Fintech & Digital Banking

The importance of a CBDC in a post Covid-19 world

Elias Tayeh - International Fintech Consultant

Can you tell me a bit about your background and your current role?

I have been leading the technology entity of a family business office since 2007 expanding their portfolio in Africa and the MENA region. Our main focus was acquiring merchant networks serving the electronic distribution products of telcos and financial institutions. We then expanded our services and started offering digital payments, payroll services and eWallets. Those were our VAS products until the global financial crisis hit the global economy back in 2008/09. We then decided to evolve and grow investing in Asia and South America where these new market needs led us into becoming a full fledge Financial technology arm for the group offering turn-key in collaboration with cards issuers, utility companies, government entities and the like.

This entrepreneurial spirit took me on an exciting journey from UAE to Egypt and Sudan, Iraq, Sierra Leonne, Ghana, Zambia, Nigeria and finally Mozambique. Today I am working independently providing international consultancy services for startups and SMEs delivering Fintech solutions specifically and on establishing my own cross border remittances and payments Fintech for the MENA region.

Can you tell us more about Fintech and its importance today?

Financial technology that we know today as a global industry evolved rapidly after the 2008/09 crisis but in fact it existed long before that. From personal experience as someone with foot on the ground I have seen many people making digital payments, transacting with airtime against services, since 2003 in Nigeria and in 2009 in Sudan. In UAE I had Pakistani and Indian co-workers remitting back home to their families or making bill payments back home using airtime as well. I think this is one of the few industries in the world that was created from down the ladder up not the other way around. Those phenomena coupled with a huge effort by international organizations to reduce poverty and improve access to finance for the underserved globally was met with investors’ appetite to disrupt the standard financial ecosystem using telcos, technologies and innovation. Today we can all guess that they were in fact on the right track especially when we know that their few thousand dollars investments are valuated at billions of US Dollars.

The importance of the Fintech industry is now obvious on many levels. It’s the pillar and foundation of a new global digital economy without doubt! Put financial inclusion and ROI on a side for a second and look at what has happened during the lockdowns forced by the Covid-19 pandemic. Every normal of our lives was disrupted! From education to investments and global markets. Having swift, secure and embedded payments is the new normal for any industry at any level in the future.

What’s Gone Wrong with Traditional SMB Banking?

There would have been nothing wrong with traditional SMB banking if people were still driving 1974 muscle cars! but they’re not!! Millennials just as SMEs have different needs today. Millennials make money being influencers and content creators, being bloggers and vloggers earning money from followers, views and hits! Their Paypal account is accessible almost anywhere anytime not waiting for the guy with a tie to show up around the desk!!

SMEs have become global suppliers with a push button as long as their products payments are enabled through a payment gateway that does their forex and their money transfer to their accounts within milliseconds! It’s faster, secure and cheaper!! SMEs have a nightmare called cashflow!! Fintechs have solved that for them to a huge extent at a fraction of the cost that they would had to incur dealing with traditional banking!

In emerging economies the banking sector was always and still is targeting a niche market but money has moved elsewhere that’s what happened!! Traditional SMB banking did not care to cater for these newly emerging needs at the right time. They were change resistant, complicated and costly!

What is the future of digital banking?

The digital banking technology per-se offers limitless opportunities for growth for standard commercial banks and for the newly emerging all-digital banks but most importantly it offers more freedom for customers. A note on the side on the subject: some online banks are exploring the opportunity to offer credit for SMEs with data as collateral!! This is going to be a game changer for SMEs alongside the BNPL (buy now pay later) product for customers creating a billion dollar ecosystem, overnight!

With a calculated risk approach and with respect to international monetary, financial and technical regulations, the commercial banking sector in particular has an unprecedented opportunity today, in a post Covid-19 world, to take back control over their playground using digital banking not as an additional service channel but as THE preferred delivery channel! This is going to be a digital transformation journey, a challenge, at management and operations levels but most and foremost it needs a new mindset not a new market because the market is there!

Will banks eventually migrate to a cloud and what hardware they will keep?

When we mention banks we still tend to see an institution in a huge building covered with shiny glass! This is not going to be the case in the future though I would personally have loved to keep receiving my VIP treatment every time I enter that building. With that said, all what might remain from that picture of the traditional bank, the physical institution with the shiny glass building, is a server in a data center somewhere in a temperature controlled safe. Now would these banks of the future give that away too? I personally doubt and I don’t think they should for many reasons. Politically speaking, standard banks and neo-banks all alike make an integral part of the economy of any country not just the global economy and those are highly regulated and protected at the same time by congresses and parliaments by central banks and ministries of finance etc… because they are an integral part of their sovereignty and their national finances and ultimately of their populations lives! It’s no longer a question of faster or cheaper or always available top-notch robotic services. It’s a question of who controls the finances that I need to use to buy wheat and fuel, to pay salaries for my army and civil servants etc… With today’s trend of using economic and financial sanctions a là Trump, with or without logic or international consent, I think banks and financial institutions will hold their breaths long before deciding to go over a cloud based platform unless the services and products they intend to serve are limited in value and limited in their economic effects and at that point it might not be financially viable/justified any longer. We’ll have to wait to see.

What do you think is the future of the Fintech industry in Asia?

The Fintech industry in Asia is now enabling millions of underserved and SMEs to have cheap, secure and timely access to finance. The market penetration though is still far behind market capacity & needs.

In practice, China has started experimenting on CBDCs (DC/EP) which is going to position the Yuan at the top of the global digital economy for some time. For any CBDC to work at all if not efficiently, it needs a network of enablers not just a network of users. I believe the Asian Fintechs are best positioned to play that role becoming the pillars of such a digital network of enablers serving their market needs and beyond all the way of the silk road ending at the shores of the Mediterranean facing Europe. Another example that might give us a hint on the future of Asian Fintechs is the Adhaar ecosystem of India that played a major role in the distribution of relief funds during the Covid-19 crisis. The Reserve Bank of India (RBI) reported savings of over 4 Billion Dollars and a record time distributing the relied funds using the network  created by the Adhaar system and that of the commercial banks as well. In the MENA region, a region that has the biggest young population in the world but that is war torn from Iraq to Syria, Egypt, Sudan and Libya and beyond…, this region has lost a big part of its old time standard commercial banking capabilities and its telecommunications infrastructure as well and so it needs time and finances to rebuild it to an acceptable standard which is not likely to happen anytime soon.  With the right regulations for cross border payments and free trade using digital solutions, the Fintech industry can substitute and alleviate the financial services for these countries and young population and so the potential is exponential for Investors or even commercial banks to engage in any vertical of this industry.

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