Africa’s fragmented markets and lack of legacy foreign exchange trading infrastructure means that the continent has become a melting pot of fintech activity and innovation, says Standard Bank financial markets digital head Tim Hutchinson.
The evolution to electronic foreign currency trading in Africa, while slow to start, is gaining traction, he adds.
In South Africa, five years ago, almost 90% of foreign currency trades were conducted by telephone; however, despite challenges around illiquidity and complicated political and capital control environments, about 75% of trades are now conducted digitally, with a mere 25% conducted by telephone.
With 57.6% of the world’s 174-million active registered mobile money accounts in sub-Saharan Africa, the continent is becoming a world leader in fintech, generally, and in mobile money in particular.
As African citizens and businesspeople transact globally, Africa’s highly developed fintech culture is not only deepening on the continent, but is also migrating out of Africa.
The foreign exchange flows that Africa’s expanding fintech culture supports are important to the continent’s financial services providers, most of which are developing fintech capabilities or partnering with effective homegrown African fintech providers to ensure they capture this flow.
Standard Bank has been an integral part of driving this rapid evolution to digital in Africa’s foreign exchange trading landscape.
“To function as an effective market maker, we need to source liquidity in market. We also need to instantly formulate risk-based pricing in an ever-changing world. Thereafter, we need to distribute price,” explains Hutchinson.
In Africa, this requires developing solutions that allow retail, corporate and institutional customers to access foreign exchange markets across multiple jurisdictions.
Simultaneously, in most markets it is also necessary to show central banks what is happening.
“All transactions need to be transparent and electronically traceable, so that local authorities are prepared to approve digital trades,” notes Hutchinson.
He adds that banks are not only expected to provide the systems and networks to facilitate basic transactions, but are also required to provide insight and guidance beyond pure execution, by offering additional value-based services across research, hedging and settlement capability.
Currency research, for example, is increasingly a big client requirement.
Additionally, banks are increasingly required to inform and guide clients through the broader economic, legal and political landscapes in which transactions occur.
“It is not enough just to execute trades, but equally important that banks advise and inform the broader universe in which trades happen,” Hutchinson points out.