The Tunisian banking and financial sector in the face of COVID-19 crisis.

On Friday May 15, 2020, Hervé Lacorne, CIO of WinstantPay and CEO of WorldKYC, was invited to the webinar organized by the Tunisian think tank The Banker: "The impact of the COVID19 crisis on the banking sector and between challenges and opportunities".

Hervé was asked about the following topics: 1. the reaction of the Fintech sector to the COVD-19 crisis; 2. the creation of neo-banks in Tunisia as solutions to the crisis; 3. the local particularities of Tunisian Fintech; 4. the economic consequences of the health crisis; 5. the major risks for banks in the event of a persistent crisis.

In order to base the guest's answers, the Europe - Africa department of WinstantPay has prepared language elements on the five questions that have been sort of seen from Africa.

About the global economic crisis

The pandemic is global. 2.8 million people have been affected by Coronavirus. 2.7 billion of the world's workforce has faced total or partial closures of their workplaces. Governments have been forced to provide stimulus packages and compensation to mitigate economic costs.

In terms of the impact, whatever happens, we will all have to suffer from this pandemic of unprecedented magnitude. Above all, we will all have to suffer from its planned consequences: unprecedented health crisis; economic crisis accompanied by social crises; food crises mainly in the countries of the South, especially in Africa; which is sure to cause political crises on the planet.

So will it be worse than in 2008? Hervé is not an economist but a banker and Fintech specialist. In fact, gravity will depend on where everyone is on the planet and their place in the society concerned.

Depending on your position, the consequences will obviously have different implications. Consumer will care about the best way to get its money quickly. The small merchant will look for the best way to earn money from the informal economy or to recover government allowances. To avoid disappearing, the banker will really pay attention to the digital transformation of finance. Fintech startups will seek to gain even more market share by optimizing their digital finance platforms.

By considering these different actors, the responses will review some of the consequences of COVID-19 on the financial sector, particularly in the Maghreb and Africa. The guiding idea is as follows. In the world before COVID, competition reigned in the financial sector to offer the best customer experience. Banks continued to lose market share to Fintech and mobile operators.

In the post-COVID period, it will be necessary to demonstrate cooperation between players in the sector. So that certain financial institutions do not disappear. So that those who stay can make life easier for the poorest by increasing their financial inclusion.

About the reactions of the Fintech sector and banks around the world

The reactions can be understood by a well known problem. Whether in Chinese culture or in the German philosophy of Jürgen Habermas, the word crisis refers as much to current dangers as to future opportunities. Seen from Asia and Europe, the crisis can therefore give rise to two visions which depend on how each consumer, company, bank, Fintech will react and will be able to adapt ... or not.

Some will view the crisis in terms of what we have to lose and others in terms of what we have to gain. By remaining lucid and vigilant about the dangers, it is useful to point out the challenges that these crises confront us and the opportunities that the financial sector can and above all must seize.

Let's start with the banks. Most were trapped by the health crisis. They struggled to find suitable solutions. In rare countries, the continuity of banking services has been maintained, for example the Netherlands.

In many countries, services have been compromised: shortened opening hours, branch closings, card blocking, difficult connection with customer services and call centers, etc. The traditional financial community has been challenged and has shown that it is not ready for this crisis.

On the other hand, digital banks and Fintechs have been reactive and innovative. This sector worked quickly and well to find quick solutions. Its solutions have imposed themselves: contactless payment; receipt of government benefits via an application; banking data sharing platforms; loans for small businesses, etc. The Fintech community has been innovative and ready to face the crisis.

How has the financial sector been impacted by the crisis? We have a first response to the theme of this webinar. When traditional banks had to close their offices, startups and Fintechs were ready to work from home.

When consumers saw their trips reduced, maintaining access to their finances - at least digitally - became crucial and even vital. Bank customers were encouraged to use online and mobile banking services rather than traditional banking services.

In other words, not only has the virus accelerated the evolution of the health sector and biological research, but it has accelerated the evolution of the financial sector. It was not to the advantage of the banks.

More than ever, the financial sector is facing its transition from a localized network for the distribution of paper money via buildings, counters and staff towards the digital distribution of data via software and servers on a global network.

This is why we can and must consider that major changes will occur after the crisis. If their directions are lucid, traditional banks will have to accelerate their digital transformation: transfer of payments to the cloud; real-time / instant payments, open banking and API.

However, should we take advantage of this crisis to promote Fintech by pushing banks a little more? Or should we help banks to carry out their digital transformation so that they can better assume the consequences of this crisis and prepare to anticipate the next?

The WIN group has chosen cooperation to convince banks to join our network of correspondent banks. By networking, banks, especially the smallest, will be stronger. If they don't transform, if they don't cooperate, they run the risk of disappearing.

About the creation of neo-banks in Tunisia?

Three years ago, Marko Wenthin, co-founder of SolarisBank, answered the question thus: "neo-banks do not need to be" real banks "to be competitive in the banking sector". Hervé interviewed Chris Skinner in Tunis two years ago. Here is his answer to the question: "Does the market need as many banks to have their own licenses and banking technologies?" Does a Fintech have to be an appropriate "bank" to be competitive in the banking sector? The answer is an emphatic no. "

To answer from an African point of view, let's start from two observations. In Africa, banks are facing the decline in credit, the decrease in assets and the increase in the cost of risk having a strong impact on the profitability of the African banking sector. The neo-bank market is overcrowded and many will not survive.

In Africa mobile banking services continue to progress, with the exception of South Africa, where Vodacom and MTN have ceased their mobile money activities and the Maghreb, where the deployment of these systems remains timid.

So why create neo-banks? Do you have to constitute yourself as a “real bank” to be competitive in the banking sector. About neo-banks, the myth is that they would provide a better customer experience at costs that banks cannot afford.

But why create a neo-bank, raise huge sums to obtain its own license, its own banking technology, its own compliance system, wait at least a year and a half, when the traditional banking sector can forge the partnerships that allow it to have all these tools.

WIN prefers the cooperation solution, previously proposed. In a context of crisis, it is not advisable to always reinvent the wheel and to create new banks. Cooperation between banks and Fintech for the integration of technology and finance is necessary and inevitable to cope with the coming times of crisis.

For example, the WIN group is currently negotiating with several African banks for an offer to integrate technology and finance. We do not have time here to detail, but here is the architecture of the cooperation which is based on the three companies of the WIN group and their nine basic products which allow a complete digitization of banking services.

About the peculiarities of Tunisian Fintech

In COVID and post-COVID periods, in Africa and particularly in Tunisia, more than the banker, it is especially consumers, small merchants in the informal economy, SMEs, their customers who have had and will suffer from lack of finances and therefore should benefit from better financial inclusion.

For many consumers in Africa, COVID-19 is a great challenge for banks but also an opportunity to speed up decashing and increase the volume of online payments. Unfortunately, most affected consumers are unlikely to be able to afford smartphones, which are necessary for traditional e-wallets.

This is why we offer VO2 Tech, an inclusive solution that will remain relevant in the event of a pandemic, disaster or conflict. VO2 Tech is the only wallet, using physical or digital TrustedKeys (registered security elements), without the need for a mobile phone, therefore inclusive of all users regardless of their budget.

The VO2 Tech switch connects to multiple wallets, merchants and e-commerce platforms. Compliant with social distancing, VO2 Tech minimizes contact throughout the value chain, allowing everyone to receive electronic payments regardless of their means. VO2 Trustedkeys are unique in that they can be delivered as a combined NFC + QR code card with a production cost of less than 1 US dollar.

In the context of the COVID-19 pandemic and an economy of physical and social distancing, VO2 Tech offers prospects for maintaining or developing inclusive financing for consumers, small and medium-sized businesses and governments. To help the sector cope with COVID we considered six types of transactions: P2B, D2P, G2P, P2G, P2B, B2B, B2P.

To conclude

Where will this crisis lead the financial sector? Where will this crisis lead the poorest populations? How long will it last?

What we do know is that it presents real risks both for traditional banking and for the financial inclusion of the most disadvantaged.

However, keep in mind that it also offers opportunities stemming from technological innovation and our ability to cooperate to build more efficient, more responsive and more inclusive, more responsible financial systems that serve consumers.

This pandemic will produce progress for some and setbacks for others, in the financial sector as well as for the people. First, it all depends on how policymakers respond to this global challenge.

It will also depend on how the financial sector draws conclusions from this crisis in terms of reorganizing services. It will also have to provide all possible tools to populations, particularly vulnerable low-income families and the businesses that serve them. The extraordinary times that we have just lived require extraordinary solutions. Africa has been a continent less affected than other richer ones, Europe, America.

But Africa, more than others will be affected by the economic, food and social consequences of this crisis. The financial sector must act immediately, not in competition but in concert, to ensure that institutions avoid disappearing and maintain themselves by accelerating their digital transformation. Above all, the financial sector will have to prove that the poorest and most vulnerable are not left behind.

Author: GILLES KLEIN - WinstantPay Managing Director Europe - Africa