French multinational investment bank, Societe General (SocGen) plans to launch peer-to-peer (P2P) money transfers to replace automated teller machines (ATMs) in several African countries, according to people close to the matter.
The feature which is targeted at Africans living in regions without ATMs or bank branches is being considered an opportunity to increase financial inclusion.
ATM which marked its golden jubilee (50 years) in 2017 have become a critical part of digital banking and some institutions view the technology as an important part of bank branch reimagination. In Nigeria, ATMs was one of the early innovations deployed by financial institutions to reach regions without bank branches as part of efforts to deepen financial inclusion.
Over the years however, poor network, absence of proper infrastructure and lack of maintenance have undermined the growth of ATM services.
As at 2016, the number of ATMs in Nigeria stood at 17,398. Out of these, nearly 73 per cent are owned by 12 commercial banks. These banks account for a total of 12,621 ATMs in the country. In other words, the value of ATMs per 100,000 adults was 16.73 as of 2016. Three years down the line the problems have not changed much. In 2019, there are still fewer ATMs to 100,000 adults because the networks have remained very poor, infrastructure is yet to improve, and cost of maintenance has increased in the face of economic recession.
“We are reaching peak ATM deployment in Africa because they are being assailed by two headwinds; cost and mobile,” says Adedeji Olowe, CEO of Trium Networks and trustee of Open Banking Nigeria. “The cost of ATM is not reducing because they are legacy technology that hasn’t witnessed a lot of innovation over the last decade.”
Transactions on ATMs in Nigeria dropped by 4 per cent for the first ever in the first quarter of 2019 while interbank transfer went up by 67 per cent and Point of Sale (PoS) transactions by 56 per cent over the same period.
The SocGen’s new solution could represent the future of ATMs in countries like Nigeria. For proper context, in areas where there is no ATM, the P2P feature could direct a customer who has cash to meet another customer who want cash. The customer who has cash receives a commission for the transaction.
To protect the interest of the parties, SocGen deducts the cash from the account of the client that wants cash and credits it to the client that is providing the cash.
Olowe, told BusinessDay that the feature which is “extremely disruptive”, “bold and amazing,” has the potential to upturn how banking is done in Africa. By allowing individuals to earn money while releasing the cash they have, SocGen is creating a cottage industry that helps spread digital payments and financial inclusion.
“Why go to the ATM to get cash to pay for something when you can simply transfer the money to the person you want to pay,” Olowe said.
According to people close to the French financial institution, the feature is targeted at people in remote areas where there is no ATM. This demography make up the majority of the population of financially excluded on the continent.
BusinessDay reached out to Societe Generale for more comments on the launch, but is yet to receive a response until time of publishing this article.
Paul Makin, a financial inclusion and digital identity consultant noted that this is not the first time a bank is launching such solution. Companies like PayPal, Venmo and Square Cash have launched similar solutions in the pasts.
There are however concerns that the feature could expose customers to security risks.
“It’s obviously a concern if you highlight nearby people with cash, but there are things you can do such as making it vague,” Makin said. “Also, if you only make it clear who has the cash once everyone committed to the transaction, wouldn’t a thief only be stealing from himself, at least in part? And making it really clear who had stolen the money?”
A bigger challenge however is that the feature would only work efficiently on the bank’s mobile application, which means the customers require internet data. In Nigeria where internet fluctuation is the order of the day, this poses a problem.
The two customers must also have a SocGen account before this is possible. Customers make request on their app, the apps signals that there is a request. Those with enough cash to meet the request will indicate on the app. The app then connects the receiver and the giver anonymously and sets meeting location.
Although this is to provide extra layer of protection to the customers, it does not however encourage financial inclusion. It means customers have a limited number of people to interact with.
