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Mac Consulting

Cash is No Longer King

The digital disruption that is currently taking place in the banking sector is well publicised. There are strides being made to reduce the cost to serve, improve the customer value proposition, optimise channels and drive efficiency and effectiveness in the front, middle and back office of banking organisations. We have also seen the rise in FinTech and InsureTech businesses entering the market and disrupting the status quo.

There is however another trend to explore, which is the redundancy or the relevance of hard cash. We have seen the move away from cash over several decades but there seems to be an acceleration over the recent past. With improvements in technologies such as wearables, mobile phones, chip technologies and payment/transfer platforms such as mPesa in East Africa, the need and reliance on cash has deteriorated.

Obvious industry losers will be the banking sector, whose non-interest revenues and handling fees will be impacted. The likes of cash handling and management companies in the security or logistics sector will also be impacted. With any such disruption, there are sectors that win; we have seen a rise in FinTechs, platform businesses and cyber security businesses that have been able to initiate the disruption or take advantage of the changes in the banking sector.

mPesa is worth exploring further. Established in Kenya as a mobile banking platform, it allows for the storing and transfer of payments and enables financial inclusion for the unbanked. mPesa, through its relationship with Safaricom, now operates in ten countries across Africa and includes operations in India and Romania. mPesa is a clear winner in these markets and has eroded the market share and profitability of several historical banks. Interestingly, mPesa was unsuccessful in other markets, such as South Africa, due to the strength of the historical incumbents, cash reliance in the market, a wide footprint of ATMs and Branches and a strong regulator presence.

The banking sector will continue to feel the pressure of disruption and will need to work hard to retain relevance in the retail and business banking sectors.

Written by Trevor Jamieson

Contact MAC Consulting to assist you in ensuring you remain relevant in this era of disruption.

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