Basa 16th by Jayne Macé-Ferguson

Edition 16

BANKER SA EDITION 16

twin peaks REGULATIONS FOR A SAFER FINANCIAL SECTOR

PICASSO HEADLINE

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Contents

Edition 16

Special Report

Inside

TWIN PEAKS Looking at the Twin Peaks regulation model and its impacts on the economy

EDITOR'S NOTE South Africans and safety

TECHNOLOGY The value of enterprise mobility

DATA SECURITY All partners need to work together to stay protected in the volatile cyberspace environment

MD'S MESSAGE Unpacking risk, safety and security in SA

TRIBUTE We say farewell to Sizwe Nxasana

TECHNOLOGY Fintech and disruptive technology pose a threat to traditional banks

OPINION Moving from a “me” economy to a “we” economy

OPINION Ten megatrends in the future of money

WHY CASH NEEDS TO BE PROTECTED Cash is still king, so it should be guarded

THE DIGITAL NATIVE Are banks ready to meet the needs of Generation M?

CLOUD SECURITY Looking at the successful integration of cloud services into the financial-services sector

LOCAL AND INTERNATIONAL NEWS Trade deficit weakens rand, a new Development Bank, and Wema Bank in Nigeria goes national

SMEs The new POPI Bill and what it means for small businesses

CHILDREN AND YOUTH The inaugural FinLit Spelling Bee

SUSTAINABILITY Sustainable banks versus traditional banks

WELLNESS Companies look at year-round approaches

INSIGHTS Islamic banking appeals to many, even non-Muslims

CLOSING OPINION Looking ahead in 2016

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EDITOR’S NOTE

South Africans and safety

ome years back, I was writing mining health-and-safety features for Financial Mail. I interviewed the head of a mining consulting firm about the industry’s safety challenges. He said one of the chief challenges is that South Africans are a risk-taking nation. Getting mine employees to abide by safety regulations in the workplace was difficult, he posited, when outside of work, taking risks is considered a natural part of life. Even something as simple as walking home from work involves a measure of (perceived?) risk for many South Africans. According to the Victims of Crime Survey 2013/14, published by Statistics SA, 47.68% of women and 43.76% of men in South Africa feel very unsafe walking alone in their neighbourhood at night.

Yes, the challenges of crime, unemployment, inequality and a bruised economy mean that life in South Africa is perceived by many as risky. Yet many people hold a strange relationship with the ideas of safety and security. According to a recent survey by Kaspersky Lab and B2B International, 43% of South Africans believe that over-the-counter banking transactions are safer than internet banking, and 64% feel vulnerable when transacting online. Yet, in spite of this, the majority of South African internet users still make online payments. Of those surveyed, 74% use their desktops or laptops for online payments, 22% use their tablets, 32% use their smartphones, and 14% of smart-TV owners use their smart TV for such operations. And, despite the perception that internet banking is unsafe, 15% of respondents do absolutely nothing to protect their financial data online. In this edition, we put risk, safety and security under the microscope, looking at issues ranging from the regulation of risk in the financial sector through to cybercrime, data security, cash management and mobile-banking risks. We highlight trends in safety and security, and investigate solutions, trying to understand what works, what doesn’t, and why. On another note, this is my last edition as editor of Banker SA. I have loved the chance to learn more about the industry and to work on thought-provoking content alongside The Banking Association South Africa over the past year and a bit. It’s been a great experience and I will remain a loyal reader of Banker SA.

Publishers: Picasso Headline (Pty) Ltd Times Media Building Central Park, Black River Park Fir Street, Observatory, 7925 Cape Town 8001, South Africa Tel: +27 21 469 2400 Fax: +27 86 6822 926

EDITORIAL The Banking Association South Africa Editorial Board Cas Coovadia Thenji Nhlapo Editor Tamara Oberholster Content Manager Raina Julies Copy Editor Lynn Berggren Contributors Septi M Bukula, Cas Coovadia, Trevor Crighton, Yule Edwards, Thekiso Anthony Lefifi, Jeff Gable, Wendy Hardy, Michael Lee, Solly Moeng, Lee Naick, Kim Novick, Vanessa Rogers, Dumile Sibindana, Lisa Witepski Head of Design Studio Jayne Macé-Ferguson Designers Anja Hagenbuch, Mfundo Ndzo

SALES Project Manager Andrew Green andrewg@picasso.co.za Sales Consultants Stephen Crawford, Alec Rompelman, Business Manager Lodewyk van der Walt lodewykV@picasso.co.za

PRODUCTION Production Editor Shamiela Brenner Advertising Co-ordinator Merle Baatjes

OPERATIONS Senior Bookkeeper Deidre Musha Subscriptions and Distribution Shihaam Adams subscriptions@picasso.co.za General Manager: Magazines Jocelyne Bayer

Copyright: Picasso Headline and The Banking Association South Africa. No portion of this magazine may be reproduced in any form without written consent of the publishers. The publishers are not responsible for unsolicited material. Banker SA is published quarterly by Picasso Headline Reg: 59/01754/07. The opinions expressed are not necessarily those of Picasso Headline. All advertisements/ advertorials and promotions have been paid for and do not carry any endorsement by the publishers.

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MESSAGE FROM THE MD

Risk, safety and security

Cas Coovadia

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his issue of Banker SA discusses matters related to risk, safety and security in the banking industry. These are critical elements for the banking sector, but also, sadly, for the South African populace. Banks stand or fall on confidence, trust and sturdiness. People entrust their funds to banks, because they are confident the bank will be there for a long time and they will get their money back when they want it. They risk their funds because they see banks as safe and secure. The fact that South African banks have, with very few exceptions, been safe, secure and stable has built confidence in the populace to use the services offered by banks. Let us look at each of these aspects separately: Risk is often, to some, a nebulous concept. However, there are two sides to risk in the banking industry. The customer takes the risk of entrusting his/ her funds to a bank. Th is is important because the 2008 fi nancial crisis in the USA and Europe eroded confidence in the banking sector and some customers may have seen banks as risky thereafter. Banks also consider risk in doing their business. They are custodians of the

funds entrusted to them by the public. As trustees and custodians, they must utilise those funds responsibly and put those funds into as little risk as possible. Thus, banks must consider risk when lending money, and have developed numerous objective, and sometimes subjective, criteria to measure risk. Safety is both physical and structural. The public expects to feel personally safe in a bank, and they expect a bank to take the necessary measures to ensure their safety on bank premises. Banks take inordinate steps to ensure the safety of the public on their premises, but this is increasingly difficult and complex in the South African environment. However, it is also incumbent on customers, as citizens, to take responsibility for their own safety and to demand a safe environment from government. Safety is also critical structurally, where banks develop complex and secure mechanisms to ensure the safety of the funds the public entrusts to them. South African banks have established separate organisations, at great expense, to do this. SBV is a cash-in-transit company that has developed sophisticated vehicles and other equipment to protect cash, and the South African Banking Risk Information Centre (SABRIC), a subsidiary of The Banking Association South Africa, develops sophisticated intelligence to keep a step ahead of criminals who stalk ATMs and use other methods to rob people of their cash. Security has physical, structural and perceptual elements. The public wants to be secure when doing business with banks â&#x20AC;&#x201C; and their physical security is critical. They also want the assurance that banks have the structures to secure their assets and protect them from misuse,

erosion or theft and fraud. Citizens also want to â&#x20AC;&#x153;feelâ&#x20AC;? secure when interacting with banks; they want peace of mind and freedom of movement. There are other aspects to risk, safety and security. The banking sector continually innovates to broaden financial-service access and lower costs.

`So risk, safety and security are not nebulous elements. These are real issues for customers and banks. These are also real issues for South African citizens in their daily lives' Mobile banking, internet banking, use of agents and other innovative channels all respond to a customer that seeks convenience, low costs and mobility. These are all great and banks must keep ahead of the curve to avoid, or limit, disintermediation. However, these instruments also bring with them new types of insecurity, lack of safety and significant risk. SABRIC spends a significant amount of time countering cybercrime, which was not a factor even five years ago. So risk, safety and security are not nebulous elements. These are real issues for customers and banks. These are also real issues for South African citizens in their daily lives. We hope the innovation in the banking industry to make the environment for bank customers risk free, safe and secure will assist in addressing broader risk, safety and security issues in our society!

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TRIBUTE

Farewell Sizwe Nxasana

t is near impossible to utter the name Sizwe Nxasana and not marvel at his achievements in corporate South Africa. Having served as CEO in three different industries, he has built an incredible profile in South Africa, and some may even argue that he’s the true yardstick of excellence that many young black professionals in South Africa aspire to. In his capacity as CEO of Telkom (in the 1990s) his leadership was instrumental in the listing of the entity and the substantial gains in value that the firm has achieved since its listing. He turned a state-owned entity into a formidable ICT company. After leaving Telkom, he became one of the few black executives in the banking sector when he was appointed as group CEO of FirstRand Group. His achievements in the banking giant are as conspicuous as his passion for education and making education accessible to the underprivileged.

`Nxasana was responsible for chairing the board and, perhaps more importantly, fostering the co-operation between various stakeholders' At The Banking Association South Africa, Nxasana was responsible for chairing the board and, perhaps more importantly, fostering the co-operation between various stakeholders in matters pertaining to government policy, as well as facilitating these discussions with decision makers within the public sector. One of

SISWE NXASANA, former Chairman of The Banking Association South Africa.

the key initiatives The Banking Association has been driving is finding ways in which the banking sector can assist government in achieving the goals contained in the National Development Plan (NDP). As our focal economic policy document going forward, the NDP acknowledges the activist stance the state has to play in facilitating and fostering sustained economic activity. However, government cannot be solely responsible for attaining what some refer to as “ambitious goals”; the private sector and other institutions ought to play their part as well by identifying ways in which they can contribute to the Vision 2030 mandate. The Banking Association, under the chairmanship of Nxasana, has interacted with government at various levels, advising on matters of policy formulation and execution, as well as advising on matters pertaining to regulation within the banking industry. South Africa’s banking sector is among the most sophisticated and developed in the world, rivalling many in the developed nations. This is largely due to the regulation of the industry and maintenance of

global standards. Nxasana asserts that at some level The Banking Association contributed to this achievement: when The Banking Association interacts with the various decision makers, they do so in a unified voice, as a unified body consisting of member banks within The Banking Association, as opposed to acting in the interests of a single or faction of banks within our banking industry. This has been crucial in attaining some of the successes the Association has relished. Mike Brown, CEO of Nedbank Group Limited and member of the board of directors at The Banking Association, had this to say to Nxasana: “Having been appointed as chief executives in the same year, I have always watched your career with keen interest. Under your leadership, FirstRand Group has trebled its market capitalisation, making it the largest bank in South Africa by market value and earnings. The results you have achieved in a very challenging economic environment speak volumes of your skill as a banker and demonstrate your ability as a leader. You have been an asset to the South African banking industry and have made a lasting contribution to its stability and success.” Although Nxasana has stepped down from his role at FirstRand Group and The Banking Association, it’s evident his contribution to the banking sector will be cherished and sorely missed in the industry. We, as Banker SA in association with The Banking Association, would like to wish Nxasana well in his future endeavours, particularly in his new role as chairman of National Student Financial Aid Scheme (NSFAS) and other educational programmes he’s involved in.

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Tribute to former Chairman of The Banking Association South Africa, Sizwe Nxasana, by Dumile Sibindana.

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LOCAL BANKING NEWS

SA lines up for Brics loan A new Development Bank, headed by South African Leslie Maasdorp as the chief financial officer, has opened its head office in Shanghai, China. It expects to be in a position to start lending to BRICS nations – Brazil, Russia, India, China and SA – in the second quarter of 2016, once a quality assessment has been carried out on the projects they've identified as needing funds. Interest rates will be cheaper than those charged on loans at other global financial institutions. This is good news for SA which requires funding for multibillionrand infrastructure and development projects in its energy and water sectors, such as for two new Eskom power stations.

iPads aid Absa serviceability Consultants at selected Absa branches in Gauteng will now have iPads on hand to offer legal, life and funeral cover to an increasing number of clients without being teller-based. According to Banie Claasen, Managing Executive of Absa in the southern region of Gauteng, their use will also allow consultants ‘to carry out traditional branch transactions in minutes’. The iPad pilot will be rolled out at 17 branches across the province, making policies like Absa Law for You, Classic Life

and Flexi Funeral cover, as well as their Personal Accident Plan, that much more accessible to clients. Additionally, the Verdi and Irene branches have extended their operating hours during the week and on Saturdays, says Managing Executive of Absa’s northern region, Oscar Siziba, in a quest to adapt to customers’ changing banking behaviour.

Liability debate on card skimming According to the Hawks, a 23% year-on-year increase was recorded in card-skimming fraud to R453million from R366-million at the close of 2014. Card-skimming machines look and act like other mobile-card machines, warns Anton Meyer, Executive Head of SHA Specialist Underwriters. The fraudster simply clones the strip and copies the CVV number. The customer is told the machine is faulty, and the transaction is then processed on the correct machine. But Meyer warns that customers are not automatically protected by their banking institutions. Advice to cardholders includes migrating to a EuroPay, MasterCard or Visa (EMV)-compliant card, which generates a unique transaction code that cannot be reused, checking with retail/restaurant managers that a faulty machine in fact belongs to their establishment, and ensuring they have a linked instant notification service, so the bank in question can be contacted immediately following a suspicious transaction.

Trade deficit temporarily adverse for rand SA’s trade deficit grew to its biggest gap in October, since January 2015, as various imports – including machinery/electronics (19% increase), vehicles/transportation equipment (45% increase) and mineral products/oil (17% increase) – surged. The gap on the trade account of approximately R7-billion (currently R21.4-billion, from a revised R1.3-billion in September 2015) has consequences for the current account – the rand fell to a record low against the dollar after the data was released. As of the afternoon of 30 November, the rand weakened 0.2% to R14.4351 per dollar. “On balance, the trade deficit will be relatively negative over the short term for the currency,” explains Jeff rey Schultz, economist at BNP Paribas Securities.

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INTERNATIONAL BANKING NEWS

Chinese bonds in Standard Bank coffers China, owner of Industrial and Commercial Bank of China (ICBC) and the world's secondbiggest economy, has been instrumental in supplying inexpensive loans – to the tune of $10-billion – to African countries over the past 10 years. The Chinese nation has benefited, in turn, by scoring oil and other raw materials from the continent, which are

Wema Nigeria nationalises

necessary for use in various China-Africa projects. A new development has seen the

A regional financial institution of Nigeria, the Wema Bank, received approval in midNovember 2015 to change its status to a

has been appointed to issue the bonds; the Group is 20% owned by ICBC.

($687-million) worth of bonds for use in infrastructure projects in South Africa – making ICBC the first Asian issuer of rand-denominated debt. Standard Bank Group Ltd

Controversial FX practice on way out? In mid-November, the New York State Department of Financial Services (DFS) issued Barclays with a fi ne of $150-million for electronic foreign-exchange misconduct. The fi ne relates to the bank’s use of the last-look practice to pull a price from a platform to the detriment of its customers. While the bank claimed that last look was imposed on client orders to protect against stale prices and latency arbitrage, the DFS argued that it appeared to be used, instead, as a fi lter to reject customer orders likely to prove unprofitable to the bank.

Pakistan welcomes global ecommerce players In 2014, Pakistan launched high-speed mobile internet services for its 200 million residents and the subscriber base now totals 18 million, with 21 million people using broadband internet. This has opened the way for Pakistan to invite major global online-payment giants – such as PayPal and Alibaba – to offer their services in the country, the IT Ministry said in late November. Previously, Pakistan was considered high risk for money laundering and strict regulations limited online payment for products and services, leaving local vendors to instead offer cash-on-delivery options.

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national bank following the rise of its capital base to $220m. According to Chief Financial Officer Tunde Mabawonku, the bank had to suspend its plans in this regard in April of 2015, due to a domestic weakening in the naira when oil prices plunged. These plans could now be resumed due to a potential share sale to fund growth and an additional process in which $100m worth of Tier 2 naira bonds would be raised locally, most likely during the first quarter of 2016.

bank, which is China's biggest lender, sign an agreement to sell an additional R10-billion

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SPECIAL REPORT

TWIN PEAKS implementation

A lot has been made of the Twin Peaks regulatory reform process that is set to change the regulatory framework of our financial sector in South Africa. Like any other piece of legislation, there are those that advocate for its implementation and those that are sceptical, writes Dumile Sibindana.

he 2015 Banking Summit, hosted by The Banking Association South Africa, provided the perfect platform to bring in all key industry stakeholders – including member banks and their representatives, government, the media, labour and other professional bodies to name a few – to

discuss the Twin Peaks model of regulation. The importance of the fi nancial sector in South Africa cannot be overemphasised, as it delivers a range of fi nancial services that facilitate economic growth, job creation, construction of vital infrastructure within the context of sustainable development for our

country as a whole. The fi nancial sector is involved, at some level, in all movements of capital, transaction payments and investments, to name a few. The gathering of these various stakeholders presented an opportunity to have critical conversations around the proposed Twin Peaks regulation and its implementation. ›

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South Africa's financial sector: background

The banking sector in South Africa is arguably one of the best managed and progressive sectors in our economy today, contributing a sizeable portion to our GDP and tax revenue. More importantly, the sector provides banking solutions to millions of bankable individuals and different scales of businesses. This is affirmed by the 2015/2016 World Economic Forum Global Competitiveness Survey that ranks South Africa eighth in Financial Sector Development out of 140 countries – an achievement that should not be taken lightly considering that we are ahead of a number of ‘developed’ economies in this category. The argument could be made that if the other sectors within our economy were remotely as competitive as the banking sector, South Africa’s economy would be on a drastically different trajectory. Regardless, the banking sector in South Africa should be commended for its global competitiveness and progressiveness over the years.

`In order to attain the goals of the Twin Peaks system, the South African Reserve Bank will be granted lead responsibility for prudential regulation and the Financial Services Board for market conduct regulation' Having said that, we should acknowledge the fact that our banking sector isn’t perfect. There are various challenges that the banking sector has to address, such as: the lag in transformation in senior and executive positions within banks and the fact that bank fees remain relatively high when contrasted with those in ‘developed’ economies. The biggest criticism, however, stems from the fact that innumerable entrepreneurs find it incredibly hard to access capital from our financial institutions, whether it be to expand their

operations, invest in capital goods or pay their staff and other running costs. The inception of the Twin Peaks system of regulating our financial sector emanated from a policy document that was published by government, titled: “A safer financial sector to serve South Africa better”. The paper looked into the effects of the 2008 financial crisis and the European crisis that followed, assessing the structure and characteristics of South Africa’s financial sector. This process set in motion proposals to reform the regulatory framework of our financial sector, and thus one of the outcomes of the paper proposed the establishment of a system for improving the regulatory environment of the South African financial sector – hence Twin Peaks was born.

The issues Twin Peaks seeks to address

In order to attain the goals of the Twin Peaks system, the South African Reserve Bank (SARB) will be granted lead responsibility for prudential regulation and the Financial Services Board (FSB) for market conduct regulation. “A safer financial sector to serve South Africa better” addresses a range of issues. One of the prime responsibilities of our central bank is to ensure stability within our financial sector. The SARB mandate will be underpinned by a new Financial Stability Oversight Committee (FSOC), co-chaired by the SARB governor and the finance minister. Consumer protection has been a concern and the government is planning to step up the protection of individuals from unsavoury micro-lenders and unregulated financial products. Therefore the structure of the FSB will be extended to include a banking-services market-conduct regulator. Furthermore, there are plans to broaden access to financial services by reviewing the Financial Sector Code and undertaking the necessary reforms to encourage ‘microinsurance’. One of the integral pillars that will be the focus of the Twin Peaks system is its stance on co-ordination of the various regulatory bodies.

Greater emphasis has been placed on strengthening regulators, hence a Council of Regulators will be established to enhance co-ordination. The Twin Peaks regulatory regime consolidates the position of the SA financial sector as being one of the most stable and resilient sectors globally, and keeps us at the cutting edge of global best practice.

The two primary regulators (peaks)

The proposed regulatory framework includes two financial regulators (peaks). The Financial Sector Regulation (FSR) Bill lays the legislative basis for the implementation of Twin Peaks. At its core, Twin Peaks was established to create a safer financial sector, and better consumer protection by ensuring that consumers are treated fairly by financial institutions

`The global financial crisis is a lesson for the South African economy to avoid unnecessarily higher risk activity within our financial sector'

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SPECIAL REPORT

and are protected against the risk of these institutions failing. The global financial crisis is a lesson for the South African economy to avoid unnecessarily higher risk activity within our financial sector that can lead to systemic failures of our financial institutions. The use of taxpayer funds to address financial market failures in the United States should serve as an example of the possible calamity financial risk might bring. Secondly, the Twin Peaks system represents a shift away from the former fragmented regulatory approach in order to address the issue of regulatory arbitrage, which continues to allow fi rms to circumvent intended regulation. It focuses on instituting a more streamlined system of licensing, regulatory supervision and enforcement, addressing customer complaints through ombudsmen, tribunal escalations, as well as providing consumer advice and education across the fi nancial sector.

The prudential regulator: SARB

The SARB has a key mandate to fulfil in the enhancement of the safety and soundness

of regulated financial institutions. As the central bank of South Africa, the SARB will be responsible for the prudential aspect of Twin Peaks. Therefore, this responsibility would include both micro and macro prudential aspects. Other responsibilities will include maintaining overall financial stability of our financial sector with the assistance of the market-conduct regulator. Additionally, the SARB is well placed to provide oversight on potential systemic risks that may arise in the financial market â&#x20AC;&#x201C; they are able to provide emergency liquidity to banks and have the ability to use various tools in order to respond to changing macroeconomic conditions.

The market-conduct regulator: FSB

This responsibility will be carried out by the FSB, which will be transformed to meet its revised mandate pertaining to market-conduct regulation. It will include industries such as banks, insurers, financial advisers, financial intermediaries, investment institutions and the broader financial markets. Part of this objective involves the protection of consumers when they purchase and

make use of various financial products in addition to promoting confidence in the South African financial system.

`In the first phase of implementation, the Financial Sector Conduct Authority (FSCA) and the Prudential Authority (PA) will be created' The prudential and market-conduct regulators will base their regulatory frameworks on eight shared overarching principles, although the significance each regulator will have on certain principles will differ. However, for this approach to be successful, co-ordination, collaboration and sharing of information between the regulatory authorities will be crucial.

Phases of implementing Twin Peaks

In the first phase of implementation, the Financial Sector Conduct Authority (FSCA) and the Prudential Authority (PA) will be created. The FSCA will be a stand-alone market-conduct authority, while the PA â&#x20AC;ş

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will be an authority established within the SARB. The FSB will be incorporated into the FSCA and, together with the Bank Supervision department in SARB, will cease to exist. In the second phase of implementation, the reform processes will pose a greater challenge; legal frameworks for prudential and market-conduct regulation will be developed, harmonised and strengthened. In some instances, this may require repealing industry-specific legislation and replacing it with new legislation. Licensing procedures may also need to be amended where necessary to give effect to new legislation. This won’t be easy and will require the active participation of all the stakeholders throughout the process.

Banking Summit 2015 Panellists

Deputy Governor of the SARB Kuben Naidoo made some interesting points. He suggested that with the implementation of Twin Peaks, there would be a need to scrutinise financial conglomerates, particularly looking at the relationships between subsidiaries and their parent companies. The primary reason for this is to ensure financial conglomerates operate within risk-management restrictions and imposed regulations.

`The proposed implementation of Twin Peaks signals a “fundamental paradigm shift” of our regulatory environment' Further, the SARB acknowledged that they do not know enough about the insurance industry and that they would have to consult in order to learn more, which will enable them to implement the apt regulatory measures for this industry. Naidoo also alluded to the collaborative relationship that the SARB and the Finance Ministry have; among others, the fact that the SARB manages monetary policy in consultation with the Finance Ministry and

does not do so autonomously. SA banks have worked closely with SARB to adopt and implement BASEL III within agreed timeframes. BASEL III is a response to the 2008 financial crisis, and Twin Peaks must be seen within this context, including enabling a regulatory environment that ensures stability of the financial sector, including effective consumer protection. Jonathan Dixon, Deputy Executive Officer of the FSB, affirmed the need for a Twin Peak regulatory structure of our financial sector. He stated that Twin Peaks addresses the inconsistencies within our current regulatory environment, pointing to the fact that it aims to “incorporate lessons that were learnt from the 2008 financial crisis” and by so doing ensure market conduct within the financial sector is effectively regulated. The question was posed why market conduct forms one of the pillars of Twin Peaks? Dixon responded by asserting that “market conduct requires a specific focus”, not only in South Africa, but throughout the world. He added that the proposed implementation of Twin Peaks signals a “fundamental paradigm shift” of our regulatory environment, and places a greater emphasis on collaboration between different regulatory bodies in order to harmonise procedural standards within the financial sector. Again, the question was posed whether the proposed Twin Peaks regulatory reform can be achieved in light of its complicated structure. Dixon explained that the practicalities of implementing Twin Peaks would be an obvious challenge, but in saying that, the need for a Twin Peaks approach to regulation can’t be questioned and is essential for financial stability. Peter Dempsey, Deputy CEO of the Association for Savings and Investment South Africa, reaffirmed the need for consumer protection. The investment industry is huge, with an estimated R6/7-trillion invested by South Africans in the local investment market and it is critical for investment institutions to manage consumer funds with care. Dempsey,

however, cautioned against regulation stifling investment institutions’ ability to create viable business opportunities for themselves, which would in turn have a negative effect on the longevity of the industry at large.

`The Twin Peaks regulatory regime is the most significant legislative development in the SA financial sector since 1994' He further alluded to the greatest challenge that Twin Peaks will face – which rests on its implementation. Dempsey noted that South Africa doesn’t have much success in collaboration between different regulators. The other challenge linked to the first is the fact that collaboration between the entire financial sector (market participants) and the regulators will be tested. In addition, Twin Peaks poses a skills recruitment and retention challenge for regulatory authorities. There may be increased competition for highly skilled regulators among the different regulatory bodies, as is the case in United States’ regulatory environment, added Dempsey. If this happens it poses a challenge to our regulatory authorities and the approach they will employ to retain these scarce skills in South Africa.

Conclusion

The Twin Peaks regulatory regime is the most significant legislative development in the SA financial sector since 1994. The input and debate at this year’s Banking Summit clarified numerous matters related to the legislation and confirmed that the industry, legislators and regulators are on the same page about Twin Peaks being the appropriate regulatory regime to ensure a stable and growing industry. There was also agreement that implementation will be complex, but the industry and government will cooperate to ensure effective and appropriate implementation.

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BANKING INDUSTRY IS MAKING STRIDES ON CARD FRAUD At the end of the third quarter of 2015, the banking industry reported an overall decrease in card fraud of 13.8%.

hen the banking industry released

and more effective crime risk mitigation.

their annual card statistics, the

SABRIC CEO Kalyani Pillay says: “SABRIC

South African Banking Risk Information

provides the banks with an industry view

Centre (SABRIC), on behalf of the industry,

of crime trends, and facilitates a collective

published that credit-card fraud had

and effective approach to the combating of

decreased by 28.6% from R353.3-million

bank-related crime.”

in 2014 to R252.2-million in 2015, but that

On the other hand, the industry saw

debit-card fraud had increased by 8.3% in

an increase of 8.3% in debit-card fraud

the same period, from R237.4-million to

for the same period last year, a significant

R257.1-million.

portion of which can be attributed to

This significant decrease is attributed to

either lost or stolen cards. Investigations

various mitigation measures implemented

and reports indicated that, in many

by the industry in the fight against the

instances, people accepted assistance from

scourge of card fraud. The effectiveness

criminals at the ATM, which enabled the

of these measures must be seen through

criminal to get unlawful access to card

the decrease in some of the modus

CEO Kalyani Pillay

operandi utilised, the arrests made by

information and the PIN. SABRIC’s analysis revealed that more

law-enforcement agencies in conjunction with the banking

of the fraudulent credit-card spend was outside the country,

industry, and that bank clients are beginning to heed the

while it was the other way around when it came to debit

awareness messages. The industry’s continuous improvement

cards. “Some of the countries on the continent where we see

of internal systems and processes, as well as the roll out of chip

greater fraudulent usage of South African issued cards are

and PIN technology, have also played significant roles. The latter

Zambia, Zimbabwe, Namibia, Botswana, Mozambique and

certainly contributed to counterfeit-card fraud decreasing by

Kenya,” explains Pillay. “Overseas, we are seeing a prevalence

38%, when compared to 2014.

of our cards used fraudulently in countries like the US, UK,

Another contributing factor is the unique SABRIC operating model that encourages greater information sharing and

Brazil, India and China.” SABRIC encourages all bank customers to keep abreast of

collaboration among its members. Consequently, this enables a

banking-related crime, and empower themselves with useful tips

more in-depth understanding of the organised crime landscape

on security (which can be obtained from the platforms below).

For more information, please visit www.sabric.co.za www.facebook.com/sabric www.twitter.com/sabric

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Keeping safe in cyberspace

Collaboration is key to stamping out cybercrime, writes Lisa Witepski.

ur phones and laptops have become our lifelines. If a message isn’t communicated via email or even WhatsApp, there’s a good chance it won’t be received, and the things we can achieve online increasingly resemble scenarios from a sci-fi movie. While this technological ubiquity introduces greater variety and convenience into our lives, it also opens more and more avenues for people to be targeted by cybercriminals. According to Professor Sebastiaan von Solmes, Director of the Centre for Cyber Security at the University of Johannesburg, no one is immune from cybercrime. “Every individual and every company is a potential victim,” he says.

Criminals seek opportunities and means to steal money, intellectual property and electronic identities, and continuously exploit weaknesses in users’ actions or vulnerable areas in systems to achieve their ends. Typically, cybercriminals target the end user, because they represent the easiest point at which to hack into a company’s systems. “Cybercrime is an international problem, rated by the World Economic Forum’s 2015 Global Risk Report as the fi ft h highest risk on a likelihood/impact scale,” Von Solmes informs. So how does South Africa compare to the rest of the world when it comes to cybercrime statistics? “It’s difficult to say, as it is not compulsory to report cybercrime in

South Africa,” Von Solmes says. That said, international statistics paint a bleak picture: according to the 2013 Norton Report, South Africa has the third highest number of cybercrime victims worldwide. This disturbing data is borne out by a presentation made at the 2015 Security Summit, held in Johannesburg in May 2015, where it was revealed that, during a six-week period leading up to the Summit, South Africa suffered more cybercrime attacks than any other country in Africa. What’s more, according to an article by Chad Fichardt, titled ‘Just How Big a Threat is Cybercrime to SA’ and published on BDLive in June, “South Africa is starting to feel the heat from attackers across the globe.” ›

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The consequences of these attacks are far-reaching and significant. According to the article, a report by the South African Banking Risk Information Centre (SABRIC) showed that “South Africans lose in excess of R2.2-billion to internet fraud and phishing attacks annually.” Equally concerning is the fact that Antonio Forzieri, Cyber Security Practise Lead: EMEA at Symantic, is quoted in the article as saying that “one in 214 emails sent in South Africa during 2014 was a spear-fishing attack.”

`We believe that it is imperative that we all make it as difficult as possible for criminal elements (regardless of their motive) to gain access to any part of our environment' Worryingly, cybercrime fighter Jason Louw noted in the article that “there have been very few cybercrime prosecutions in South Africa.” But Rudi Steenkamp, Head of IT at Strate, and Dale Connock, the organisation’s Head of Risk, point out that South Africa is not alone in facing the threat of cybercriminals. Moreover, they insist the country is not targeted as frequently or aggressively as other nations. “Of course, that’s not to say that we are not at risk,” they acknowledge. “We all need to be prepared to face this ever-present threat.”

What's being done?

The good news is that government has taken heed, and has responded by mooting the Cybercrimes and Cyber Security Bill, currently awaiting approval. The advantage of the Bill, writes Mongezi Tshongweni, an Executive for Legal and Regulatory Affairs at Internet Solutions on BDLive.com, is that it will “bring South Africa in line with international laws dealing with cybercrime”. “At present, South Africa has no

legislation that addresses cybercrime, whether to describe what constitutes a cybercrime, to stipulate how to enforce the law governing cybercrime or to determine appropriate correctional sentencing for those convicted of offences,” Tshongweni observes. The Bill addresses this by creating a number of structures to deal with threats. These bodies will fall under the auspices of the departments of finance, telecommunications and defence, state security, and defence. Also included in the Bill are definitions of offences and details of the penalties to be imposed on cybercriminals.

Taking action

While it’s heartening that cybercrime is on government’s agenda, individuals and organisations also need to take steps to protect themselves. Von Solmes, Steenkamp and Connock agree that the key word here is collaboration. “Effective protection against cybercrime can only be achieved through co-operation and education,” say the Strate team. And Von Solmes concurs: “The latest approach to cybercrime sees everyone in a company, from the board of directors to secretaries and cleaners, getting involved,” he says. “Cyber protection is no longer seen as the sole responsibility of the IT department, but as a holistic strategic business risk that should be managed as part of corporate governance. Accountability rests with the board and executive management, but the reality is that the best way to prevent and stall cyber attacks is by promoting awareness amongst all users.” Steenkamp and Connock believe that collaboration shouldn’t be restricted to organisations; they would like to see more co-operation between industries. “The time is right for all role players (like the financial-services industry) to begin sharing experiences. Ideally, we should aim for the establishment of computer security incident response teams to watch and warn one another of threats and activities. This should become a priority. Sharing

experiences and defence strategies will make everyone more robust.” This is all the more important, given that the sheer volume of transactions processed in the electronic environment makes prevention impossible. The best individuals and organisations can hope for, according to Steenkamp and Connock, is an effective response to incidents to minimise loss. Again, they emphasise that this will be best achieved through a joint approach. “We believe that it is imperative that we all make it as difficult as possible for criminal elements (regardless of their motive) to gain access to any part of our environment, and to achieve this collaboration is imperative. Skills shortages and naivety on the part of the general workforce (those not directly involved in cyber security) leaves us all exposed to easy access.” They point to phishing as an example of how being ignorant of cyber threats can have a massive impact on an organisation. “The onus rests on those who have technological knowledge to educate those who don’t.”

Practical steps

Obviously it will take time for industries to mobilise and present a unified front against cybercriminals; until then, there are several practical steps organisations and individuals can take to protect themselves. It’s worthwhile remembering that criminals will almost always look for the easiest way in. “After a quick initial scan of boundary defences to determine their strength, criminals are more likely to attack the human element. This gives them authenticated and undetected access to systems,” Steenkamp and Connock warn. These attacks become more sophisticated all the time. The solution? Go back to basics, Von Solmes advises. “Simply by making end users aware of the risks inherent in cyberspace, and teaching them the fundamental rules that make financial and social media transactions safer, cybercrime can be reduced,” he concludes.

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SPECIAL REPORT

Why cash needs to be protected

Despite vast technological advances, cash is still king, and its use should be guarded, writes Wendy Hardy.

s far back as 1950, when credit cards first came onto the scene, people have predicted the demise of cash. Granted, the opinion as to whether cash is here to stay or on its way out is largely influenced by the source of that opinion and, in some instances, concentrated efforts are at play to disseminate misinformation in this regard. However, the fact that there are more notes in circulation now than ever before, and that 84% of transactions around the world are still made using cash sends a strong message in itself. Statistically, the number of cash transactions may have declined as a percentage of total transactions, but as a result of the growth in the number of payments, cash continues to grow and remains the preferred method of payment. In the 2012 US Federal Reserve System’s Diary of Consumer Payment Choice (DCPC),

a survey showed that “cash use continues to be prevalent among people from all age groups and educational backgrounds, and that cash is the preferred first or second choice as a payment instrument among all ages and socioeconomic classes”. In South Africa alone, according to the South African Reserve Bank, cash in circulation has passed the R119-billion mark.

`Over the past 10 years, SA has experienced a shocking 337% increase in armed robberies against businesses' Anonymity, integrity and ease of use are sighted as the main reasons why cash remains the preferred method of payment, but these same attributes also make this

commodity highly sought after and the target of criminals. But, to be so naive as to believe that a cashless society would eliminate this threat is just that, naive. Criminals have never relied on targeting only one form of payment and the increase in cybercrime is a clear indication that they will take from where they can. Over the past 10 years, South Africa has experienced a shocking 337% increase in armed robberies against businesses. This equates to 51 attacks a day, and last year alone South African businesses were attacked 18 615 times. But, we are a resilient country and have been at the forefront of developing technology to combat such attacks and to remove the incentive to steal. By ensuring that every element of the cashmanagement cycle is protected, criminals are forced to seek other ways in which to enrich themselves. ›

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A broad range of technology used to deter criminals and protect cash is available throughout the country. And, as a result of the high levels of crime experienced by local businesses, South African companies specialising in the safekeeping and transport of cash have invested millions in research and development. Although much of the technology has been around for a number of years, the continual upgrading and development of systems has earned South Africa the reputation as a leader in the field of cash management in volatile environments. One of the most effective ways in which businesses are able to secure cash on their premises is by securing it in an automated-banking device – the equivalent of an intelligent safe. The range of devices available is broad, and depends on the functionality required, and the level of security and protection needed on site. Having secured cash on the client’s premises, security during the remaining stages of the cash cycle needs to be considered. Unless the cash on the premises will be recycled, it needs to be moved from the client’s premises to either a bank or a cash-processing facility. This transfer of cash should be arranged through a reputable cash-in-transit company. It is no longer safe for businesses to “walk” their money to the bank. Ensure that your cashin-transit supplier employs registered and trained security officers who are issued with body armour and firearms for personal protection. Cash should be moved from a client’s premises to a fully armoured vehicle in tamper-evident bags, which should in turn be secured in a cross-pavement-carrier design to render notes unusable if illegally taken from the security officer. The armoured vehicles deployed by cash-in-transit companies are a far cry from the soft-skin vehicles used many years ago. Today, these vehicles are fully armoured and fitted with the latest tracking technology and protection, to ensure the safety of both your assets and the staff performing these services. The investment in research and development and the

implementation of technology by cashin-transit companies in their operation is clearly evident by the 18% decrease in cashin-transit heists for the year. It is also imperative that throughout the cash cycle, the client and various service providers are able to pinpoint exactly where the cash is. This is facilitated through a number of highly sophisticated soft ware programmes. These programmes can also be used by the client for management reporting and the tracking of business trends, resulting in the ability to implement business efficiencies. So businesses need not suffer as a result of crime and the technology exists to protect cash, but at what cost? Many cash-management operators have conducted research into the cost of a business managing its own cash versus partnering with cash-management specialists. Every business is different and their requirements are client specific, but if one compares the direct costs of traditional cash control versus a conversion to, for example, an automated cash-management service, the results are surprising. Businesses need to take into account the costs of insurance, shrinkage, staff employed to manage the back office, the cost of funds held on site and deposit fees, to name a few factors. These costs, coupled with the risk of doing business in our current environment and the potential for cash loss or worse still, loss of life, add up to a heft y sum. Can your business afford the reputational risk and subsequent trauma experienced by staff and patrons?

`No one will deny that the cost of protecting your assets, staff and patrons comes at a price' No one will deny that the cost of protecting your assets, staff and patrons comes at a price, but instead of viewing this as a grudge purchase, businesses need to see this as an investment and ensure

that their cash-management solutions are working for them. Increasingly, operators are developing systems that add value. Businesses should not look to cashmanagement specialists for protection only, but should investigate solutions that can be integrated into their existing systems. Imagine, for example, secure point-of-sales systems that tie into procurement systems and are able to produce management reports that result in accurate purchasing power. The possibilities are endless and the market needs to meet this challenge.

`For the foreseeable future, cash is here to stay and we, as a society, owe it to ourselves to protect, stimulate and grow our economy. We owe it to this age-old commodity to treasure and protect it' In conclusion, other payment methods have their place. But when one considers reports by the US Federal Reserve that predict an average growth in cash of 1.7% per year from now until 2022, as well as the general consensus by 79% of central bankers, commercial banks, and cash-management companies surveyed by Currency Research in 2012, cash will increase for a decade from that date. For the foreseeable future, cash is here to stay and we, as a society, owe it to ourselves to protect, stimulate and grow our economy. We owe it to this age-old commodity to treasure and protect it. Why force such a valuable commodity toward extinction when a cashless society is clearly not the preference of the majority of people? For years people have fought for the right to choose – allow them to, and allow them to do so safely. The writer wishes to acknowledge the following people/companies for their input: Richard Phillips of Cash Connect; Hannes Venter of Gunnebo; and G4S.

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The digital native: Generation M Are banks geared to meet the emerging generation's banking preferences? By Solly Moeng.

n a ground-breaking survey carried out in the USA, the UK, Mexico, Brazil and Singapore, Gemalto interviewed close to 1 200 young people, aged between 16 and 24, with a view to understand their online banking habits and preferences. Also called millennials or Generation M, these young people were born into a world of smartphones. Unlike generations before them, they cannot imagine a world without smart devices. To put this study into perspective, Banker SA invited Paul Opie, Gemalto’s Field Marketing Manager for Banking Solutions, for a deep dive into its findings and implications. We also invited views from the main South African banks, specifically asking them to tell us how ready they are to increase their reach into and retention of this new generation of customers. We especially wanted to understand how banks can use mobile devices to attract millennials, while keeping customer data safe and encouraging safe consumer mobile behaviour. Commenting on the methodology used by Gemalto in conducting the survey and its choice of subjects, Paul Opie says: “Existing studies covering a mix of demographics have shown a universal rise in the use of mobile devices for banking. However, those studies only analyse the usage trends of people over the age of 18, with no specific insights into the behaviour of teenagers or young adults. We felt that millennials constitute a consumer base that needs some specific focus, and we were very clear about who we wanted to engage.” The survey sought to assess the mobile habits of these digital natives – people who

have grown up with digital services – and their views on mobile banking. Not only would this shine a light on an unchartered segment, but it would also give an idea of the next generation of services that financial institutions would need to deliver to customers whose phones have never been anything other than smart. “We therefore undertook this online study to get an understanding of exactly how rapidly – and how passionately – young people today have come to regard the importance and security of their bank’s mobile offering and services,” Opie explains. The survey was done online, a preferred channel for millennials. A total of 1 184 people aged 16-24 were polled through SurveyMonkey, with a consumer database provided by SmartSurveys in the USA (21.7%), UK (21.1%), Mexico (20.3%), Brazil

(21.7%) and Singapore (15.1%). The sample was 58% female, 42% male. According to the survey, there has been a major shift – driven essentially by the soaring use of smartphones and tablets – in young people’s use of banking services.

`Over a quarter of those we surveyed (27%) say they would rather go without a bank account than without their phone' Nearly four in five (77%) of millennials use online banking services; 42% use them five times a month or more. Furthermore, more than three in five (62%) use mobile-banking applications and almost half (47.6%) bank by phone. Clearly, the decades-old tradition ›

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of visiting bank branches in person could be on its way out. Over a quarter (27%) of young people never visit their bank branch in person, and a further quarter (27%) only do so once a month. “Over a quarter of those we surveyed (27%) say they would rather go without a bank account than without their phone,” says Opie. “This is Generation M at its best!” Furthermore, despite the extent to which millennials have embraced mobile banking, they’re not blind to the importance of security. More than two-thirds (67%) are concerned about the risks they face when using a mobile device to access banking services. Their expectations from banks are high, with 89.5% feeling that mobile services should incorporate the same security features as existing online services. More than a third (38%) said they would only use an app’s basic features if they felt that it had poor security, but almost half (48%) said they would switch banks altogether if security became a concern. So not only are millennials married to their mobile devices, but they’re also literally mobile, and will switch banks at the first smell of insecurity. Despite this, a third (30.6%) of millennials would be happy to access online or mobile-banking services over unprotected public Wi-Fi networks, a risky practice at the best of times. Millennials want a fully featured service with access to all the functions they’ve come to expect from the online or in-branch experience. Users of mobile-banking apps do not limit themselves to basic features, such as checking their balance. Only 2% make international transfers, 4% apply for credit and loans, 26% make domestic transfers, and 40% pay their bills using mobile devices. There weren’t many surprises. Only 3% did not have a smartphone or tablet, 92% own smartphones, 43% own a tablet and 38% own both – and they spend a significant amount of time using them. Of the total, 70% spend two hours or more daily on their mobile device, with over a third (37.7%) spending five or more hours a day. Unlike their older siblings or parents, millennials went straight onto mobile platforms. The survey found very little sign

of reticence vis-à-vis mobile banking on their part. This contrasts strongly with the habits of the older generations who needed to be reassured by an in-branch experience first. “But, not only would a lack of a mobile offering trigger a defection by millennials,” Opie says, “a poor mobile experience would too. This is a clarion call to financialservices providers the world over: the time for action is now or face irrelevance. While millennials hold no harbour with poor security, despite inadequate measures on their own part, there’s an expectation that

their banking providers will keep them safe – or risk losing their trust.” Asked if South African banks were geared to integrate Generation M’s preferred banking habits in their marketing and customer retention strategies, Opie says: “They’re definitely working towards a digital channel strategy to ensure mobility, convenience and instant gratification. The majority of them have launched mobile apps to enable mobile banking and is continually adding new and enhanced functionalities to meet the needs/wishes of Generation M.”

WHAT THE BANKS SAY CAPITEC BANK: We do not sell different access methods to banking services separately. The monthly R5 administration fee provides the client with access to all our features and benefits, including remote banking. Accessing banking services through our app is not a stand-alone offering, as it constitutes the bank on our client's cellphone. It was designed with security as top of mind. Charl Nel, Head: Communications Marketing and Corporate Affairs. FIRST NATIONAL BANK (FNB): We have a multi-layered security model to help prevent and detect fraudulent behaviour on digital channels, i.e. FNB Banking App, online banking and cellphone banking. Despite this, it is still important that customer's don't share their usernames, passwords, PINs and personal information with anyone. Dione Sankar, Head of Online Banking. NEDBANK: We have an annual campaign, called the “O-Week campaign”, specifically targeted at university youth (the millennials) during which digital is heavily emphasised. And, generally throughout the year, we emphasise digital in all conversation with the millennials. • All youth-targeted products are accessible on digital platforms. • We encourage all clients to use digital platforms to apply for Nedbank products and thus avoid visits to branches – a key expectation of the millennials.

• Our banking app also ensures brand relevance and can be used for purchasing event tickets, for instance – another expectation of the millennials. • We take our role of protecting client information very seriously. We use the latest technologies and constantly monitor all processes to protect client data. • Clients are kept informed and warned of potential fraudulent activities in the market. We have useful safety tips on our website and use SMS communication to encourage vigilance. Dave Woolnough, Head: Retail Digital Banking at Nedbank. ABSA: Our stringent security measures for reducing the risk of customers becoming victims of fraud or theft include: • A two-phase log-on system • Virtual keypad PIN input • SMS alerts of Absa Online log-on activity • Free antivirus software • A personalised welcome message • Verisign security certificates • Use of multiple firewalls to restrict access • Advanced encryption software • Website timeout and automatic logout • Three password failures resulting in account suspension • Online security centre • Fraud hotline and email, a 3D-secure call centre and mailbox to which phising emails can be forwarded. Absa spokesperson

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Cloud security: bank perspective Cloud is `a' solution and not `the' solution – and South African financial-services organisations are working towards options that deliver a balance of cost and service for them and their customers, writes Trevor Crighton.

n our previous issue, Darrel Orsmond, Industry Principal Financial Services at SAP Africa, discussed financial-services organisations’ adoption of cloud-based services, citing a measure of inflexibility and only adopting the technology in lower-risk business areas, such as procurement and HR, among the stumbling blocks. “The key to successful migration to cloud services is the acceptance that all the hard work has already been done by a team of developers, and that organisations simply need to plug into the existing functionality,” said Orsmond regarding resistance to the shift to cloud. His views are echoed in a March 2015 report by the Cloud Security Alliance, entitled How Cloud is being used in the Financial Sector, which showed that cloud adoption was becoming more prevalent, but remained ad-hoc. Many who are adopting cloud strategies use a mix of private, public

and hybrid environments – but those who opted for a strictly private cloud system cited security, compliance and privacy concerns, alongside data retention and destruction and data residency issues as their main reasons for doing so.

Cloud in banking

FNB Business CIO Peter Alkema says the bank is exploring different cloud services and offerings, including office automation and productivity tools. On the banking front, they explored two different types of cloud services at their CodeFest event. “At CodeFest, 40 apps solving key business problems were built in 24 hours,” he says. “This was part of a six-day sprint to incubate disruptive fintech solutions, where Obsidian provided the OpenShift cloud and Microsoft set up their Azure cloud service. The winning team built a

kids’ savings app that encourages earlychildhood money management and a fun experience of banking.” In terms of the exploration of cloudbased systems for office automation and productivity, Alkema says those ‘critical areas’ are typically customer-centric product platforms and channels that are core to the business. “A fully leveraged cloud-operating model means these assets reside outside the boundaries of an organisation, so the concept will struggle to attract such core assets away from its customers to then sell back on-demand usage,” he says. “There are also regulatory challenges for cloud offerings that run from off-shore, large-scale data centres, as many countries require their citizens’ data to reside physically within its borders.” Alkema says FNB recognises that they cannot ‘out-innovate’ the market without ›

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skills and solutions from the industry, and continually look at options for buying in and developing in-house. “Cloud computing offers on-demand IT services with a per-usage cost model,” he says, “and it is also important that we explore how this technology helps us be more cost effective as we build better products and services for our clients.” Responding to Orsmond’s assertion that all banks insist on their systems being unique, and use that as a barrier to adopting cloud technology, Alkema says generic enterprise processes that can be standardised should run on packaged, pre-built software. “Products and services that differentiate an organisation in its chosen market can usually benefit from a high degree of customisation,” he says. “You can build these from scratch on a range of platforms, but you will need to build a sustainable, enabling architecture for longterm growth. There are options for buying and heavily customising or configuring software, but sometimes this compromises the IP and best practice that is contained in the off-the-shelf product. FNB’s digital channels have been rated the best in South Africa, and continue to benefit from a high degree of customisation to achieve this differentiation from our peers.”

`Technology is becoming a significant disrupter in the banking industry' Alkema agrees that instances exist where Orsmond’s assertion that banks want new software that does what their existing software already does, and that often their in-house systems have evolved organically and without proper documentation, but he says this applies to any industry. “There are examples of this in many large organisations, and updated, widely shared documentation helps prevent licensing unnecessary software that often ends up becoming costly ‘shelfware’,” he says. “Technology is becoming a significant disrupter in the banking industry; new start-ups can be

PETER ALKEMA, FNB Business CIO.

nimble and responsive – big banks have the assets that start-ups don’t have, but we need to think like the start-ups about how to use those assets better.” While Orsmond said that cloud adoption would lead to shrinkage in legacy-system investment, Alkema says another option is shifting legacy systems to cloud. “With that option, the question is more about whether you want to keep IT infrastructure onpremise or pay a per-usage cost to someone else who manages the fixed-cost base,” he says. “Cloud cost models offer savings in the short term, but the TCO [total cost of ownership] of a full cloud-operating model should be well understood for long-term life cycles. Accounting treatment for IT investment also drives such decisions and affects whether you capitalise IT infrastructure as a depreciating asset in a portfolio or expense some elements of it such as software in the short term.”

Returns

In terms of investment, Alkema says there are short-term savings with a per-usage, cloud-based model, but like any outsourced arrangement, it still requires an overhead cost of managing the service. “It’s also possible to rationalise your IT skill base if you don’t need to operate and maintain the underlying systems,” he says. “The potential drawbacks of cloud are downtime, privacy, security, vulnerability, and dependency on third-party platforms and their upgrade paths. These should be assessed against the benefits in a business case that would drive the right IT investment.”

Alkema says Orsmond makes the point that any data flow through the internet or shared network effectively passes through a cloud, so in that sense the concept of cloud is as old as the internet. “Cloud as an operating model for IT is a fixed versus variable cost question; if you have IT assets that trusted partners can run more cheaply, which you don’t want to own or control, then it makes sense. Many small businesses use cloud to keep costs down with Software as a Service [SaaS] products like Google Drive, Dropbox, Salesforce.com and Quickbooks.” On the topic of buying in a solution versus developing one in-house, Alkema believes there’s no consistent rule on this, but the standardisation versus differentiation considerations should guide the investment decision, based on a sound business case. “Whether build or buy, all projects need to be well executed to stay cost effective – decisions made during implementation often have dramatic long-term consequences for the costs of maintenance and operation many years after being switched on,” he says. “Procurement experts should always be part of tender processes and contract negotiations; they have the experience to configure licensing agreements appropriately that could otherwise be strongly in favour of the software vendor in the long term.”

Alternatives

Alkema adds there are other non-cloudbased options. “FNB offers SaaS products through our widely used Instant Solutions for individuals and businesses, with functions such as payroll, invoicing, accounting and cashflow. Besides being free, the unbeatable advantage is that these are also fully integrated into our customer’s online banking and auto-populated with their transactional banking information,” he says. “This access to data and integration with banking products and services is something that pure cloud-software vendors will struggle to compete with. They are a valuable enabler, but for now they are still one step removed from the really helpful financial-services ecosystem that businesses and customers actually need.”

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ADVERTORIAL

Nedbank continues to innovate with orderahead mobile payments The banking giant aims to help change the way customers order, engage with and pay their retailers and merchants with new payment and ordering application.

edbank is continuing to innovate in the mobile-digital payments environment, with the development of a customisable “order-ahead” solution that will enable merchants to provide fully integrated digital-payment solutions to customers. Working with Ovations, Nedbank Emerging Payments has created the orderahead solution to allow customers to order items from an app on their smart device or from a browser, and then collect the item later. The app is linked to the bank’s digitalwallet solution, so as soon as an order is collected, the linked account is debited.

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Future of mobile payments

“Mobility is shaping personal experiences,” states Chris Wood, Head of Nedbank Emerging Payments. “This is why we at Nedbank have opted to develop an innovative mobile-payment solution, and can today offer existing clients looking to embrace mobile, or those who want to deploy a mobile-first business model, a working, fully integrated payment and ordering solution to service the digitalsavvy customer. “The development of this application echoes what we are seeing amongst the new-generation consumer, where digital innovations are driving the customer away from cash-based transactions. Consumers today are looking for smart solutions that

offer them an improved customer experience coupled with simplicity, all of which can be done from the device of their choosing. It is a trend that merchants need to start preparing themselves for and we [Nedbank] want to be sure we can help our customers make that transition when they are ready,” adds Wood.

A working solution

The order-ahead app has been piloted with Nedbank merchant Europa for several months. The system is being run daily from one of its Sandton stores, and is able to take in application orders, process inapplication payments and push specials and new menu items to customers using the service. Furthermore, it is linked to beacon technology that alerts the in-store staff of the customer’s movements, forewarning them when the client is nearby or when they have entered the store to collect their order. The system is fully integrated into the secure Nedbank payment gateway and can

CHRIS WOOD, Head of Nedbank Emerging Payments, and CRAIG LEPPAN, Director of Business Development at Ovations.

be tailored to the exact needs of each retailer, merchant or customer who has a business model that calls for mobile digital payments. “Nedbank has not only recognised that the consumer landscape is changing, but have also opted to be in a position where they can offer customers a working digital payment solution when they’re ready to make the transition,” says Craig Leppan, Director of Business Development at Ovations.

Driving innovation

In addition to the pure development of the app, Nedbank and Ovations have also created a module that enables the app to link into traditional point-of-sale (POS) systems. Wood acknowledges that integration into POS solutions often requires some heavy lifting, but there are ways in which to ensure that a digital-payment solution can run alongside these traditional applications. “Mobile applications and solutions don’t just take off overnight, but they are the future,” asserts Wood. The Nedbank order-ahead payment solution opens up a host of new opportunities for merchants looking to take advantage of technology to drive innovation, customer centricity and experience within their business. For more information, contact Craig Leppan at Ovations: Email: craigl@ovationsgroup.com

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SMES

POPI and small business: should we be concerned? While some extol the virtues of the Protection of Personal Information (POPI) Bill, others have raised concerns about what they fear will be its negative impact on the economy, and small businesses in particular, writes Septi M Bukula.

he Protection of Personal Information (POPI) Bill, signed into law at the end of 2013, has generated mixed reactions from various players within the economy. An article published in the Mail & Guardian on 27 November 2013, the day the Bill was signed into law, had this to say about the legislation: “Is POPI any good? Very. Sometimes South Africa gets its law making very wrong, and sometimes we get it very right. POPI is one of those bills that has everyone, from the ruling party to the opposition, and from businesses to non-governmental organisations (NGOs) pleased. Even usually sceptical NGOs have deemed it ‘well considered’ and ‘finely crafted’. And it should be, given that it’s been 10 years in the making and is based on the well-honed European Union legislation for protecting personal information.” This is ringing endorsement for the POPI Bill. The article goes on to highlight several positives associated with the legislation, ranging from prevention of the negligent disclosure of personal information to avoidance of spamming. On the other hand, those who have raised concerns about the Bill argue that it will deny people in outlying areas access to communication that they receive through unsolicited SMS messages, and could result in the demise of small businesses involved

in the direct marketing industry, with devastating consequences for employment, particularly of young people. It is fair to say all of this is speculation at this stage, as the Bill has not even come into operation just yet. But this does not mean the latter group’s concerns should be dismissed as irrelevant. Any new law that comes into existence has the potential to do good or cause harm. It is therefore always of utmost importance to take the necessary steps upfront to ensure that the beneficial effects of the law are preserved and strengthened, while its negative effects are eliminated or, at the very least, minimised. South Africa has a very recent example of how a well intentioned but ill-considered law or regulation can have a devastating effect on the economy way beyond what could have been foreseen. The regulations governing the application for entry visas and children’s travel documents, introduced by the Department of Home Affairs, had a near-crippling effect on the country’s tourism industry and, by extension, the economy as a whole, given the significance of tourism’s contribution to the national economy in terms of both foreign revenue earning and domestic employment. Tourism small businesses were particularly hard hit by these regulations, which were introduced without any due consideration of

their potential impact on the industry and economy. It is with this recent experience in mind that due care should be taken in introducing any new legislation or regulation.

`Government formalities are important tools to support public policies in many areas, and can also create benefits for enterprises' It is important to recognise, as the Organisation for Economic Co-operation and Development (OECD) points out in its 2003 publication From Red Tape to Smart Tape, that “government formalities are important tools to support public policies in many areas, and can also create benefits for enterprises by setting level playing fields where transactions can take place in a procompetitive and low-cost environment.” This quote essentially highlights two important points. Firstly, recognising the important, positive role that good legislation or regulation can have, none of these instruments should be rejected out of hand without a strong case for such rejection. Secondly, laws and regulations serve a useful, beneficial purpose only ›

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CHIEF IMPEDIMENTS TO THE GROWTH OF SOUTH AFRICAN SMALL BUSINESSES 20% 15% 10% 5% 0%

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BURDENSOME LOCAL ECONOMIC REGULATIONS CONDITIONS

if they create net benefits by fostering a competitive market environment and minimising compliance costs. The jury is out on both these counts as far as POPI is concerned. Therefore, any objections to the law or the raising of concerns about its potential effects should be handled circumspectly.

The way forward

So how should we proceed? It is true that unduly onerous formalities are harmful, particularly to small businesses. As far back as 1995, when it released its groundbreaking White Paper on National Strategy for the Development of Small Business in South Africa, the government recognised the importance of ensuring that laws and regulations do not impose undue hardship on smaller businesses. Under the heading ‘Streamlining regulatory conditions’, the White Paper states: “Inappropriate or unduly restrictive legislative and regulatory conditions are often viewed as critical constraints on the access of small enterprises into the business sector and as obstacles to their growth. Since government is responsible for the legislative and regulatory framework and its ongoing adjustment, it is also its role to assure the appropriateness of these rules and regulations for the small business sector. Unduly strict regulations often harm small and emergent enterprises and benefit the larger, established ones, whereas less regulation may lead to aggressive

LACK OF FINANCE

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competition between market entrants, to the neglect of worker interests or health hazards and environmental destruction.” This statement makes two important points. First, the role of rules and regulations is to advance and protect the interests of those who, without such protection, could be left vulnerable in a variety of ways. In the case of POPI, this refers to individuals within society whose personal information is in the possession of businesses and institutions. Clearly it is important that the protection and use of that information is appropriately regulated to prevent harm being caused to the individuals concerned. Secondly, as previously mentioned, regulation should be appropriate and not unduly restrictive, because, if it is so, it imposes unnecessary burdens and costs on economic players, particularly small businesses. What is more, inappropriate regulations could tilt the scales against small businesses and place them at a competitive disadvantage vis-à-vis larger firms. Such an outcome is also clearly not desirable. In its publication cited earlier, the OECD makes a similar point to the White Paper cited above. It says: “There is a risk that administrative regulations can impede innovation or create unnecessary barriers to trade, investment and economic efficiency, and even threaten the legitimacy of regulation. As regulations have become more complex and information dependent, many regulatory costs have shifted to citizens and businesses in the form of filling out

forms, asking for permissions, reporting information, notifying the government and record keeping. The cumulative effect of many administrative regulations and formalities is to slow down business responsiveness, divert resources away from productive investments, hamper entry to markets, reduce innovation and job creation, and discourage entrepreneurship.” These sorts of outcomes should be avoided at all costs. International experience shows that administrative burdens emanating from government formalities fall disproportionately on smaller businesses, which generally lack the capacity and resources to cope with such burdens. It is correct, therefore, that in responding to POPI, questions should be raised about its likely impact on smaller businesses. Independent research by SBP among South Africa’s small businesses reveals that burdensome regulations already feature as one of the key growth impediments among these businesses (see figure 1). Every effort should therefore be made not to inflict more regulatory pain on these enterprises. The responsibility falls on the government to ensure that small businesses do not suffer unduly as a result of the introduction of POPI. The government can avoid or, at least reduce, the negative effects of the law by carrying out an upfront assessment of the likely impact of the law, before it comes into effect, allowing for necessary adjustments to be made that reduce unintended consequences. The Department of Planning, Monitoring and Evaluation within the Presidency has introduced a tool called the Socio-Economic Impact Assessment System (SEIAS), with the aim, as the name suggests, to assist in measuring the socioeconomic impact of proposed laws and regulations. POPI is a perfect candidate for such assessment. Had SEIAS been applied to the visa regulations mentioned earlier, the unfortunate consequences the economy experienced could have been avoided. Let’s avoid subjecting our economy to that experience one more time with POPI. Septi M Bukula is the founder of Osiba Management.

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Sustainable banking

Studies have revealed that sustainable valuesbased banks are outperforming traditional banks in several areas, writes Kim Novick.

alues-based banks are surpassing traditional banks in areas such as return on assets, growth in loans and deposits, and capital strength, according to a 2012 study commissioned by the Global Alliance for Banking on Values (GABV) and funded by the Rockefeller Foundation. These banks are basing their decisions primarily on the needs of people and the environment. The sustainable banks analysed in the report appeared to be fi nancially stronger, with both high levels and better quality capital. They delivered higher fi nancial returns than some of the world’s largest fi nancial institutions. Commenting on the report at the time, GABV Chair Peter Blom said: “Our banking industry has an unprecedented opportunity to change, to help meet some of the greatest social and environmental issues of our time. Th is report shows that doing good is beneficial for banks, not just in a theoretical and ethical sense but also fi nancially, when measured against conventional benchmarks such as the fi nancial bottom line.”

South African context

This positive global trend is echoed in South Africa: banks are playing a significant role in terms of sustainability and adjusting their business approach to help our country transition towards a low-carbon future according to the future needs of our society. Banks leading the charge include Nedbank, Absa

and Standard Bank, all of which boast impressive sustainability footprints. Brigitte Burnett, Head of Sustainability at Nedbank, says given that the core purpose of banks is to facilitate the flow of money from where it is to where it is needed, banks play an integral role in ensuring long-term resilience and sustainability for all stakeholders. “South African banks are certainly providing sustainability leadership at a global level,” she says. “We have banks investing in and actively supporting sustainable solutions that help lay the ground for a low-carbon, resilient future.”

`Nedbank has a history of integrating sustainability into both its operations and its lending practices, so as to create value for all stakeholders' Burnett cites a case in point being the government’s Renewable Energy Independent Power Producer Programme, aimed at reducing South Africa’s reliance on coal-based power and energy generation, while lowering the national carbon footprint. “Several banks participated in the funding of the project, and Nedbank Corporate and Investment Bank fi nanced 54% of the total renewable-energy capacity awarded by the Department of Energy thus far,”

she says. Since the programme’s inception in 2010, it has contracted for $14-billion of private-sector investment across 64 projects, ranging from wind farms and solar PV to biogas. Nedbank has a history of integrating sustainability into both its operations and its lending practices, so as to create value for all stakeholders. “Our intention is to continuously build on our own sustainability experiences and initiatives,” says Burnett. “At the same time, we hope to leverage such [experiences and initiatives] within the South African society and influence business and consumer attitudes and behaviours, so as to keep sustainability at the centre of modern-day South African consciousness.” She goes on to say that this drive requires a clear commitment to be involved in entrenching a sustainability culture, harnessing innovation, educating and lastly promoting policy change. “Nedbank realises this through a focused approach that looks at how we lead through collaboration, provide products and services, as well as how we manage our own impact,” she says. Barclays Africa Group, of which Absa is a subsidiary, has an extensive geographical footprint. “As such, it’s important for us to continue to manage the direct environmental impact of our operations in terms of our carbon emissions, paper and water consumption. The greatest opportunity for reducing our impact is in the way we manage our buildings and

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SUSTAINABILITY

business travel,” says a Barclays Africa spokesperson. She goes on to say the group anticipates longer-term benefits, both in the reduction of its direct impact on the environment (reduced energy costs) and lower reliance on electricity supply due to the use of alternative energies such as gas and solar. “In 2014 we successfully reduced our carbon footprint by 10.3%, ahead of the target of 7.7% and our total energy from electricity, gas and diesel use decreased to 396 705 296kWhLA from 433 024 366kWh.” During 2014, the group received the Mail & Guardian Energy Efficiency and Carbon Management Award. Standard Bank Group has also set a high benchmark in terms of sustainability. Last year it was voted Africa’s greenest bank and 19th greenest

bank globally by Bloomberg Markets. It was also included in the A-list of the Carbon Disclosure Project’s (CDP) Climate Performance Leadership Index. The CDP is an independent initiative encouraging transparency on all climatechange-related issues and emissions performance. In an interview with The World Financial Review, then Head of Sustainability at Standard Bank Karin Ireton said: “As a fi nancier we work with individuals who are trying to improve their quality of life; with businesses trying to grow and create employment; and with governments trying to build infrastructure and secure a better future for their citizens. Our business units are all focused on developing products and services that meet the needs of Africa’s

`Our process has been to develop methodologies that acknowledge the everyday business decisions and processes. All large deals are screened for environmental and social risk' growing population and its economic development.” Ireton went on to affi rm that incorporating sustainability within the group was a key focus for the bank. “Our process has been to develop methodologies that acknowledge the everyday business decisions and ›

DISCLOSURE AND PERFORMANCE BANDS: FINANCIALS Nedbank's Marco Lotz says in general South African banks are making progress in reducing their carbon footprint and moving towards sustainability, as can be seen in the results of the Carbon Disclosure Programme (CDP) results: 2015 DISCLOSURE SCORE BARCLAYS AFRICA

100

CAPITEC BANK HOLDINGS LTD 95

DISCOVERY HOLDINGS LTD EMIRA PROPERTY FUND FIRSTRAND LIMITED

GROWTHPOINT PROPERTIES HYPROP INVESTMENTS LTD INVESTEC LIMITED

JSE LTD KPMG SOUTH AFRICA 80

LIBERTY HOLDINGS LTD (INCORPORATING LIBERTY LIFE GROUP LTD)

MMI HOLDINGS LTD NEDBANK LIMITED REDEFINE PROPERTIES LTD

REMGRO

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A MINUS

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SUSTAINABILITY

processes,” she said. “All large deals are screened for environmental and social risk as a matter of course. Th is means that credit committees can make more informed decisions and that deal makers are sensitised early on to the issues that are inherent in certain sectors or products.” An example of the bank at work in this regard was during 2014, when it assisted the City of Johannesburg in raising its fi rst Green Bond. It was

1.5 times oversubscribed and is providing much-needed capital into environmental rehabilitation and services projects. Marco Lotz, Nedbank’s Sustainability Carbon Specialist, emphasises the importance for banks to get their own house in order when it comes to measuring, reporting and decreasing the pollution and environmental impact it is directly responsible for. “After achieving this, banks can shift their attention to assist

clients in reducing their impact on the environment,” he says. Nedbank has been highly active in terms of educating clients, with a primary initiative being the bank’s involvement in supporting the publication of the Carbon Footprinting Guide. “We are extremely proud that this guide is used as a textbook at the University of Pretoria and the University of Stellenbosch, and assists readers to calculate and understand carbon footprints,” explains Lotz.

BUILDING GREEN South Africa is the world's fastest-growing green building market, according to a World Green Building Trends Survey conducted by US company McGraw-Hill in 2014. The Green Building Council of South Africa confirms there are now more than 100 Green Star South Africa certifications. Financial institutions that have achieved five-star ratings include the Absa Towers West in Johannesburg, Nedbank's Menlyn Maine building in Tshwane and Standard Bank's Rosebank office. The latter's Rosebank building was constructed in 2013. At the time of the building's unveiling, Standard Bank's Stewart Shaw-Taylor said: “Sustainability is a holistic approach, so we are particularly pleased that everything we've done at 30 Baker Street contributes to the creation of a sustainable environment, both internally and externally, for staff, as well as for visitors and for the public-use park area.” Among other green initiatives, the building uses a gas-powered tri-generation plant to produce energy for lighting, heating and cooling. Other green features include: • More than 60% of the structure is recycled steel. • Twenty percent of materials used in construction and all furnishings and fittings were sourced from less than 400km away to reduce fuel used for transportation to the site. • Rainwater is harvested off the roof, reducing water requirements by 50%. Nedbank has also successfully created greener buildings by initiating the following:

• The building of six Green-Star-rated buildings accredited by the Green Building Council of South Africa. • In existing buildings not as yet Green Star accredited, Nedbank has implemented operational efficiencies that help reduce water, paper, energy and carbon usage. • Some branches are retrofitted to operate in harmony with the environment, using the Nedbank Retail Branch Fit-Out Analysis Tool, which enables the company to make assessments that will inform the practices that it can employ. • Further to this are two key milestones: the DuNoon branch in Cape Town was unveiled in 2011 as the first partially wind-powered branch in Africa; the Lansdowne Corner branch in Cape Town was revealed in 2013 as the first 100%-off-the-grid renewable-energy bank branch in Africa. • In empowering staff members to also tread lightly, Nedbank has provided them with tools such as battery-recycling bins, dual-flush toilets and shower timers so they too can embark on their own personal sustainability journeys. In a similar vein, Barclays Group Africa has accomplished some notable environmentally sound targets, including: • Refurbishing Absa Towers North, delivering a 64% reduction in energy consumption per employee. For this the group was awarded a Certificate of Merit from Eskom and the runner up prize for Energy Project of the Year in the South Africa Energy Efficiency Awards in recognition.

• Completed the fit-out of the new Sandton Head Office, which has a 4-star Green Building rating. • The group's energy centre at the Johannesburg campus has decreased its demand from the national energy supplier by 2 230 000kWh (equivalent to energy powering 2 230 households). • Reducing paper usage through initiatives such as double-sided printing and the electronic distribution of internal management reports. • This year the group completed a 1 megawatt peak solar photovoltaic plant at the Pretoria Campus. The plant will annually generate 1 890 000kWh of energy (equivalent to powering 1 890 households). As the Global Alliance for Banking on Values' (GABV) Dr Marcus Eguiguren points out, sustainability focused banks such as these are “embracing a viable model that strategically take a longer term view of profit and prosperity. Profit is a result of sustaining and growing the real economy and healthy communities, not an end goal.” While many banks remain safely within the constraints of the traditional business model, there are signs that globally others are shaking off their inertia and moving towards a concept that is not just about corporate-responsibility wallpaper. Research is showing this approach has multiple and profitable benefits. The banking sector must make a fair contribution towards creating a more sustainable global banking system.

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INSIGHTS

traditional and Islamic finance are the sharing of profit and loss, and the prohibition of usury or profiteering. The law prohibiting usury is broad, and one which can be interpreted and debated, but the prohibition of the payment or collection of riba (interest) is common across all organisations offering Islamic finance products. This means that loans and investments must be structured differently, particularly in terms of tax.

Investment alternatives

Islamic banking: no interest, great appeal Challenges facing riba-free banking and how to solve them, by Yule Edwards.

stimated at $2-trillion worldwide, the Islamic finance market is set for tremendous growth across Africa, where more than 50% of the population is Muslim. Its value proposition is appealing, not just to fervent Muslims, and while it faces significant challenges in the traditional finance environment, the government is actively supporting this sector. South Africa, at the forefront of allowing

Islamic government bonds, is hoping to become the Islamic banking hub of Africa. Islamic finance complies with the moral and ethical principles of sharia and the teachings of the Qur’an. Pork, alcohol, gambling and pornography, for example, are considered haram (sinful or an act forbidden by Allah), so investment in such channels is prohibited. The two fundamental differences between

Government and corporate bonds, or sukuk, are an established form of investment introduced to non-Muslim countries with immense success. Britain was the first Western country to issue sukuk, followed by the Hong Kong Monetary Authority, Luxembourg and South Africa. Sukuk is similar to a bond in Western finance and represents tangible assets in line with the Islamic principles of asset-based finance. “When the government floated the first sukuk in September last year, it was oversubscribed four times and applicants had to be turned away,” says Advocate Mahomed Vahed, Co-ordinator of Islamic Finance, Banking and Law at Regent Business School. “Internationally, Islamic banking is growing at a rate of 15-20% per annum, whereas conventional banking is growing at 2-3% per annum. A large proportion of Islamic banking is controlled by the big four banks in South Africa. Al Baraka Bank, the only solely Islamic bank in South Africa, has been growing exponentially. However, its share of the banking pool is just 0.1%. So there’s room for significant growth in Islamic banking in South Africa.” Ernst & Young estimates that international Islamic banking assets grew at an annual rate of 17.6% between 2009 and 2013, and will grow by an average of 19.7% (excluding Iran) per year to 2018. Because Islamic finance and banking is based on a belief system and religious principles that differ from Western financial principles, it raises a number of challenges in non-Muslim countries. ›

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For example, when you buy a house through the normal finance channels, at the going interest rate over the loan period, interest accrued is significant. According to sharia law, however, the bank is not allowed to charge interest. So when buying a house through Islamic finance, the bank purchases the house and onsells it to the customer who pays an agreed monthly instalment over the financing period. Once the purchaser has paid off the capital amount over the loan term, the bank then transfers the property into their name. However, this incurs two sets of transfer duties for Islamic banking clients. “Here and in the UK, the second transfer duty has been exempt for Islamic finance deals,” says Stuart Grobler, Senior GM, Market Conduct at The Banking Association South Africa, who also sits on the Islamic Banking Committee. “Deals are just structured differently. Profit is allowed, so there are ways of manufacturing a return: instead of investing in interest-bearing ventures, invest in commodities or property that bring rental.

`Because of ownership structures, there might be securities transactions tax, two duties to the government, two sets of broker fees, which then disadvantage Islamic banking clients' “If you invest in equities (which don’t earn interest) based on stock-market movements (such as mutual funds and collective investment schemes), the investment has to be in a fund that doesn’t invest in interest returns,” he says. “Because of ownership structures, there might be securities transactions tax, two duties to the government, two sets of broker fees, which then disadvantage Islamic banking clients. There are currently discussions around trying to reduce such challenges. With the issuing of sukuk, there’s the matter of ringfencing them with non-interest-bearing

investments. For example, a government sukuk could invest in the development of a highway, which would earn toll fees and not interest. This would provide suitable ring-fencing by creating returns through non-interest-earning measures.”

Legislation

Another serious difficulty faced by Islamic finance, says Vahed, is that in terms of South African banking legislation, banks are required to hold 5% of depositors’ funds in treasury bills at the South African Reserve Bank. This is to mitigate the risk of a run on the bank, but also helps manage the liquidity of funds. The challenge here is that treasury bills earn interest, which should then go to charity rather than depositors and shareholders, as it would in a traditional setting. “Key stakeholders are currently working with the National Treasury to synchronise the sukuk with a treasury bill, smaking them equivalent,” says Vahed. “If this is done, then the investment in sukuks will return permissible income (halaal) and the profit can be distributed. This would benefit Islamic banking immensely.” If South Africa is able to become a hub for Islamic finance and banking, it will attract foreign investment from the oilrich Gulf countries. “They’re probably not investing here in any significant measure at the moment because of interest,” says Vahed. “But this would attract petrodollars that would benefit both the government and also Islamic banking.” Shabir Chohan, CEO of Al Baraka, agrees that financial legislation has been one of the biggest hurdles for Islamic finance. Legislation, combined with the fact that sharia law is open to interpretation, has amplified the challenge. “There are a number of schools of thought around the interpretation of sharia, but our global holding company takes guidance from the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), which has taken banking standards and codified them into standards with rules and regulations,” he says. A sharia board of

Islamic scholars audits Al Baraka annually and issues a certificate of sharia compliance. He goes on to say that all Islamic financial institutions are governed by a sharia board or committee that will ensure AAOIFI standards are maintained, and can advise in cases where a conflict arises between the sharia standards and local legislation. An internal sharia supervisor also supports processes to make sure standards and rules are properly observed. Uwaiz Jassat, Head: Islamic Banking at Absa, which has an Islamic finance window, says: “AAOIFI’s standards on accounting, auditing, governance, sharia and ethics create harmony and ensure consistency among banks in the implementation of Islamic banking.”

`We simply do not have enough qualified people dealing with the particular issues that come with sharia in South Africa' “Access to skilled and knowledgeable resources is also a challenge,” says Chohan. Although training courses exist elsewhere in the world, the local context adds a layer of complexity that requires additional skills. “We simply do not have enough qualified people dealing with the particular issues that come with sharia in South Africa,” he explains. “I believe we need individuals with thorough legal knowledge who are trained on religious matters also.” At this stage, only Regent Business School offers an Islamic banking, finance and law qualification and uptake has been positive, adds Vahed. Islamic finance and banking is a growing sector and while it faces challenges, South Africa has the potential to become a significant player in terms of pulling Islamic investment into the continent. The committed backing of our government is a positive step in creating new avenues for investment opportunity, both for Muslims and non-Muslims.

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TECHNOLOGY

Enterprise mobility Enterprise mobility has become an increasingly integral tool used by organisations to leverage greater productivity, writes Dumile Sibindana.

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nterprise mobility allows for the transfer of information ‘on the go’, enabling individuals within team structures to collaborate and share work even if they are in different locations. This is particularly effective in the consultancy industry, where employees spend the majority of their time on engagements with clients. The efficacy of enterprise mobility extends beyond, with numerous companies setting up their enterprise mobility structures to facilitate the exchange of ideas and information in real-time, and store information on cloud databases that enable other employees to access information from almost anywhere. Dimitri Denissiouk, Managing Director of IBA Group South Africa, alludes to the fact that companies such as Uber have caused a major disruption in the global taxi industry, through the use of enterprise mobility in developing the software and app that has now become a global enterprise. He goes on to say that “many other companies from various sectors are also using the features that mobile technologies provide, and thus transforming and improving their businesses”. This trend is not only limited to developed economies, but signifies an abundance of opportunities for companies to explore innovative ways to make use of technology to drive economic growth in South Africa. Dr Vjacheslav Mikitjuk, Director of the Internet Technologies Department at IBA Group, alludes to recent market research that

shows “mobility adaptation”, as he terms it, has become a top priority in the strategies of the majority of corporates and enterprises. The growth in the sales of mobile devices serves as evidence that mobility will be a pivotal channel to reach consumers.

`The swifter sharing of information through enterprise applications could lead to faster response times' Enterprise applications could play a significant role in the timeous extraction and sharing of data, which enables firms to respond quicker to, for example, customer requests, thereby increasing customer service standards. This could then, in theory, lead to greater customer retention for businesses. In addition, the swifter sharing of information through enterprise applications could lead to faster response times and decision making, because company information is readily accessible for employees and managers to disseminate. Enterprise mobility is generally accepted in numerous companies globally due to the inherent benefits that firms can attain through the effective implementation of these technologies. However, South Africa has a vast small, medium and microsized enterprises (SMME) business sector, constituting the majority of businesses in the country and employing more people than

the large corporates sector. Therefore, the SMME sector should also embrace enterprise mobility; by leveraging mobile technologies and attaining the aforementioned benefits, they stand to improve their productivity levels. Denissiouk says: “IBA South Africa can help develop a mobile application that is tuned to specific SME needs, in contrast to a more generic app on the market.” A possibility that more smaller enterprises should explore. Some may argue that mobile enterprise in South Africa is still a relatively new phenomenon, which businesses haven’t quite yet grasped. Looking forward though, it isn’t easy to predict the future of enterprise mobility. According to Denissiouk, one thing is certain: the fact that businesses will continue to adopt mobile technologies, fear of which could potentially result in those who are reluctant lagging behind companies who’ve adopted these technologies. Many would also argue that the banking sector has been at the forefront of enterprise mobility solutions. Over the past decade, the ‘big five’ banks have made significant technological development investments in leveraging the efficiencies with which they process customer requests, and have introduced various applications that make it possible for customers to manage their accounts from mobile devices. However, as the old adage goes: technology is constantly evolving, therefore banks can’t afford to become complacent.

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Fintech and disruptive technology T

raditional banks have to adapt to the fast-changing financial sector or suffer the same fate as the meter-taxi industry, which did not anticipate the fast growth of the disruptive Uber in their sector. In recent months, there has been a surge in unapologetic financial technology (fintech) companies, which continue to steal traditional banks’ lunch from right under their noses. Although there isn’t one single large disrupter, banks are being assaulted from all sides. For example, consumers don’t necessarily need to go to a bank to access small loans or transfer money. Now savvy fintech companies increasingly service that market, thus disrupting traditional banks’ revenue streams. It is no wonder then that according to the 2015 Europe, Middle East and Africa Crisis Survey, disruptive start-ups are what established companies fear. International communications firm Burson-Marstelle recently stated that in the past 12 months “controversial company developments” were the type of crisis most frequently encountered, with the entry of new and innovative business models into their market the second most experienced cause of crisis. Simon Mathews, Chief Strategy Officer for Extractable, a digital consulting agency based in the US, believes there are signs

indicating that a bank without capital or a vast physical distribution network is possible. He says the “uberisation of banking” is making it harder for banks to sell more products to each consumer.

`Jumo has, to date, dispersed 4.9 million loans to 1.8 million unique customers, with active integrations across Kenya, Tanzania, Uganda, Rwanda, Zambia and Ghana' One company that seems to be a real disrupter in the financial-services sector is Jumo. It’s Africa’s first mobile-marketplace and arguably one of the fastest-growing mobile-fintech platforms in the world. Jumo allows financial access through mobile wallets, with no need for a bank account, physical structure or collateral. The Cape Town and Nairobi-based company, which separated from African financial services company AFB earlier this year, is linked to large mobile networks such as Airtel and MTN. Jumo has, to date, dispersed 4.9 million loans to 1.8 million unique customers, with active integrations across Kenya, Tanzania, Uganda, Rwanda, Zambia and Ghana.

If traditional banks fail to keep up with the ever-changing demands of the industry, they could face the danger of becoming obsolete, writes Thekiso Anthony Lefifi.

Fintech investment

Due these increasing disrupters, more and more banks and other financial-services companies such as insurers are upping their investments in fintech companies. Investments in fintechs across AsiaPacific skyrocketed in 2015 – from about $880-million in all of 2014 to nearly $3.5-billion in just the first nine months of 2015, according to a new report by Accenture highlighting the importance of start-ups in the sector (see graph on the right). According to the report, the largest share of 2015 Asia-Pacific fintech investment deals were in payments (40%) and lending (25%), which have traditionally been the sole domain of banks. Last year, investment in fintechs nearly tripled in the US alone – from $3.4-billion in 2013 to $9.9-billion in 2014. This means last year’s 191% increase overshadows the 2013 figures, which showed fintech deal values in the US jumped by 68% from the previous year. “An increasing number of banks and insurers are investing in connecting into the fintech ecosystem, whether through accelerator or incubator labs or venture investments,” says Robert Gach, Managing Director of Accenture Strategy Capital Markets. “We believe this explosive growth in fintech will help drive

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innovation within some of the world’s largest financial institutions.” Barclays, parent company to Barclays Africa (formerly known as Absa), has launched Rise, a platform for fintech startups to connect, co-create and scale their innovative ideas. Derek White, Barclays Chief Design and Digital Officer, says partnering with these fintech start-ups helps to create a future for the group. “We have seen the disruptions out there with a number of fintech companies that are starting to eat into our revenue streams,” he says. “We have realised we had to partner with these organisations.” Ashley Veasey, Barclays Africa’s Chief Investment Officer, says the group is not surprised at all by the increased disruption of fintech companies on the banking sector, as it has been strategising about fintechs for at least three years. “We are actively looking to partner with [fintech] start-ups,” he confirms. Last year, Barclays Africa acquired 49% of RainFin, a start-up promising to disrupt the financial-services sector by allowing South Africans to take part in person-to-person lending, cutting out banks in the process. LulaLend is another fintech that has been

stealing lunch from traditional banks by granting short-term business loans to small business in the country. The group has less stringent requirements than banks, and offers loan amounts from R20 000 up to R250 000 mostly over a six-month period. Interest rates on the loan vary between 5% and 12% for the first two months, and 1% for each of the remaining four months.

`Most big companies stuff up the start-ups that they acquire by enforcing company policies' Michael Jordaan, former First National Bank CEO and Montegray MD, an investment vehicle that invests in disruptive technology start-ups, says traditional banks can be quite good at incremental innovation, particularly in South Africa, but generally fail at radical innovation, especially if such radical innovations threaten existing profit streams. He is also of the view that the acquisition of fintech companies by large banks has proven to have market traction. “Most big companies stuff up the

start-ups that they acquire by enforcing company policies,” he says. “It is important to understand that one of the big benefits that small start-ups have is relative freedom from bureaucracy and an ability to move very fast. These benefits can quickly disappear if a corporate ethos is enforced.” According to Jordaan, there are some instances where banks do put themselves at risk when acquiring fintech players, given that banks will be seen as guarantors of last resort. For example, if an investor in a crowdfunding platform loses money, they may ask the bank to make well, or if a new payments player suffers a huge fraud loss, the bank owner may have to make it up. “The challenge is therefore to strike a balance between risk managing the new fi ntech company without overly burdening the dynamic culture of a startup,” Jordaan says. He also believes banking has become far more complex than it was 20 years ago. “The amounts involved are much larger (even after inflation) and the regulatory landscape more stringent. It is tougher being a banker, but the rewards, both intellectually and commercially, compensate more than adequately.”

INVESTMENT IN APAC FINTECH ON THE RISE INVESTMENTS (US$M)

DEAL VOLUME (#) 200

4,000

GRAPH SOURCE: ACCENTURE ANALYSIS OF CB INSIGHTS DATA

$3,464

150

3,000 117

2,000

122

100

81 47

1,000 10 $103

$399

$879

$434

$149

0 2010

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2013

2014 DEAL VOLUMES (#)

2015 INVESTMENTS

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t goes without saying that digital is changing the way the world lives. Before now, technology merely improved the way we worked. Today, digital redefines the way we work. For business, this means digital technology is making it easier to understand what customers truly want, especially as hardware on the edge – also known as the Internet of Things (IoT) – becomes increasingly intelligent. In addition, the proliferation of alternatives, pressure from business due to the consumerisation of IT, and the rise of digital have started impacting on the ability of IT-infrastructure owners to prioritise and keep pace. There is a sense that organisations are in a constant state of change and this places pressure on already stretched organisations.

“Me” to “we”

The birth of the we economy The digital business era is reshaping the way we live our lives – and how we do business, writes Lee Naick.

We are now beginning to see a dramatic shift from the internet of “me” to “we.” As everyday objects are going online, so too are experiences, thus creating an abundance of digital channels that reach deep into every aspect of individuals’ lives. Forwardthinking businesses are capitalising on this, changing the way they build new applications, products and services, and reaping benefits as a result.

`These leading companies have already started using technology to transform themselves into digital businesses' To gain control over these access points to individuals’ experiences, businesses are creating highly personalised experiences to both engage and exhilarate customers. The majority of these companies are seeing a positive return on their investment in personalisation technologies. These leading companies have already started using technology to transform themselves into digital businesses, and are now focusing on combining their industry expertise with the power of digital to

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reshape their markets. These businesses see great potential to make a difference and a profit by operating as ecosystems, and not just as individual corporate entities. Th is shift to the “we” economy was confi rmed in our recent Technology Vision global survey of more than 2 000 IT and business executives. The survey found that four out of five respondents believe that in the future industry boundaries will dramatically blur, as platforms reshape industries into interconnected ecosystems. While 60% of those surveyed said they plan to engage new partners within their respective industries, 40% said they plan to leverage digital partners outside of their industry, and 48% said they plan to engage digitaltechnology-platform leaders.

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Digital drive

In last year’s Technology Vision report, we noted how large enterprises were reasserting leadership in their markets by adopting digital to drive their processes more effectively, thereby transforming how they go to market, collaborate with partners, engage with customers and manage transactions. Now that digital has become part of the fabric of their operating DNA, leading companies are stretching their boundaries to leverage a broader ecosystem of digital businesses, as they shape the next generation of their products, services and business models to effect change on a much broader scale. The important outcome that we share with our clients is around becoming more agile when it comes to technology adoption. Rather than simply focusing internally on improving their own operations, successful companies are looking externally to create – and become part of – digital ecosystems. They are beginning to see the importance of selling not just products and services, but also outcomes, and that requires weaving their businesses into the broader digital fabric that extends to customers, partners, employees and industries. This means that enterprises are now not just connected, but interconnected. They

are part of a broader digital fabric that reaches all aspects of their business, their customer relationships, and well beyond to alliance partners, vendors and the world around them. This allows them to scale and disrupt in unprecedented ways – stretching to grow into new areas, enter and create new markets and literally touch billions of lives. There is a wholesale change in the way businesses must design applications. Features and functionality must reflect what individuals are trying to accomplish, enabling them to control, measure, and even automate parts of their lives in both the digital and physical worlds.

`Customer mindshare across the “internet of me” is up for grabs, with the goal being to command the user's attention through engaging and delightful experiences' Customer mindshare across the “internet of me” is up for grabs, with the goal being to command the user’s attention through engaging and delightful experiences. As consumer adoption grows, businesses will have the opportunity to define how people will use these new devices, how they will connect with one another, and what form the interactions will take. To truly become a leader in the “internet of me” space, businesses will have to figure out how the customer experience they “own” relates to other experiences in the customer’s life or how they can help to deliver the outcomes that a customer is trying to achieve – without breaching consumer trust. In a world where the virtual is migrating to the physical, each person’s experience will differ slightly. Companies will need to tailor their products or services to the unique affinities of each individual. In our Technology Vision survey, 81% of executives surveyed placed the

personalised customer experience in the top three priorities for their organisation, with 39% reporting it as their top priority. Consumer adoption of IoT devices is growing exponentially: nearly two-thirds of consumers intend to purchase a connected home device by 2019, while the ownership of wearable technology is expected to have doubled by 2016.

Synergy

The range of emerging channels that companies report they are using or experimenting with to engage customers includes wearables (62%), connected TVs (68%), connected cars (59%), and smart objects (64%). Sixty-two percent of organisations attribute their investments in omnichannel initiatives to the simple fact that their customers expect it, but only a few agree that they are doing it well. Important criteria for purchase of connected device: 29% said product, features and functionality are important, while 22% said buying from a trusted brand. More than half (54%) of respondents are not always confident about the security of their personal data across connected channels. Ten percent of respondents said they are not confident at all, and never share data this way. In conclusion, advances in natural interfaces, wearable devices and smart machines are presenting new opportunities for companies to empower their workers through technology. Successful businesses will recognise the benefits of human talent and intelligent technology collaborating side by side – and will embrace both as critical members of the reimagined workforce. The next generation of businesses will be composed of people and technology working side by side to achieve better results and tackle bigger challenges. To best embrace this shift, companies will have to train their employees to collaborate effectively with technology and, in some cases, teach and guide the technology as if it were an apprentice. Lee Naik is Managing Director: Digital at Accenture, South Africa.

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The future of cash Michael Lee, CEO of ATMIA, reveals 10 defining megatrends in the future of money.

oney allows us to store and exchange value, especially in our daily purchases, and it’s heading rapidly into a faster, smarter and more mobile future. The abiding factor in the changing world of payments will remain trust, which often drives consumer adoption of technology, along with factors such as convenience and cost. Innovation is accelerating in the field of payments due to the global expansion of digital banking, especially online and mobile-financial services. Online shopping is about to enter a golden age, and consumers are increasingly choosing to conduct these purchases on mobile devices. M-commerce of this nature surely has a big and bright future. By contrast, using a mobile phone in a retail store to make contactless payments through near field communication (NFC) hasn’t been as wildly popular as expected, and generally has a disappointingly slow adoption rate. There’s no innovation without competition, and a great “money race” between global card brands, banks, technology providers (such as Apple and Samsung), internet giants (e.g. Google. Amazon, PayPal), social media giants (including Facebook, WeChat and Twitter) and, of course, major retailers to dominate the world’s vast payment markets is now on. Digital banking is here to stay and provides massive levels of convenience and efficiency. Financial institutions the world over are fiercely focused on developing omnichannel (“every channel”) strategies

to provide seamless customer experiences across all their banking channels. Surprisingly, cash is holding its own as a popular payment method and store of value. Its trust level remains extremely high, as public money is backed by a promise to pay from the government that minted and manufactured it. This is evidenced by the way the Greeks turned to cash during their fiscal and monetary crisis, which rocked the whole European Union, as well as by cash’s current 8.9% per annum average global growth rate, compared to an expected GDP rate for the world of 3% in 2015. In a recent study I conducted on the year-on-year growth of currency in circulation in 30 countries – including both advanced and developing economies, in the period between 2009 and 2013 – cash in circulation in the BRICS nations (Brazil, Russia, India, China and South Africa) grew at 11% p.a. compared to 4.5% in the Eurosystem. What’s also important to the world’s poor is the ability to send remittances. In 2014, there were $440-billion in recorded remittances. Now big names like PayPal are entering this growing remittance market. Money can mean survival. The world would be a much better place if we could take remittances and money transfers to a new level. That’s money in action. Money that’s trusted really does make the world go round!

Ecommerce is rising, along with digital shopping

Fortune Magazine recently rated the Bank of Internet, an online bank, as the 56th fastest-growing company in the world. Online buying is growing exponentially across the globe. For example, WWW Metrics (www.wwwmetrics.com) expects Australians to spend $10-billion more online in the next five years than they do currently. This megatrend will increase the importance of digital money.

There is a shift to mobile internet 3 and mobile commerce Today, mobile devices outsell PCs and laptops in a game-changing shift to mobile-based internet. It is therefore not surprising that mobile shopping is growing at four times the rate of online shopping. For example, Finextra has reported that 37% of ecommerce originates from a tablet or smartphone. Global mobile purchases are expected to rise from $150bn in 2014 to $214bn in 2015. Mobile money is going to be a big part of the future.

The smart world is coming

The smart world of smart consumers, some wearing smart technologies like the Apple Watch, smart devices and smart homes is on its way. This will take place within the Internet of Things (IoT). Gartner forecasts that the 3.9 billion smart devices connected to the internet at the end of 2014 will increase to about 25 billion by 2020.

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and payments 4 Debit card use is on the rise

Retail Banking Research (RBR) has reported that there are now 12 billion payment cards in the world, which were used last year to make 235 billion payments, totalling $20-trillion. The debit card is the king of these cards, representing 68% of the global card market. This share is expected to rise to 72% by 2020. By contrast, credit card share is predicted to decline from 23% to 20% by 2020. Prepaid cards have a mere 5% of the market.

bank branch is being reconfigured 5 The

Banks are redesigning their branches to provide a balance of digital and traditional services, employing customer-facing technology. Assisted self-service, including remote video banking and in-person assistance, is proving very popular. At the same time, respect is being shown for the role of customer-owned devices and the kind of experience they offer to customers.

The omnichannel, customer-centric world has arrived

All channels must be intuitive, and all channels must complement one another – there simply must be a seamless omnichannel experience. This is the key to the retention of the digital customer.

ATM is evolving into an indispensable, value-adding, 24/7 customer touchpoint 7 The

ATM shipments have been growing year-on-year since 2010, following the global economic crisis of 2008-9, and there are now more than 3 million ATMs, with a new one being installed on average every 2 minutes 47 seconds! The ATM is central to both branch transformation and the omnichannel approaches. It is a highly trusted customer touchpoint found in great locations. I foresee deployers focusing more and more on valued-added services at the ATM, from ticketing to bill payments, while deposit automation and recycling ATMs will continue to reduce the costs of cash on a global scale.

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OPINION

Remittances and financial inclusion are growing in importance

Today, there are still 2 billion unbanked people. A total of 38% of adults do not have access to basic financial services. That is why financial inclusion is going to be such an important a tool for addressing the growing wealth gap between haves and have-nots. And there is hope: mobile money!

Just look at how mobile phones transformed the landscape in Kenya. The renowned MPesa mobile money transfer and payment system gained 17 million users in just eight years (while currency in circulation in Kenya continued to show robust growth in this period). Mobilephone owners who had never had a bank account in their lives could suddenly conduct secure, fast and convenient financial transactions.

In-store NFC payments are being 9 outstripped by mobile commerce

NFC-based payments – often called “tap and go” or “wave and pay” – have a slow adoption rate, but should pick up a head of steam within the next five to 10 years. Deloitte estimates that only 7% of smartphone users use mPay at point-of-sale terminals. By 2018, in-store NFC payments are forecast to reach only about 4.5% of card volume. For the near future, NFC won’t be used much by customers in retail stores with high average order values, but more at coffee shops and fast-food chains with lower average order values. Nevertheless, by 2020 there could be 2.2 billion NFC-enabled phones and there is a good chance NFC may become a dominant technology.

Global cash demand is rising at three times the rate of economic growth

The global cash demand study I alluded to earlier showed cash demand growing at three times the rate of global GDP. The 8.9% global average accords with a prediction by leading retail banking research house, RBR, that annual cash withdrawal volumes would grow by 7.9% between 2013 and 2019.

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CHILDREN AND YOUTH

Inaugural FinLit Spelling Bee a massive success One of the factors driving the success of the StarSaver™ programme – an initiative of The Banking Association South Africa – is its ongoing adoption of new platforms to spread its message about saving among the youth. The StarSaver™ FinLit Spelling Bee is a case in point, writes Lisa Witepski.

pelling bees are not a new concept for South African learners: they got their first taste of this type of competition in 2014, when the Department of Basic Education launched its Spelling Bee South Africa programme for Grades 4 to 6. The Banking Association South Africa’s Senior GM: Financial Inclusion, Fikile Kuhlase, explains that the StarSaver™ initiative was built on similar principles to its predecessor, but targets the Grades 7 to 9 Economic Management Science (EMS) learners. “Spelling is important, because it’s a gateway to reading and writing, and therefore contributes significantly to language development,” Kuhlase observes. “It’s a critical part of learning and helps to develop key cognitive skills.” As such, a spelling bee is the ideal platform to encourage financial literacy. As participants had to familiarise themselves with financial terms, the competition helped to make finance something that they could easily relate to, and sparked their interest for further involvement in matters of an economic nature. A further advantage of the spelling bee format is that it furthered participants’ overall development and enhanced financial capability. This was important to the various stakeholders of the StarSaver™ programme, says Kuhlase, as one of the overarching objectives of StarSaver™ is to build citizenship. This noble aim requires a holistic and collaborative approach. The inaugural financial literacy spelling bee took place as a pilot project, hosted

in the Northern Cape, Mpumalanga, KwaZulu-Natal and Gauteng Provinces. EMS learners were invited to participate in the competition based on a list of about 400 words developed by the StarSaver™ programme, with some words also drawn from SABRIC. Winners were recognised with an exciting array of prizes, including The Read Tape album by StarSaver™ ambassador and hip-hop artist ProVerb (who also hosted the worker bees) and an inspirational book by mountaineer and fellow ambassador Sibusiso Vilane, calculators, dictionaries for business and economic studies, ruler sets,

pens, financial literacy games, word games, bookmarks, backpacks, StarSaver™ T-shirts and a Financial Guide for Youth book. Added to this, all winners were invited to observe the Spelling Bee finals, which took place at Johannesburg’s Sci-Bono Discovery Centre on 10 October 2015, hosted by the Department of Basic Education. Kuhlase says the pilot project was an overwhelming success, so much so that a national roll-out is being planned with the Department of Basic Education for 2016. Kuhlase looks forward to an even more exciting competition next year, but she’s realistic about the challenges in store. “We would like to involve as many schools as possible, and for this to happen, we rely on institutional partnerships to get more learners involved,” she says. It’s worth the effort, she notes, as by scaling up the project, the FinLit Spelling Bee will be able to have a greater impact in years to come.

THE WINNERS A total of 650 learners from 26 schools took part in the pilot FinLit Spelling Bee. The launch event took place in the Northern Cape, with learners from seven schools gathering at Kimberley's Big Hole Museum on 9 March 2015 during Global Money Week to test their skills. First place went to Norman Mabote of Kimberley Boys' High School. Next, it was the turn of Mpumalanga. It was timed to coincide with Youth Month, taking place on 17 June at Bongani Mountain Lodge, and was won by Glet Thwala of Sitintile Secondary School. The Gauteng leg of the programme was hosted at the Apartheid Museum on 24 July – Savings Month and Mandela Day aligned. Mashila Sekgala of Sgodiphola High School emerged as the winner. Finally, Northlands Primary School in Pietermaritzburg closed off Heritage Month with the KZN FinLit Spelling Bee on 29 September, where Andiswa Ndlovu of Northlands Primary won. In addition, 25 TIPS for Star Spellers were given to all the learners.

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From one day to 365 Corporate wellness at many companies has rapidly shifted from an annual screening day to encompass a 365-day approach, writes Trevor Crighton.

company’s annual corporate wellness day used to be the sum total of an employer’s intervention in their staff ’s wellbeing, but more and more companies are moving with the times and looking at a year-round approach. Cheryl Moodley, Wellness Manager at Bankmed, says wellness days still play a key

role in employee wellbeing, but continual assessment allows for a preventative approach – with better results. “Nowadays we take a preventative approach with a 365day assessment, which has obvious benefits for both employees and employers,” she says. Moodley says continuous screening leads to early detection of health issues – key in the application of early treatment.

“Obviously the most important element is being able to catch the early signs of a medical condition to give the person the best possible chance of early treatment, but then there are also considerations from the business side, like decreasing staff absenteeism due to medical issues,” she says. A study published by Occupational Care South Africa and Statistics South Africa showed that workplace absenteeism is costing the country between R12- and R16billion each year. Melanie Redman, Senior Design Researcher at Steelcase, says there are many reasons behind the absenteeism rate, but she believes that in many cases people are genuinely ill. “By that, I don’t mean physically or biologically ill,” she says. “The level of cognitive overload employees work under every day, coupled with the lack of control over their work environment, cause high levels of stress. Likewise, feeling disengaged at work will also cause stress. Stress could manifest as physical illness, and does lead to many so-called lifestyle diseases, but often causes people to require a ‘mental health day’.” The report also shows that on average 15% of staff are absent on any given

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COPORATE WELLNESS

day and that only one in three people who do not go to work are actually physically ill. According to the organisation, more than 40% of sick notes are issued without a diagnosis. South Africa also rates fairly low on the Gallup Employee Engagement Survey, with only 9% of employees saying they are “engaged” at work. Conversely, though, an online survey conducted in mid-2014 by pharmaceutical company Pharma Dynamics of 1 900 working men and women around SA found that eight out of 10 participants would go to work “even though they’re as sick as a dog”. Spokesperson Mariska van Aswegen was quoted as saying that for some employees, being in the office physically means job security, but she warned that people who go to work when they are sick “leave behind a trail of germs on shared surfaces like stair rails and door handles, putting others’ health in jeopardy”. Bankmed encourages employers – particularly those with on-site clinics – to follow the World Health Organisation’s wellness initiatives, like Breast Cancer Awareness Month and World AIDS Day, and to theme tests and drive active employee participation in their own wellness. “If a person is flagged for something like high-blood pressure, it could be a once-off incident,” Moodley says. “But what we then do from a scheme perspective is refer them to a doctor to see if there’s a deeper issue. If required, we can immediately get them onto chronic medication, or if it’s less serious, refer them to a rewards programme which benefits lifestyle changes.” Moodley says the shift to a year-round approach to wellness has happened in the last two to three years, as companies have realised the benefits, particularly in terms of productivity and economics. “We used to struggle to get management to buy into the concept of employee wellness, but now we’re seeing it so ingrained that some companies make screenings part of an employee’s KPIs,” she says. “Managers are now allocating time for employees to get screened during the working day.”

Redman concurs, saying that the most important change a company can make to influence the physical, psychological and cognitive impact of the working environment is to make wellbeing part of its strategy, communicating to its employees that their wellbeing is important to the company’s success. “Then it requires leaders to demonstrate new desired behaviours; workers will be more likely to believe they have permission for new behaviours when they see their leaders performing them,” she says. “Companies can be creative with rewards around these healthy habits. In terms of space, companies should first ask their employees what they need to do their best work, then create the appropriate spaces to support those needs. They may be surprised to hear that their employees don’t need a fancy coffee bar. What they really need is just good lighting, good air, the right spaces to support their work, and opportunities and spaces in which to interact with colleagues, for work and social reasons.”

Win-win situation

Jade Earp-Jones, from the Clinical & Operations Support team at Bankmed, says gathered data illustrates that the 365-day approach has improved both employees’ wellness and companies’ output. “Having healthy employees speaks to the fact that there’s less absenteeism, less stress, fewer instances of burnout and improved mental health,” she says. “Companies have realised that someone who suffers from burnout needs to be hospitalised, and can take 21 days’ paid leave – and they’re trying to avoid the impact on their employees’ health as well as the company’s output by running preventative screening initiatives.” Redman, on the other hand, says there doesn’t seem to be a lot of evidence yet that these programmes are working – though notes that it may be too early to tell and that companies aren’t always transparent with their data. “One of the challenges facing typical wellness programmes is that employees know the reason for them is to reduce the company’s costs, so the expressed concern for their health doesn’t

seem genuine,” she says. “In addition, these programmes focus mainly on physical health; unless they also address the emotional and cognitive needs of their employees, the impact of stress will continue to take its toll. This is why a holistic approach around wellbeing is ultimately going to be more effective.”

`It all centres around employees sitting on a chair and working long hours – there are knock-on effects on weight, increased smoking and so on' Bankmed’s Health Quality Indicators Report, based on 2014 data, shows that the five most prevalent issues in the industry include, in order: hypertension; depression; asthma; diabetes; and hypothyroidism. “It all centres around employees sitting on a chair and working long hours – there are knock-on effects on weight, increased smoking and so on, which need to be managed,” says Earp-Jones. Bankmed’s wellness programmes are planned around the outcomes of their research into the above list of most prevalent health issues. The next step in Bankmed’s continual assessment programme is the further integration of wearable technology and mobile applications into the informationgathering process. “People in our industry are particularly interested in technology and gadgets – it’s what people are asking for, so we’re giving them what they want,” says Moodley. “There will be a change in the scheme next year to incorporate those elements, which will help our clients manage their own health more efficiently, and also make our own information gathering and reporting simpler, which can only benefit all our members and the employers in the long run.” For more information about Bankmed’s available benefits, preventative screenings and care plans, call 0800 226 8633 or visit www.bankmed.co.za.

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Economic outlook 2016 All signals point to the likelihood of another tricky year for the economy, writes Jeff Gable.

conomics has gained a reputation of being a gloomy subject these past few years, and economists offering views on the outlook for South Africa are unlikely to shed that dark cloud in 2016. The global environment isn’t helping either. The International Monetary Fund (IMF) may estimate that the global economy will grow by 3.5%, the strongest in five years, but it is clear that the nature of that economic growth has changed dramatically. Compared to 2013, when advanced economies drove barely 15% of global growth, these economies are expected to contribute nearly double that in 2016, while China’s outsized influence has wanted somewhat. This global combination

`This weaker demand growth is one important factor contributing to the very sharp decline in global commodity prices witnessed since the second half of 2014' 62

impacts us in South Africa in two ways, neither of which is very supportive for the 2016 outlook. The first impact is through the channel of commodities. Simply put, countries like China use a far larger proportion of commodities in each unit of their output than other countries like the US, and so China’s slowing economy is associated with a slowing of demand for many of the raw materials that are at the core of South Africa’s exports. This weaker demand growth is one important factor contributing to the very sharp decline in global commodity prices witnessed since the second half of 2014, and our sense is that commodity prices are likely to remain soft throughout 2016. That is not good news for South Africa’s struggling mining sector and the parts of the manufacturing and service sectors that work in the same areas. The second global channel impacting South Africa in 2016 is likely to be a financial one. Since the global financial crisis first hit, the broad thrust of global monetary policy has been one of very low risk-free rates. That has not only encouraged more investment in the private sector in advanced economies, but also

sent investment funds from low-yielding advanced economies into higher-yielding emerging markets. As the US Federal Reserve begins to raise the US policy rate, one likely impact will be for some of that money to flow back to the US. With that comes more rand uncertainty and higher funding costs for South Africa. But South Africa’s economic challenges are not just about what is going on beyond our borders. Rather, domestic challenges also loom large. Growth in the economy rebounded in the third quarter of 2015 to +0.7% from -1.4%, but underlying trends continue to disappoint. Hit by the acute electricity crisis, plummeting commodity prices and drought, when the final data for 2015 becomes available, we are likely to find that the economy’s growth rate has slipped below 2014’s platinum and manufacturing sectors’ 1.5%, both of which were impacted by strikes.

Challenges

Despite this low base, we see little chance of a big recovery in 2016. Infrastructure limits remain substantial, particularly in electricity and increasingly in water, while wage bargaining in parts of mining and

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CLOSING OPINION

manufacturing risks fresh waves of strikes (and should provide an early test of the new legislation governing strike ballots that is currently making its way through the parliamentary process).

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`The global credit rating agencies remain watchful, concerned about countries where growth looks weaker, debt looks higher and deficits struggle to close' Coming from very weak levels in 2015, both consumer and business confidence series reveal an economic environment where conservatism is likely to be very evident. For businesses, a frustration around policy uncertainty in combination with weaker demand and electricity shortfalls could mean holding off on plans for expansion and investment, thus hitting employment and investment. For households, poor job creation, higher inflation and higher interest rates are likely to mean approaching big-ticket purchases with more caution, and instead focusing on only buying the necessities. Most forecasters put South Africa’s 2016 growth at 1.5-2.0%, with risks largely to the downside. That is not a very comfortable environment for Finance Minister Nhlanhla Nene. National Treasury faces spending pressure from public sector wages, #feesmustfall and financially strained state-owned enterprises, highlighting the need to squeeze better revenue performance from what looks to be a structurally weaker economy. In this light, the longstanding Davis Tax Commission’s work is particularly important in ensuring that any changes to tax policy are given a careful consideration of the benefits and costs. Might the 2015/16’s increase of the top income band to 41% be the first of more changes to come? Could an increase in VAT be considered? How best can issues such as cross-border tax avoidance

and aggressive domestic tax shelters be addressed? We expect at least some taxraising announcements to be made in the February budget. At the same time, the global credit rating agencies remain watchful, concerned about countries where growth looks weaker, debt looks higher and deficits struggle to close. Minister Nene isn’t the only one with an unenviable job in 2016, as Governor Lesetja Kganyago and the South African Reserve Bank Monetary Policy Committee face a similarly uncomfortable environment. Economic growth continues to slip, even as monetary policy has been highly accommodative for several years, while inflation expectations have slowly ratcheted up. Even should inflation continue to benefit from low oil prices and prove able to shrug off the impacts of the weak rand, the drought and higher administered prices, there is a broad sense that inflation pressures remain uncomfortably high. Having been in a tightening cycle for two years already, and with just 125bp in policy rate hikes to show for it, uncertainty around the domestic monetary policy outlook will likely ratchet higher in 2016, as global policy makers and markets everywhere finally learn just what the impact of a rising Fed will be on global asset allocation.

`Will 2016 just be a story of doom and gloom for South Africa? Certainly it is going to be a challenging year, but within the murk we do see some reason to feel somewhat more optimistic about the future' Compared to previous South African rate cycles, this one is likely to remain very measured, but against a poor economic backdrop it may hurt just as much. At the time of writing, South Africa’s financial markets were pricing in 75bp in further

rate hikes for 2016, a number we think is about right. Much will depend on the rand, and though the Reserve Bank’s November rate hike may have been met with some recovery in our local currency, we do not expect this to be long lasting, as we expect a hiking US Fed to have an important impact across global currencies. 15s for the rand was our base case for 2015, with there being a real risk of a larger move should the Fed rate normalisation trigger significant institutional investor outflows.

Looking ahead

Will 2016 just be a story of doom and gloom for South Africa? Certainly it is going to be a challenging year, but within the murk we do see some reason to feel somewhat more optimistic about the future. For example, recent announcements of large investments in the vehicle manufacturing sector highlight the positive role that active industrial policy can play, showing that South Africa’s manufacturing sector can compete successfully on price and quality in global supply chains, and just might reveal one avenue where the weaker rand can start to help boost economic growth. Furthermore, there can be no guarantee that a return of mid-2015’s acute electricity shortages will not befall 2016 as well – each day further progress is made on bringing more of the country’s large renewable projects onto the grid and on bringing Ingula, Medupi and Kusile closer to commercial production. Separately, our sense is that there is a more urgent discussion within the country on arresting the job loss pressure, as evidenced by the Phakisa process for mining (and other sectors), and the broad discussions between business, labour and government on the best ways to work together to promote job intensive and inclusive economic growth. Perhaps the lasting impact of the current economic strain may be more constructive, and ultimately more successful economic, business and policy dialogue in which there is greater agreement and commitment to securing a way forward for South Africa’s economy. Jeff Gable is Head of Research at Barclay’s Africa.

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ADVERTORIAL

Is it possible to enjoy quality health care at affordable rates? Bankmed argues that this is precisely what sets them apart as a medical scheme.

Alexander Forbes publication

TEDDY MOSOMOTHANE, Bankmed CEO and Principal Officer.

ankmed CEO and Principal Officer Teddy Mosomothane says: “Our experience within a particular sector allows us to better understand the risk profiles of our members, and the resultant advantage is that we have greater insight into how to manage that risk. We are also able to specifically design our benefits to suit that risk profile. This advantage ensures that our strategic intent to improve health-care quality can be achieved and this is complemented by a cautious management of reserves, to limit the average annual contribution increases to below medical inflation. Bankmed constantly monitors its contribution increases to ensure they remain among the lowest in the industry.” While it may be easy to cut costs by offering reduced value and benefits, Bankmed manages to keep costs down while still retaining its quality offering. This does not mean that Bankmed is immune

Diagnosis, published earlier this year, placed Bankmed in the top five medical schemes in the country. This was based on Alexander Forbes’ sustainability index. In addition, the latest independent analysis conducted by Tower Watson, a firm of actuaries and consultants, suggests that Bankmed provides its members with 34% better value when compared with the average open medical scheme. This analysis can be broken down further to 22% in lower costs and 12% in richer benefits. Bankmed is also one of only two medical schemes in the country – and the only restricted medical scheme – to have been awarded an AA+ credit rating. This is the highest credit rating afforded to a medical scheme in South Africa, as assessed by Global Credit Rating Co. “We’re always looking for ways to offer our members better value and help to keep costs down, but we will never compromise on the quality care which we pride ourselves on offering,” says Mosomothane. Bankmed also participates in the annual Health Quality Survey, conducted by the Hospital Quality Alliance, with a view to ensuring that the quality of the scheme’s health-care benefits is actively monitored against industry trends.

But while medical schemes are certainly responsible for keeping costs down, Mosomothane believes that members also need to play a role by leading healthy lives, and empowering themselves with knowledge to save on their medical expenditure. “As much as progressive medical schemes encourage their members to lead healthy lifestyles to enjoy a better quality of life, the power to change behaviour resides with the members,” he says. “Herein lies an opportunity to contribute towards affordability, sustainability of medical schemes and better quality of life. Members should also understand their benefits, utilise them sparingly and engage their doctors to achieve the same objectives. “It is therefore possible to enjoy quality health care at affordable rates. The strategic intent for a medical scheme to offer this must be accompanied by ongoing monitoring and measuring – Bankmed is doing this. While closed medical aid schemes may only be available to a small percentage of our population, those who are afforded the opportunity to belong to one certainly stand to benefit from a host of added-value offerings that they will be hard-pressed to find in an open scheme,” concludes Mosomothane.

CONTACT: Bankmed TEL: 0800 226 5633 (0800 BANKMED) WEBSITE: www.bankmed.co.za

IMAGE: SUPPLIED

to generally high health-care costs and the prevailing burden of disease, but the scheme’s response to these global factors is conscious of affordability and quality of care.

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Edition 16

BANKER SA EDITION 16

twin peaks REGULATIONS FOR A SAFER FINANCIAL SECTOR

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