FINANCIAL TECHNOLOGY:The Good and the Bad
How financial technology has revolutionized Saccos
The Sacco sector is increasingly using new technology as deposit-taking societies create innovative solutions and automate the delivery of financial services. In recent years Saccos have been aggressively going digital with the Covid-19 accelerating adoption of modern technology.
Competition from banks and digital-based financial institutions, the drive towards cashless societies, and the proliferation of app banking have pushed Saccos to up their game.
Today, banking with a Savings and Credit Co-operative Society is an experience of convenience and efficiency made possible by innovative financial technology. More and more fintech firms are working with the co-operative societies providing critical infrastructure to help them digitize and extend their services countrywide, albeit virtually.
“The Sacco sector is increasingly making use of new technology to better service delivery,” says a new Sacco Cybersecurity Report 2020/2021 by Serianu, a fintech firm.
Co-operators are also starting to move away from the traditional form of banking, including the use of physical cards, instead of relying on their mobile phones to conduct day-to-day banking transactions, experts observe.
According to Serianu, mobile money use in Africa has increased exponentially over the years, with nearly 70 percent of adults in Kenya reporting using their mobile phones for money transactions.
Central Bank of Kenya notes that the country continues to register growth in adopting Mobile-phone Financial Services (MFS), primarily propelled by the ease of access and convenient delivery channels.
“MFS provides safer channels for executing a transaction with no need for physical contact, a channel for financial transactions with minimal physical contact,” says CBK.
Serianu reports that the Financial Sector is undergoing digital transformation with banks such as Equity reporting 98% of its transactions are now outside the branch, while over 90 % of KCB’s transactions are digital. Beyond the banking sector, over 38 million Kenyans use M-Pesa accounts.
“At scale, digital finance offers benefits to financial institutions in terms of lower costs, improved decision-making and faster processes. Customers benefit from speed, efficiency, convenient access to services, and much less time spent on transactions,” says the report.
Deposit-Taking Saccos are responding to the digital finance revolution, including partnering with banks to offer innovative services such as ATM transactions and Cheque books issuance.
The number of Saccos offering credit facilities in their digital platforms is growing, although it is difficult for a few Saccos to meet the digital transformation challenge head-on.
The latest financial sector stability report released by the Central Bank of Kenya, Sacco Societies Regulatory Authority, and other sector regulators cautions Saccos against cyber-attacks that are raising the operational risk. For the last 17 months, the report notes that attackers have been targeting weak controls within Sacco systems, with the sector losing Ksh106 million.
Combating cyber threats
“All Saccos must now review and enhance their IT security including their service level agreements to ensure that affected Saccos are compensated by the vendor in the event of an attack where the vendor is culpable. Saccos are also encouraged to undertake indemnity covers to safeguard against attacks,” says the report.
Mr Chris Gathingu, Tangazoletu CEO and founder, states that the new age demands solid fintech and financial institutions mutual partnerships and relationships. “There is no room to engage as your ordinary vendors but as a committed partner invested in your success and ours.”
Experts argue that mature organizations are no longer buying hardware, software, or service but are buying processes, capacity, and empowerment.
“They say it is not if your organization gets hacked, but it is when your organization gets hacked. It is not the hardware or the software that becomes critical, it is more the knowledge, capacity and maturity of your partner that enables your institution to recover. Therefore there needs to be a bigger effort around partnering for success,” notes Gartner, an international research firm, in a report.
As Saccos go through this digital transformation, they need to build foundations that will enable them to innovate operations and governance while building resilience.
However, several challenges are a big hurdle to Saccos’ digital transformation, such as financial constraints since it requires money to keep up to date and offer the latest products. Saccos must periodically upgrade their banking platforms and integrate new apps. Few Saccos use established but more expensive core banking systems such as Banker’s Realm, with the choice driven by finances partly.
Lack of technical skills is another challenge. According to Serianu, Kenya has approximately 1700 skilled cybersecurity professionals serving over 40 million Kenyans. Organizations struggle to find the right experts to assist in Anticipating, Detecting, Responding, and Containing Cybersecurity issues within their systems. Procuring, integrating, maintain systems require highly skilled staff.
Leading Saccos such as Police, Unaitas, and Stima spend hundreds of millions of shillings on their IT platforms as completion from banks, microfinance institutions, and other digital lenders gets stiff.
On a positive note, the percentage of Saccos that have a cybersecurity strategy has improved from 38% in 2019 to 55% in 2020, according to Serianu analysis.
There has been a consistent increase in cybersecurity budget in the Sacco industry over the last three years, and this can be attributed to:
- Increased awareness on the importance of cybersecurity
- Increased attacks targeted towards Saccos
- Digitization and adoption of new technology channels
Wambui Mbesa, CEO, Intrasoft International East Africa, says emerging technologies and digitization have transformed the business landscape and forever changed ways of working.
“Customer demand has been increasingly shifting for the last decade and accelareted by the Covid-19 pandemic. Sacco members are no exception. The financial services sector is not yet a level playing ground and Saccos need to increase their uptake of technology for their survival and growth,” Mbesa says.
It is time for Saccos to embrace digitization.
“For sustainable and inclusive development to thrive, a great deal of innovation and thinking is needed to ensure that appropriate financial services and instruments are put in place for the benefit of the poor and other vulnerable groups,” states African Development Bank (AfDB).
Report: Saccos’ cybersecurity budget up 20%
The percentage of Savings and Credit Co-operative Societies (Saccos) that have a cybersecurity strategy improved from 38% in 2019 to 55% in 2020. The cybersecurity budget within the Sacco sub-sector in the last three years increased by 20 percent, according to the recent Sacco Cybersecurity Report 2020/2021, released by Serianu Ltd.
Saccos are increasingly investing more resources in technology and security, but some are still unprepared for data protection law.
The report notes that Saccos need to build foundations that will enable them to innovate operations and governance to establish a resilient digital transformation.
At the same time, Serianu noted that Saccos are increasingly being targeted by attackers, especially on Sacco’s mobile transaction infrastructure.
