East Africa must harness a digital financial services ecosystem

The East African Community ecosystem for digital financial services has shown exponential growth over the years, with active users and active agents increasing 60-fold since 2005.

Similarly, the volume and values of transactions have shown a positive upward trajectory that appears to be on track to exceed the per capita levels of traditional mobile money since earlier forecast.

These positive trends are the result of sustained efforts on the part of the private sector, donors and government alike.

Seeking to build on this success, governments should prioritise the creation of a resilient, inclusive and innovative digital financial services ecosystem that bolsters social development, a robust economy and an enabling ecosystem that supports a thriving private sector.

Some governments have called for implementation of foundational infrastructure required in a digital economy. As an incentive for change, the importance of digitisation and examples of transformative policy initiatives, have been outlined.

Here are some highlights/notable points:

The need for a Digital Address:
The poor addressing systems in Uganda, Kenya, Tanzania, Rwanda, Burundi, South Sudan, are improving; however, more needs to be done.

A country cannot transform without a proper addressing system, which even has negative effects on tax and revenue collection.

Without a proper addressing system, countries cannot participate in the Fourth Industrial Revolution — e.g. online shopping, online-learning, online-delivery or ride-sharing apps will not work effectively.

The need for a Digital ID:
India is an example of a country paving the way for other developing countries to roll out Digital IDs using new technologies such as retinal and facial recognition, smart chips, and cloud computing.
Citizens can pay utility bills, order government services and improve business activities using the Digital IDs.

The need for Digitisation of Land Registration:
This is an important process as it will help the mortgage market and potentially help release hundreds of billions of shillings to finance regional development.

Interoperability of Payments:
Interoperability of payments is needed to modernise emerging economies and enable transactions at any financial service point and mobile network operator or payment service provider irrespective of the service provider used.

Kenya has already taken significant steps towards building a more inclusive digital financial services ecosystem — notably through the implementation of mobile money interoperability.

However, it is suggested that Kenya’s available market infrastructure will not be sufficient to fully unlock the promise of a digital ecosystem and to maximise the impact of digital financial services on financial inclusion as well as on the broader economy.

Building a digital economy characterised by high usage and a wealth of compelling use cases — in which a variety of actors provide a wide range of financial and non-financial services.

(These are digital currencies, digital savings, digital credit, digital insurance, digital retail payments, benefit transfers, digital taxes payments, digital fees payments; digital solar, digital water, digital health or digital education or agriculture, etc).

This has to be done via digital financial services and will require governments and businesses alike to invest in new technologies, build shared infrastructure and develop innovative partnership models.

Although some of the required financial investments to build out this ecosystem are now being made, they are typically fragmented and may fail to build the type of comprehensive whole that a digital economy requires.

A key area where the emerging market would benefit from support is in the development of so-called Connected Digital Market Solutions.

Technology today allows individual components of the financial services ecosystem to be open and connected to each other in a way that was not possible before, with the potential to create solutions that are greater than the sum of the individual parts.

These Connected Digital Market Solutions can efficiently and effectively connect individuals, businesses and governments, and allow each stakeholder to focus on their core competency.

One prominent example of a connected digital market solution is the India Stack. However, such solutions need not be as ambitious or comprehensive as the approach taken in India.

In some countries, steps toward building connected digital market solutions begin with a specific use case, such as the digitisation of Government-to-Person payments.

This is the case in Bangladesh and Zambia, where governments are piloting new infrastructure linking financial accounts with national IDs and allowing for Government-to-Person payments to be routed to an individual’s account with any provider.

While the initial use case may be limited to one type of payment, providers could eventually leverage this new infrastructure to enable a range of more convenient and affordable financial products and services.

Patrick Adengo is the managing director, Stalworth Consulting Group, Uganda.