East Africa Bankers Cautious As Digitisation Gathers Pace

Arusha — The race to adopt technological innovations in providing banking products and services is steadily gaining momentum, with the initiatives being taken to satisfy consumers and reduce operating costs.

Digital services are always quick: a favourite trend to millennial customers who demand instant money - and have no time to queue up in banking halls.

The products and services provided through fintechs also require less human involvement in their provision, making them cheap to operate.

However, bank executives are aware of the risks associated with the digital transformation, including possible breach of data, intrusion into customer privacy, cyber-attacks and tech-related fraud.

Experts warn that banks should cautiously switch to the new innovations - and also ask the regulators to get ahead of the race.

Things like 'cloud computing' are being touted for making bank services cheap and fast.

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For example, research company Financial Insights estimates that the biggest global banks are saving $15 billion from cloud adoption, cutting technology infrastructure costs by 25 per cent.

However, the journey is not smooth for the lenders who face security challenges.

Last year, research firm Cybersecurity Ventures predicted that cybercrime would cost the world $6 trillion annually by 2021 - up from $3 trillion in 2015. This represents the greatest transfer of economic wealth in history, risks the incentives for innovation and investment - and will be more profitable than the global trade of all major illegal drugs combined!

The digital age of financial services was one of the dominating issues at the last week's East African Banking School: a regional conference that gathered bankers from the EAC member countries in Arusha.

Themed 'The Role of Ethics in the Digital Age of Financial Services,' the five-day meeting accommodated discussions on how the lenders can play safe in the digital era which has seen increasing concerns like cybercrime and fraud, as well as breach of customer data and privacy.

"Technology is growing fast; but, as bankers, we need to make sure what we enroll in our systems are secured and regulated as well," said Mr Wycliffe Momanyi, head of risks at the Kenya bank KCB. "We need to ask ourselves if the architects of the applications we use are also secured to mitigate the risks," he said - adding that the East African region needs regulatory framework for the growing digital life in the financial sector.

He is hesitant to always accept new technologies like 'cloud computing,' 'digital currencies' and other trends due to the security risks. This is especially considering that not many organisations can afford dedicated IT security teams.

For technology experts, the future of the banking industry is in the hands of fintechs which are expected to drive the services that are increasingly being automated.

The founder and principal security consultant of Swordish Security, Mr Gregory Almeida - who presented a paper on algorithms - said the future of banking services is on technology.

"Fintechs will be driving services provision; but, that is also an opportunity for the banks to prepare for financing the firms... Fintechs will also require banks to finance them," said Mr Almeida.

"It's also time that the banks started preparing the right skills for the future. Technologists, data scientists and psychologists are important. Consumer behavior is changing with time and technological development. Psychologists will help in identifying banks consumer behavioural change," added Mr Almeida.

On the other hand, some bankers said the operational efficiency of the banks will depend on both humans and technology in the future.

"The future is both on digital and analogue because humans are still needed. Our focus should not only be on digital transformation - if only because employees are critical for driving changes in the banks," said the Bank of Tanzania managing director, Mr Joseph Iha.

Ethics critical

Mr Kolimba Tawa, chief operations manager at TPB Bank, reminded the participants that ethics and regulation of the technological trends were crucial.

"We, as bankers, should not worry about accepting technology. My worry is about regulation - which technology is ahead of. Again, for artificial intelligence to work well, integrity from bankers is crucial," he said.

Efforts have been taken to ensure that banks are ethical; but, there are challenges in the way.

"At one time, we asked the banks to report staff who were fired as a result of ethical misconduct so that we would blacklist them; it did not work. Banks did not fully provide cooperation - as, sometimes, fraud involves top officials of some banks," said Ms Tuse Joune from the Tanzania Bankers Association (TBA).

Other observers are of the view that the banks should change their view and focus on customers so as to become ethical.

"We need to think of customers first - like the fintechs do. We can relieve them from high charges - and they would than see that the banks are doing the right thing," said Mr James Manyama of the NMB Bank.

Ethical behaviour was generally touted as a solution to fraudulent acts in financial institutions. Also, bankers and financial experts argued that change of mindset among players is equally crucial.

The bankers discussed how ethics could be instilled into all staff - with others suggesting that ethical guidelines be imparted at the family level , from parents to their children.

Dr Irene Isaka, a lecturer at the Institute of Finance Management (IFM), and Ms Neema Mssusa, a partner at Ernst and Young (E&Y), presented on ethics, urging bankers to observe codes of ethics to ensure acceptability of the industry.

"With the growing online businesses, there are risks of data breaches and attacks if the staff are not ethical," said Dr Isaka.

"Ethics is a delicate subject... Is it inborn - or can it be instilled? I think there is a need to provide it to children so that they grow up with good morals," she added.

Ms Mssusa said the rules, regulations and codes of conduct have always been there; yet, cases of fraud are increasing.

"There always are these sets of regulatory frameworks; but they fail to stop fraud. Ethics will help people to do right - regardless of mere rules and regulations," she said.

"Apart from signing integrity forms, managers and supervisors need to dialogue on what they ought to do in a continuous engagement. Probably, this will help change the mindsets of staff," she said, adding that the banks should find better ways of implementing the rules and codes of conduct, which are already in place.

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