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Arab States 35 76 .. 58 .. 15.6

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East Asia and the Pacific 17 122 .. 113 .. 41.4
Latin America and the Caribbean 62 162 .. 160 .. 49.0
South Asia 7 38 .. 7 .. 6.3
Sub-Saharan Africa 11 15 .. 28 .. 7.8
Central and Eastern Europe and the CIS 124 224 .. 120 .. 42.8
OECD 392 523 10 539 2.8 332.0
High-income OECD 465 597 13 605 3.2 400.1

World 98 169 2 153 .. 79.6

* data refer to 1991
.. not available
Source: Constructed from data presented in UNDP, (2003), Human Development Report 2003,
United Nations: Geneva and New York.

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Digital Technologies and the Cross-Border Expansion of South African Banks 261

countries is the lack of universal access. Table 2 compares the access to communications
across groups of developed and developing countries. This disparity of access is
referred to as the global digital divide (Castells, 2001), a divide that is often replicated
within countries both developed and developing. There are, as Polikanov and Abramova
(2003) note in their review of Africa and ICT, a number of initiatives to widen access to
telecommunications and the Internet including RASCOM and Africa One. In the field of
telecommunications, the RASCOM project aims to provide Africa with a regional system
of satellite communications. Although initiated in 1992 this project has yet to make
significant progress. Africa One aims to build an undersea fibre-optic cable circling the
continent, which will connect African states to each other and to the global Internet
backbone. In 2002, the first stage of Africa One linking West Africa to Asia via South
Africa was inaugurated (Polikanov & Abramova, 2003). Despite such initiatives, Africa
seriously lags behind other regions of the world, apart from the Middle East, in the
numbers of Internet users. According to NUA online surveys (Nua Internet Surveys,
2003), in September 2002 there were some 605.60 million Internet users worldwide,
distributed as follows: North America 30.16 %; Europe 31.52 %; Asia/Pacific 30.92 %;
Latin America 5.51%; Middle East 0.85%; and, Africa 1.04 %, with most users being in
South Africa.
Nevertheless, a study of the impact of information technology on the banking and
insurance sector in Nigeria, (Ugwu, Oyebisi, Ilori & Adagunodo, 2000) identifies the
following electronic application services employed in the banking industry: electronic
fund transfer, electronic fund transfer at the point of sale, pass card, smart card and home
banking. Just over 10% of Nigerian banks offer their customers electronic banking
services (Manson, 2002b). Automatic Teller Machines (ATMs) and credit card payments
are widely established in some African countries, particularly South Africa, Kenya and
Zimbabwe. However, other African countries such as Tanzania and Uganda have limited
use of these instruments. By utilizing new electronic banking systems, banks are tapping
in to the continent™s great potential for growth bypassing the underdeveloped infra-
structure. For instance, Ghana was introduced to electronic banking in 2000 and, in June
2001, the co-operative bank of Kenya became one of four banks to launch a centralized
banking system. Furthermore, as UNCTAD (2002) notes, where the telecommunications
infrastructure is inadequate, technologies that allow the storage and transaction of value
in proximity and offline are being adopted. For example, smart cards based on Visa
Horizon proximity technologies are being introduced in Ghana and a number of other
African countries.
At the local level, these developments are also greatly increasing the capacity of both
banks and non-banks to access local and national markets without the high cost
investments in traditional delivery systems. Consequently, the leap from low tech to
latest tech is more marked in Africa than in almost any other part of the world (Melly &
Marks, 2000).
Significant challenges, however, do exist for financial-sector organizations operating in
Africa. For instance, merging banking operations into a single cross-border information
system is a major feat in places without electricity supplies or telephone lines. A key
challenge in Africa is to bringing the benefits of the formal first-world economy to the
largely low-income population that depends heavily on local micro-credit and savings

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262 Roberts & Mukonoweshuro

schemes which play an important role in the development process (Moore, 2000).
Electronic banking has the potential to bridge the divide between the formal tax-paying
economy and the dynamic informal economy of the rural areas and to replace expensive
bricks and mortar with more cost-effective systems in a continent where 70% of the
population is still unbanked (Paulson, 2000).
South Africa has a major advantage over other African countries in the area of Internet
access. It has a developed telecommunications infrastructure, which was restructured
in 1996, and although the commercialized Public Telecommunications Operator, Telkom,
initially retained a monopoly in the provision of basic fixed telephony services, in an
agreement with the World Trade Organization under the Agreement on Basic Telecom-
munications South Africa is bound to liberalize and privatize its telecommunications
sector (Cogburn, 2003). The level of competition in the telecommunications sector is a
key factor determining the price of access to the Internet. Effective competition brings
price down and since most Internet access is through fixed telecommunication lines,
allows for the successful development of Internet-based activity. This has been clearly
demonstrated in relation to the uneven development of Internet activity in Europe
(Waesche, 2003).
The South African government has sought to promote a digital economy and provide
universal access to the Internet and basic telephony in order to redress the socio-
economic ills created by apartheid. To widen access to the Internet in South Africa the
Department of Communication has promoted a range of public access initiatives includ-
ing the development of Multi-Purpose Community Information Centres, the Universal
Service Agency and Public Information Terminals (Cogburn, 2003). Table 2 also includes
data for South Africa from which it is evident that the country is advanced in its access
to the Internet and telecommunications (including cellular access) compared to devel-
oping countries as a whole.
South Africa has a well-developed financial system, in which the South African Reserve
Bank (SARB) has taken the lead on issues concerning e-payments. In 1998, for example,
it developed the South African Multiple Option Settlement (SAMOS) system that allows
real-time settlement between banks (Cogburn, 2003). Indeed, South Africa™s top four
banks are the largest consumers of telecommunication services (Cogburn & Nyaki
Adeya, 2002). All major financial institutions have electronic networks that span the
country, and the networks of the largest banks reach out into other nations. These
institutions already engage in a significant level of e-commerce from web-based elec-
tronic banking, online bill presentation and payment, asset financing, mortgage appli-
cations and online share dealings to unit trusts, insurance product sales and insurance
claims processing. The number of such transactions grew substantially between 1999
and 2000, and they are expected to continue to develop rapidly (Cogburn & Nyaki Adeya,
One innovative new application in Internet banking is Paycom express, a prepaid Internet
account developed by a South African consortium. It combines a pre-paid credit with a
user-identification and can be used to make electronic purchases over the Internet. More
importantly, it is being used to dial into the Internet at a national network of Caltex petrol
stations in order to buy fuel. This is extremely beneficial in remote areas where petrol
stations often provide the only telecommunications link for miles.

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Digital Technologies and the Cross-Border Expansion of South African Banks 263

Financial institutions in the developed world are already adopting wireless communica-
tion for the delivery of services (Yen & Chou, 2001). Given the poor development of the
land-based telecommunications infrastructure in Africa, wireless communication would
appear to offer great potential for the future development of the Internet and Internet-
based services on the Continent. South African banks are already involved in wireless
pilots of varying complexity ranging from basic banking services and SMS (Short
Messaging Service) alerts, to full-blown payment, bill-payment, pre-paid cellular re-
charging and other services (Manson, 2002b). The future of mobile delivery has
significant potential in African markets. Large sectors of the population still do not have
access to the wired world and wireless technology has the ability to provide a range of
innovative financial inquiry and payment services at relatively low cost to potential
users. However, a major challenge for banks adopting wireless technologies relates to
the proliferation of mobile telecommunication operators across Africa. These operators
are using a variety of largely incompatible standards thereby increasing the costs for
businesses wishing to supply services to users of mobile communications.
With a few exceptions, non-African investors in the banking sector tend to cater to large
businesses and up-market personal customers who can make good use of technology
and the foreign banks™ capacity to provide investment advice, structure trade financings
or deal in foreign exchange. Internet and other online services are well suited to this
clientele. However, the lower end of the personal banking market together with the small,
medium and micro enterprise market are not as attractive to non-African banks, conse-
quently, they offer many opportunities for South African banks to exploit throughout the
continent of Africa.

Digital Technologies in South African
Banking Organization Networks
In this section, the role of digital technologies in South African banking organization
networks is examined through case studies of Standard Bank of South Africa Limited
(Stanbic) and the Amalgamated Banks of South Africa (ABSA). Both Stanbic and ABSA
are among the top banks in South Africa and Africa (Table 1), as such they are leading
investors in, and users of, ICT. An examination of the use of ICT by these two banking
organizations will provide insights of relevance to the wider African banking community.
However, before progressing further it is useful to review briefly the historical develop-
ment of these two banks.
The Standard Bank of South Africa Limited (Stanbic) was formed in 1962 and registered
as a South African company operating as a subsidiary of Standard Bank in London
(subsequently to become Standard Chartered Bank plc.). However, in 1987 Standard
Chartered sold its 39% stake in Stanbic, transferring complete ownership to the holding
company in South Africa (“Global Sweep,” 2002). In 1988, the group became international
by opening a branch in Swaziland. In 1992, it established a bank in Botswana and acquired
the long established Grindlays network in Botswana, Kenya, Uganda, Zaire, Zambia and

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264 Roberts & Mukonoweshuro

Zimbabwe, with minority holdings in Ghana and Nigeria. In 2002, the group acquired an
interest in a bank in Malawi and established a representative office of an offshore banking
unit in Mauritius. Although involved in retail banking, Stanbic™s main emphasis has been
on corporate banking. It taps into the competency of its London operation to provide
project finance as well as commodity finance for trade. Today the group has the largest
single network of banking services in Africa (Table 1) and made US$5.6 million before tax
in Africa in 2001 (Theobald, 2002).
ABSA was formed more recently in 1991 by the merger of Allied Bank (Allied Building
Society established in 1888), Volkskas Group (Volkskas Co-operative Limited estab-
lished in 1934) and United Bank (United Building Society established in 1889). TrustBank
(Federale Trust Limited established in 1954) joined the ABSA Group when Bankorp
merged with ABSA in 1992. ABSA Group is the controlling company of the third largest
banking and financial services group in Africa (Table 1). ABSA prefers to use its
Johannesburg base to do deals in trade and structure finance as well as project finance.
Consequently, it has limited African exposure to corporate banking. ABSA™s African
expansion is predominantly in the retail sector. The group purchased two major retail
banks in privatization deals - Banco Austral in Mozambique and the Tanzanian National
Bank of Commerce. It focuses on under-performing banks, which it then develops giving
the group quick returns on capital. The bank plans to acquire at least one bank a year in
selected African countries to improve efficiencies and to use them as channels for tried-
and-tested retail products (Theobald, 2002).
South African banks are increasingly looking to technology to support their growth
(Belford, 2003). Digital technologies have played a key role in facilitating the international
organizational structures of international banks. For instance, organizational wide
information systems facilitate the control over ownership advantages through the
intensive monitoring of activities within the boundaries of the firm. Indeed, ABSA insists
that control is mandatory and non-negotiable and abandoned a deal with the Diamond
Bank of Nigeria, when the owner refused to surrender control. ABSA has connected the
back offices of its two foreign banks via satellite to Johannesburg where full monitoring
takes place. All 35 of its Tanzanian subsidiaries have direct online links to the head office
in South Africa. Satellite dishes ensure that customers nationwide have real-time instant
service (Melly & Marks, 2000).
More importantly, in Africa, digital technology is allowing banks to bypass the tradi-
tional bricks and mortar communications infrastructure with more cost-effective elec-
tronic systems. This is critical on a mostly undeveloped continent, which at the size of
12 million square miles, is almost as large as North America and Europe combined. For
instance, Stanbic™s network spans 17 other Sub-Saharan countries, extends to 20
countries on other continents and is connected by banking systems that link into the
SWIFT international message system. Furthermore, satellite communications are being
harnessed to reduce reliance on inadequate telecommunications systems throughout the
Sub-Saharan region.
Clearly, access to global financial networks is an important ownership advantage for
banks like Stanbic and ABSA. These banks are also generating further ownership
advantage by investing heavily in pioneering new methods of electronic banking and the
development of real-time communication networks (Ashurst, 1998). Johannesburg has

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permission of Idea Group Inc. is prohibited.
Digital Technologies and the Cross-Border Expansion of South African Banks 265

emerged as a strategic locality for the development of a new standard for electronic cash
transactions, giving South African banks further ownership advantages deriving from
their home base.
One limiting factor in the issuing of credit cards is the costly and unreliable telecommu-
nications infrastructure. To overcome this problem banks have distributed multifunction
“chip” cards that track spending and support a pre-paid “electronic purse,” thus
severing the bond linking points of sale to mainframes. By 1997, both Stanbic and ABSA
had issued conventional magnetic stripe debit cards developed by Mastercard, to be
upgraded to “chip” cards for about 9 million clients6, many of whom have never used
chequebooks or ATMs. The new equipment includes GSM (Global Systems for Mobile)
terminals, which rely on digital cellular telephony in areas where cable networks
supporting landline telephony are unavailable. Indeed, ABSA was the first bank in South
Africa to launch a mass-market mobile banking application in August 2000. The bank
offers customers access to balance enquiries, mini-statements, transfers and third-party
payments via cellular devices.
Stanbic aims to grow income and reduce costs through the use of mobile technologies
(Manson, 2002a). The group offers its customers access to traditional banking products
via cellular banking. It also offers subscribers to certain networks the ability to purchase
pre-paid airtime via electronic channels, namely Interactive Voice Response (accessible
directly from cell phones and landlines), and ATMs. In addition, Stanbic is using
technology to help target low-income customers by developing low-cost distribution
networks to service them. In 2001, Stanbic™s AutoBank E in South Africa had 2.6m low-
income customers, and almost all are people who “previously kept their money in biscuit
tins or informal neighbourhood savings clubs” (“South African banking,” 2000). Many
were unable to meet minimum-balance requirements to open traditional bank accounts
or to understand complex bank charges. AutoBank E allows almost anyone to open an
account with a deposit of only 50 Rand ($8). Paperwork is kept to a minimum. Customers
are given a cash-point card, and shown how to use it by employees who speak a variety
of African languages. Simplicity is paramount, so all transactions occur through ATMs
with a flat fee charged each time. Customers do not need a separate savings account
because a “savings purse,” into which money can be transferred, is attached to every
account. Customers do not even have to be literate to use the service: many simply
remember the sequence of buttons they need to press. Computerization makes it possible
to lend money to people with no collateral and no formal address. The computer analyses
a customer™s savings history to decide whether he or she is creditworthy. Since there are
no back-office staff and little paperwork, AutoBank E™s costs are 30-40% lower than at
traditional branches. Interest rates on deposits are low, but even those whose only
income is a state pension can afford to bank with AutoBank E (Moore, 2000).
Most African banks have lost competitiveness because high costs and the lack of
appropriately skilled labour have hindered their ability to maintain sophisticated sys-
tems. A major challenge for South African banks and other businesses highly dependent
on ICT is the ability to recruit, train and retain a skilled workforce. Information technology
skills are in demand across the globe, hence South African businesses must compete for
these skills in the global market. Furthermore, the development of such skills in South
Africa is inhibited by the vast inequality that exists within the country. A legacy of the

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Table 3. The ownership, locational and internalization advantages of South African multinational banks investing in Africa

Ownership advantages Locational Advantages Internalization Advantages

Existing client relations, access to Person-to-person contact Maintenance of quality through
• • •
transnational clients, foreigners abroad required therefore need to be control
close to clients
Reputation, brand name and Control over intangible assets,
• •
professional expertise such as reputation and brand
Presence of existing clients

Access to, and knowledge of, Government regulations
• •
international capital and financial Economies of scale and scope in

Growing markets for financial

Roberts & Mukonoweshuro

markets the use of assets such as data

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Economies of scale and scope
• Low levels of effective

Economies of coordinating

competition in African markets
Intrinsic value of reserve currencies

capital flows
Substantial capital base Lower costs of foreign
• •
Importance of international

Financial innovations

Availability of skilled labour

Control over trans-border

Protection against

data/communication networks Low psychic distance, including

exchange/political risks
African identity
Access to global financial networks

Need to pursue pan-

African countries prefer

Ability to invest in the latest
• African/global investment
investment from other African
information and communications strategy
rather than non-African
South African nationality/ African

Low technological

competencies of indigenous
Advantages arising from the home base

including the regulatory and legal
Availability of indigenous banks

environment and the strong promotion
for acquisitions
of ICTs by government policies

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Digital Technologies and the Cross-Border Expansion of South African Banks 267

apartheid era is the continuing disparity in economic power between Blacks and Whites.
The poorest 40% of the population earn less that 4% of the income, while the wealthiest
10% earn more than 51% (Marais, 2000; Cogburn and Nyaki Adeya, 2002). Such disparity
limits the scope for growth and the development of a skilled workforce.
Banks need to upgrade software systems continually to keep them competitive. For
banks using older versions of software, which software vendors no longer support,
upgrading often involves the complete re-integration and re-customization of software,
increasing costs dramatically (Vecchiatto, 2002). For a number of reasons African banks
pay a premium for the customization of their software. Firstly, some deal in environments
where people regularly exchange one currency for another local currency. Secondly, in
some countries power failures are an everyday occurrence, so software and hardware
must be robust, and banks must have adequate back-up facilities. Finally, African banks
do not generally benefit from efficiencies of scale as they are operating from much smaller
bases than Western incumbents are. However, the large size and economic strength of
Stanbic and ABSA give them ownership advantages arising from economies of scale that
are not available to smaller African banks. Internal competencies in the use and
development of banking technology together with the external technological environ-
ment of their home country, in which digital technologies are highly developed relative
to other African countries, provide these banks with significant ownership advantages

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