1. Central Bank Digital Currency(CBDC)
What is CBDC? CBDC is an acronym for Central Bank Digital Currency-This is an electronic form of central bank money that citizens can use to make digital payments and store value. Therefore, CBDC is a digital currency, issued by Central Bank and is universally accessible.
e.g. China(Digital Yuan), Sweden(e-krona), Bahamas(Sand Dollar)
Blockchain vs. Bitcoin
First coined by Stuart Haber in 1991,Blockchain technology aimed to implement a structure where our documents could not be tampered with.
Talk of crypto-currency and one cliché features prominently, Bitcoin…Bitcoin…Bitcoin…Bitcoin is built on a chain of blocks/nodes(Blockchain). Bitcoin’s pseudonymous originator, Satoshi Nakamoto, defined it as “..electronic cash system that is fully peer-to-peer, with no trusted third party.”
Blockchain vs. Banks
Is Blockchain an harbinger of the disruptive force finance sector might face? What does the future hold for the functions of payments and banking? Comparisons:
Activity Banks Bitcoin
Speed CHQS take days 15 minutes
KYC Strict KYC Open to all
Ops ease ID,PIN,Bank acc. Phone & Internet
2. FinTechs
What are FinTechs? Financial Technology(FinTech) simply describes the new technology that aims to advance and automate the use and delivery of financial services.
Internet revolution and the smartphone uptake, globally, has come with revolution within our industry and the ripple effect is explosive growth of financial technology.
Fintech has now evolved and encompasses activities such as money transfers, application for credit from entities other than banks, raising of business capital and investment management.
Having moved away from traditional way of banking through branches, sales people and computers, Fintechs are now offering services which range from mortgages, financial and investment advice, logbook loans, international remittances and trading services.
Who do Fintechs target? They target the Unbanked and Underbanked i.e these are low-income individuals who cannot access traditional banks and these users are categorized into 1.B2B for banks 2.Bank business clients 3.B2C for SMEs 4.SME’s consumers.
Examples are Tala, FXPesa, ChamaPesa, Sokohela, CoinBox, Wapi Pay etc
3. Banking-as-a-Service(BaaS)
Talk of banking-as-a-service and the other side of the equation gives you ‘operational excellence’. Why operational excellence? In the recent past, adoption of banking-as-a-service concept created platforms that have made services cost-effective and efficient in their, financial services, delivery using concepts such as open-banking systems.
When banks combine both effectiveness and efficiency they achieve their goals and targets(operational excellence).
BaaS concept focuses on Database, API, Infrastructure, File Storage, Data management, Social Media Integration and Push notifications.
4. Data Protection & Cybersecurity
Kenya has put in place laws that regulate these issues i.e. The Data Protection Act(DPA) of 2019, and The Computer Misuse and Cybercrimes Act No. 5 of 2018 which led to the establishment of the Office of Data Protection Commissioner(ODPC) and NC4. Banks, Fintechs, and Insurance firms are required to registered with the ODPC as Data Processors with the aim of protecting personal data, personal sensitive data as well as informational data ergõ giving effect to the Constitution’s right to privacy(under Article 31). Financial Institutions such as banks have resorted to creating data management departments to ensure proper capacity building and training for their staff in adherence to these regulations. Banks whose clients’ data got compromised have been heavily penalised by the ODPC in an attempt by the commissioner to crack the whip on such data processors & managers. Apart from data protection, as banks become more digital, they have become more vulnerable to cyber attacks hence investing in cybersecurity solutions to safeguard their client’s data and prevent fraud.
To address these challenges, banks have invested in robust security solutions and measures as well as in staff training programs to help them proactively identify and prevent cyber attacks such as phishing.
- Green Financing (KGFT & Climate Change)
The Globe has been grappling with adverse effects of Climate Change in form of Floods, Wild fires, Cyclones, Hotter temperatures, Drought, and rise of greenhouse gases. These have had a ripple effect on health, quality of assets, cost of credit, and climate change related financial risks. To curb such risks, European Investment Bank has partnered with various players like European Union and the banking sector to address climate-related financial risks(physical risks,credit risks and transition risks). Central Bank of Kenya ( CBK) drafted Kenya Green Finance Taxonomy (KGFT) which is a framework for Kenyan banks to address challenges that might arise due to climate-related financial risks in line with international best practices and national priorities. Globally, banks are being questioned on issues to do with ‘Greenlaundering’ as they secretly finance companies that trade in fossil fuels amidst implementation of IFRS S1 & S2 as they might pose a great challenge in the implementation of the Climate Change Agenda. Climate-related financial risks will see banks reclassify their clients based on mitigation measures put in place by the clients hence affecting clients’ credit rating, access to credit, and ease of doing business whose impact will be felt in the economy.
Conclusion
By being agile and adapting to changing business environment, banks can still have competitive advantage by investing in technology, explore new business models, partner with Fintech startups and Cybersecurity firms so as to meet the needs of their clients.
