• Société Générale Moçambique (SG) has announced today the launch of a new payment card system in the eastern South African country in partnership with its seven year-long Chinese joint-player UnionPay International (UPI).
  • This new product consists in “a platform which enables UPI card holders to make payments of goods and services in a fast, secure and convenient way”, said SG’s CEO Laurent Thong Vanh, during an event which was held at the Hotel Glória in Maputo earlier in the afternoon.
  • SG and UPI applies in Mozambique a proven strategy already used in their own respective markets.

By Levy-Sergio Mutemba

In the developed world, banks are often criticized for lagging behind major structural changes in the industry itself as well as behind the habits and growing expectations of consumers. This is because they tend to attribute an extremely high value to their existing value production chain and technical infrastructure. They consider these as essential and central components of their profitability. Banks do so also because they are, with good reason, concerned about cyber risks associated with digital processes.

SG-UPI
SG and UPI presenting their UnionPay Card to the press this afternoon.

Thus their level of promptness in adopting new technologies for their infrastructures may be low compared to that of the retail sector, for example. Global banks’ unanimous surprise and barely concealed amazement in front the recent and stupendous rate of adoption of crypto-currencies illustrate this point.

American economist John Kenneth Galbraith once stated, “The rule is that financial operations do not lend themselves to innovation… The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version.”[1]

Reacting to non-bank digital models

In Africa in general and in Mozambique in particular, the opposite may turn out to be the rule. Indeed, even if the continent is still characterized by a predominantly cash-based payment system its size remains embryonic compared to international volumes. But its mobile terminal penetration rate is relatively high. African populations are not reluctant to make payments through digital platforms instead of using cash if only they could participate in the financial inclusion process, as only a small percentage of households enjoy the convenience of cashless banking and payments.

SG saw, and probably studied in depth, the Kenyan experience. There non-bank models such as the one applied by the phone-based money transfer group M-Pesa have outdone banks in the mobile payments space. Therefore SG reacts, in Mozambique, by partnering with an actor such as UPI endowed with a few competitive advantages in the digital payment market.

As such, the bank seems ready to accept the fact that payments, per se, may not necessarily be a core service. That they should be outsourced, at least partially, to third parties while focusing on the core banking services.

Strategic Responses of Global Banks to Drastic Structural Changes in Payment Industry

Capgemini Financial Services Analysis 2017

As a matter of fact, earlier this year in March, during the official inauguration of SG in Maputo, Alexandre Maymat, regional director of SG for Africa, said that “non-bank companies involved in banking activities lack something that only banks have, that is, an existing network of customers”. The executive meant that it was easier for a bank to adapt to technological changes and integrate them than it is for a tech company to become a regulated and stable bank.

SG Moçambique's official inauguration in Maputo in March 2017
In charge of SG’s African region, Alexandre Maymat, joined by Mozambique’s Economy and Finance Minister Adriano Maleiane, during SG’s official inauguration in March 2017 in Maputo.

In Mozambique, Chinese businesses and individuals are among those who have the highest purchasing power. They naturally also happen to be SG’s important corporate and retail clients. UPI’s network of PoS will be disseminated among businesses that are run by those clients. Such as restaurants, hotels, travel agencies and all sites that are frequently visited by Chinese tourists and business persons.

Many Chinese make payments in Mozambique

“We launch today payment card in Chinese currency and through it we enhance UPI’s presence in countries where SG operates”, explains Laurent Thong Vanh during the aforementioned event. SG’s CEO adds that Mozambique was the only African country, among the 17 in which SG is active in the continent, where UPI’s system was not enabled through the French-based bank.

SG-UPI - DOT_2115
From right to left, SG’s CEO Laurent Thong Vanh, General Manager at the Bank of Moçambique (BdM), Alberto Bila, Chinese Ambassador in Maputo, Su Jian, and a UPI representative.

Laurent Thong Vanh also underscored the fact the new product will not only enhance incoming flux of foreign currency in Mozambique but also “increase Mozambican market’s attractiveness in the eyes of Chines tourists and investors and intensify businesses between Mozambique and China”.

Also attending the event, the Chinese Ambassador in Mozambique, Su Jian, reminded that China was the major foreign investor in Mozambique and one of Mozambique’s main trade partners. “I am pleased to see that a growing number of international financial institutions show a significant interest in addressing the needs of Chinese companies in Mozambique”, said the Chinese Ambassador.

According to KPMG, who conceived the chart below, banks have been slow to recognize and take advantage of the opportunities created by mobile technology, leaving this space wide open to Mobile Network Operators (MNOs) to gain first mover advantage and disrupt the status-quo.

Payment Development in Africa

Insisting on the “significant step” that the UPI’s PoS network represents for “the Mozambican financial system”, Alberto Bila, General Manager at the Bank of Moçambique (BdM), also emphasized on the “advantages that the system will bring to the national financial sector” in the future.

One of the advantages of UPI is the scalability of its offer, which leaves open the space for further developments and ensures the adaptability of the platform to the growing number of users. UPI’s products do not solely rely on payment cards but on a whole ecosystem of digital services.

SG’s and UPI’s proven strategy

Those include cross-border remittances, concierge services, Chinese visa applications, online and mobile payment facilities and educational services for Chinese students abroad, to name a few. UPI’s cards are currently accepted in more than 160 countries involving partnerships with more than 1700 financial institutions worldwide, including SG.

It is worthwhile noting that the strategy that both partners will apply in Mozambique is not new neither characteristic of a specific market. In 2013, in fact, SG and UPI had signed an agreement to permit the acceptance of UnionPay cards at SG’s merchants in France and Monaco.

The French bank had stated that Chinese tourists in France represent “a client category with strong purchasing power”, visiting France in increasing numbers. This is a win-win situation for both SG and UPI, as the latter gain access to the significant merchant network of SG, enabling UnionPay cardholders to transact with their card at the targeted merchants in popular tourist areas.

[1] Exchange Traded Notes: An Introduction, C. Wright (Central Michigan University), J. Felton (Central Michigan University) and D. Diavatopoulos (Villanova University), August 2009.

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