solves the problem of “double-spending” – the ability to spend digital value more than once – without resorting to a trusted intermediary model.

WHY IS BLOCKCHAIN IMPORTANT?

The transfer of value – or payments – earns the global banking industry ~USD1.7 trillion , which is roughly 40% of total global banking revenues. Much of this revenue is earned due to the need to send payment instructions and reconcile ledgers where exceptions occur. To be sure, the cost of conducting payment transactions is a fraction of global banking revenues; however, many costly resources are still involved with clearing and settlement, exceptions and reconciliations. Blockchain technology portends to bring the marginal cost of transactions to almost zero, while eliminating many of the inefficiencies involved in the payment process, resulting in almost instantaneous and automated clearing and settlement.
Beyond payments, blockchain technology promises to revolutionise the transfer of any kind of value – from equities and bonds in a CSD, to title deeds managed by a government department, to currencies held in banks. Indeed, many trusted intermediaries understand that their roles are changing and are actively engaged in understanding what the new financial services ecosystem will look like.

WHAT ARE WE DOING ABOUT BLOCKCHAIN?

Our team is engaged in three main avenues of work:

  1. Understanding and education: As blockchain technology is nascent, we’re tracking all the latest developments and collating these learnings into a format that makes the content accessible to everyone. Our biggest obstacle right now is ignorance.
  2. In-house research: We have built our own blockchain prototypes, issuing mock assets (such as NCDs and a digital currency), trading these assets and deploying smart contracts. While most discussions about blockchain technology these days revolve around “use cases”, we prefer to focus on the platform that will allow a myriad use cases to emerge.
  3. Collaboration with other institutions: A blockchain is like a fax machine – if no one else has one, it’s not much use. So, we’ve taken an inclusive approach and share our learnings and engage with other institutions to progress South Africa’s collective understanding of this technology. We believe that by being inclusive and collaborative, a collective vision for a future financial markets infrastructure will emerge.

WHAT’S NEXT?

Blockchain technology is in its infancy and there is much work and learning to be done before it can be widely adopted and yield the tremendous benefits that have been promised for society. However, this technology is a double-edged sword for the banking industry (and the financial services industry overall). While it heralds a new age in the “value transfer business”, from a cost and efficiency perspective, it threatens some business lines that have up to now been lucrative for the banking industry. At the same time, other streams for value creation will emerge. What is important at this juncture is to understand the developments in this space and ensure we bring the benefits of blockchain to a broad range of stakeholders – customers and shareholders alike.

by Farzam Ehsani

5 simple steps to turning ideas into reality

Fintechs — and start-ups in general — are many and varied and, although we are definitely leaps ahead of the banking of the past, we still have work to do in creating sustainable change in the banking ecosystem. Here are 5 simple steps we believe can get you to meaningful banking transformation.

aeroplane-boyFintechs — and start-ups in general — are many and varied and, although we are definitely leaps ahead of the banking of the past, we still have work to do in creating sustainable change in the banking ecosystem. Here are 5 simple steps we believe can get you to meaningful banking transformation.

Before we get into the details, a small spoiler alert is necessary…simple does not mean easy. In many cases, simple means quite the opposite of easy…you need to lose weight? (Don’t we all?) The solution is simple — quit sugar, kill the complex carbs, eat small meals and exercise at least 3-4 times a week — you see it’s simple!

But, we all know it’s not that easy. When that alarm goes off at 5am on a winter’s morning, how easy is it to drag yourself, your internal maniac kicking and screaming, from your delicious, cosy warm cocoon? Or when that 3pm slump hits and the vending machine choccies lure you closer with promises of joy and comfort and everlasting fulfilment, how easy is it to keep the craving at bay? You get the point.

In creating the necessary change for the banking ecosystem, we can apply 5 simple (but not easy) steps:

STEP 1: BELIEVE IN POSSIBILITY

Boy in boxIf you believe that change is an imperative, and if you know that you need to create an impact in the banking space, then believe that you can change your world — and you will. A person who believes deeply is infectious — the stronger your belief, the more infectious your ideas, and the more profound the impact you can make.

Shifts always begin with a great idea and a great passion — if you have the idea or passion, trust that you can make it happen. Note to self: if you could believe in Santa Claus for like 8 years, you can believe in yourself for like 5 minutes…you’ve got this!

We have a massive amount of data in our heads that gets drowned out in the daily hubbub. We don’t need to hire a consultant or an expert to solve the problem for us…“they” or “the head of” or “the consultant” don’t know the answer that you already know — you know your business better than anyone else, you know your client better than anyone else, and you know the dissatisfaction better than anyone else — you just need the time to figure it out.

STEP 2: BUILD A TEAM THAT BELIEVES WITH YOU

There is something magical in the power of a pack. “For the strength of the pack is the wolf, and the strength of the wolf is the pack.” ― Rudyard Kipling, The Jungle Book.

Once you begin the disruption conversation, you will realise the overwhelming number of others who believe that change is an imperative and who are looking for a place to make a difference.

Influence can be as powerful as the individual, but impact can be exponentially improved as a small team. Disruption in banking requires significant influence and (by definition) uncomfortable change by challenging assumptions. You will need a powerful pack with you in this journey. That may mean partnering differently or with players you have not considered allies in the past.

STEP 3: UNDERSTAND THE DIARY OF DISSATISFACTION

boxing-with-robotInnovation always stems from need. We identify needs most easily when they aren’t met. We need to be better at recording, and then challenging, our daily dissatisfactions.

Very few ideas actually happen in a flash of blinding clarity. All big solutions start with just a hunch. We circle around them for a long time before we finally hit the mark (and most often, a whole group of people hit the mark at the same time) and it’s the bravest who get the glory — think Darwin.

So what dissatisfaction exists in delivering the needs for banking as we define them? And, be brutally honest about what this dissatisfaction is — don’t just pick the easy answer. Opportunity exists when there is a frustration or a barrier to entry. What people want doesn’t change — how they get it does.

STEP 4: FEEDBACK IS YOUR FRIEND

As a leader of change, you really need to know who you are leading. To create sustainable disruption, you need to test your thinking — widely, and repeatedly! Feedback is a powerful tool in honing the product you have and the language that will be appropriate for your organisation. You’ve probably heard the rule of mathematics: if it feels easy, you’re doing it wrong.

In the rest of life, if it feels too difficult you are doing it wrong, especially when it comes to creating change. Each organisation will require its own language and its own solutions. If it feels too difficult, get feedback and tweak the strategy until it begins to feel right for you.

To make an impact, we have to accept that we will fail in some way. So, what are you waiting for? The only way to get to an answer is to experiment. Experimentation in a highly regulated industry sounds pretty frightening – but remember that if the frustration or barrier to entry make delivering the need too difficult — there will be disruption — you are going to have to experiment with how to do that yourself. We are taught from tiny that failure really isn’t a great idea, and in banking even more so, but if you are going to be a really disruptive, you need to create an environment where good and bad ideas are embraced…simple….not easy.

STEP 5: KEEP ON KEEPING ON

Rocket boyThere will be failures and mistakes and difficult conversations, but each of these acts as an opportunity to adjust the strategy and to refocus on the end goal. In these moments, remember the steps: believe in possibility, the pack is bigger than the wolf, get into conversation, seek feedback and just keep on keeping on.

We said at the outset that these steps may not be easy. So, how do you start? It’s a simple case of ready, steady, GO! Just like quitting sugar, if you know your end goal and the reason you need to achieve it, you can access the power within you and then just start. Drag off those warm winter covers, say no to the vending machine and take the first step. The beginning may not be easy, but once you’re on the road it feels pretty great, and the satisfaction as you see the change happen is well worth the effort.

by Liesl Bebb-McKay