Euro-Mediterranean High Level Seminar

Digital Transformation: Financial inclusion & Stability

Casablanca - 17 & 18 May 2017

«« 2nd session »»

Digital Transformation of Financial Services : Opportunities and Challenges

Mme. ZAHOUI Hiba

Director of Banking Supervision

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 Summary

1 DIGITAL FINANCE ISSUES

Digital transformation of Financial Services

Digital Finance: a socio-economic development lever

Challenges and risks

2 MOROCCAN CONTEXT

National framework of digital economy

The banking sector and the digital transformation

Future non-banking players of payment services

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 Summary

1 DIGITAL FINANCE ISSUES

Digital transformation of Financial Services

Digital Finance: a socio-economic development lever

Challenges and risks

2 MOROCCAN CONTEXT

National framework of digital economy

The banking sector and the digital transformation

Future non-banking players of payment services

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 FINANCIAL SERVICES VALUE CHAIN

Digital wallets, electronic

Payment Services money, mobile payments

Aggregators, comparison tools,

Customer Relationship Robot consultants, Identity
Universal Bank

Peer to peer lending,

Retail and commercial banking Crowdfunding, Big Data Analysis

High Frequency trading,

Wholesale banking, Markets Algorithms

Wholesale payments, clearing and Distributed ledger

settlement Infrastructure

Governor of the Bank of England speech,

Deutsche Bundesbank G20 Conference on « Digitising finance, financial inclusion
25 January 2017

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 DIGITAL TRANSFORMATION OF FINANCIAL SERVICES

Digital banks
Online Banks (Neo-banks)

Starting 2005 Starting 2014

Bank democratization
Specialization by
to all sectors
categories

Banking activities Banks designed to be

extended to digital mobile
channels

Starting 1990’s Starting 2009

Specialized Fintechs Bank As Services

B-Part Consulting, 2017

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 Summary

1 DIGITAL FINANCE ISSUES

Digital transformation of Financial Services

Digital Finance: a socio-economic development lever

Challenges and risks

2 MOROCCAN CONTEXT

National framework of digital economy

The banking sector and the digital transformation

Future non-banking players of payment services

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 DIGITAL FINANCE: A SOCIO-ECONOMIC DEVELOPMENT LEVER

Digital financial services could increase the GDP of emerging economies 6 percent above baseline projected GDP

Emerging economies’ GDP

$ trillion
GDP impact of digital financial services by channel
65.5
%
3.7 GDP impact of digital
financial services
Increased labor
▪ Time savings
for individuals 3

33
100% =
$3.7
31.3 trillion
61.7
Baseline
64

Increased investment in Increased productivity

physical capital ▪ Cost and time savings for
▪ Shift in savings from businesses and financialservices
informal vehicles to formal providers
digital accounts ▪ Reduction in government
▪ Increased credit to small leakage of expenditure
businesses and households and tax collection
2014 2025F1

Digital finance for all: Powering

1 Based on average GDP growth forecast of emerging countries from IHS and Oxford Economics. inclusive growth In emerging
NOTE: Numbers may not sum due to rounding. economies, Septembre 2016

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 DIGITAL FINANCE: A SOCIO-ECONOMIC DEVELOPMENT LEVER

 Banking population: Increased use of financial services

 Unbanked population: Increased access to financial services
 Financing of investment projects not eligible for bank credit
FINANCIAL  Possible evolution of the financial literacy rate with well-designed and well-targeted technological
INCLUSION
innovations

Many stakeholders stand to gain

from digital financial services

1.6 billion 2.1 trillion 4.2 trillion

Individuals MSMEs and individuals Financial-service providers
Newly included in New credit New deposits
financial system $ billion $ billion
%

100% = 1,6
milliards

1 Stakeholder benefits are calculated using 2014 baseline values. Digital finance for all: Powering
inclusive growth In emerging
economies, September 2016

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 DIGITAL FINANCE: A SOCIO-ECONOMIC DEVELOPMENT LEVER

Retail Banks are more advanced, compared to their peers, in

 Slowdown in the pace of new branches
terms of digital innovation
openings ;
 Reducing the operating costs per client by up to 29% ;
 Savings on staff-related costs ;
 Generating additional profit of 53% per clients
 Operational efficiency.

The Bionic Bank , 2015*

COST
SAVING
* Study undertaken by the Boston Consulting Group (BCG) which involved 40 institutions around
the world, covering a panel of 220 millions costumer and nearly 26.300 bank branches

Digital technologies cut the cost of providing financial services Cost savings
Traditional Digital 1
by 80 to 90 percent bank branch due to digitization
Annual cost to serve one customer in
emerging economies, 2014 80–90%
$ 90–95%
65–75%
40–60%
75-130
20-30 50-100
5-10 6-8 10-20
3-5 3-5

Accounts Cash-in, cash-out Transactions

Total
(CICO)

Cost of opening and Cost of providing cash Cost of supporting

Total cost of providing
maintaining account withdrawals and deposits money transfers
financial services

Digital finance for all: Powering inclusive growth

In emerging economies, Septembre 2016

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 FINANCE DIGITALE : OPPORTUNITES
TIMELINESS
 Accessibility to information
 Decision making
 Processing times
TRANSPARENCY
 Commercial offers ands prices
 Access to real-time information
 Traceability of transactions
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USE OF DATA
 Social and behavioral profiling
 Customizing the service offer
 Reducing the proportion of activities with low levels
of added value (seizure, downloading, printing ...)
SECURITY
 Advanced analysis (Big Data)
 Process automation
 Identification of the potential sources of fraud
 Improved risk management.
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 Summary

1 DIGITAL FINANCE ISSUES

Digital transformation of Financial Services

Digital Finance: a socio-economic development lever

Challenges and risks

2 MOROCCAN CONTEXT

National framework of digital economy

The banking sector and the digital transformation

Future non-banking players of payment services

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 CHALLENGES AND RISKS

• New areas : Cloud use, Big data use…

• Proportionate to foster innovation
Regulation • Response to financial stability issues
• International Coordination

• Cybercrime
• Transactions security
• Money Laundering and Terrorist Financing
Risk management • Credit risk (crowdfunding)

• Processing of personal data

Consumer protection • Security of client funds

• Strong evolutions of activities and organizations

• Skilled human resources in the field
Capacity building • IT Investment / Technology Infrastructure

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 Summary

1 DIGITAL FINANCE ISSUES

Digital transformation of Financial Services

Digital Finance: a socio-economic development lever

Challenges and risks

2 MOROCCAN CONTEXT

National framework of digital economy

The banking sector and the digital transformation

Future non-banking players of payment services

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NATIONAL ECOSYSTEM FAVORABLE TO DIGITAL TRANSFORMATION

 Legal framework:

Electronic exchange of jlegal Electronic money and the creation

data of "payment institution" status.

Legal provision concerning the Law number 31-08 enact

protection of personal data consumer protection measures
including cyber consumer

LEGAL AND REGULATORY

FRAMEWORK
Legislative Decree governing the practice to
protect information systems of critical importance Bank Al-Maghrib Directive on intrusion
against cyber attacks : Cyber Defense testing of bank’s Information systems

Cryptography policy and Draft legislation concerning the

electronic certification Crowdfunding

 Governmental strategy dedicated to :

MOROCO DIGITAL 2020

Digital Bridging the digital The set up of neutral Strengthening The position of
transformation divide and and independent the ecosystem Morocco will better
of the public widespread Wi-Fi organisation for digital promote him as a
administration dedicated to digital transformation regional hub of digital
outdoor access
( e-gov) transformation activities
(ADEN)

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 EQUIPMENTS AS WELL AS HOUSEHOLDS' CONSUMPTION PATTERNS IN CONSTANT
EVOLUTION

 Equipment and usage of ITC is increasing ….

94,4% 54,7% 66,5% 42,78% 54,8 %

The proportion of The proportion of The proportion of Internet penetration The proportion of
individuals (12-65 individuals who uses households with rate households with
years old) who uses Smartphones Internet access access to a computer
a mobile cellular or tablet PC
« ICT household/ individual survey
conducted in 2015

 …. with the changing needs and expectations of the costumers:

Ease of use of
Autonomy
products and
Immediacy services.

Proximity

Agility

Personnalisation

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 Summary

1 FINANCIAL DIGITAL ISSUES

Digital transformation of Financial Services

Digital Finance: a socio-economic development lever

Challenges and risks

2 MOROCCAN CONTEXT

National framework of digital economy

The banking sector and the digital transformation

Future non-banking players of payment services

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A WELL DEVELOPED BANKING SECTOR REMAINS COMPETITIVE AND CONCENTRATED

19 Banks 81%
 7 Moroccan private owned banking
including 3 with global presence 5 first banks
 7 Foreign-owned banks
 5 Government-owned banks

66%
120% of GDP representing nearly
2/3 of financial system
3 first banks
 81% - Loans to GDP
 85% - Deposits to GDP

Number Share in total assets

Offshore banks 33 7%
Finance companies 6 3%
Microcredit associations 13 0,5%
Payment institutions 10 0,1%
Other institutions 2 8%

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 OUTSTANDING DEVELOPMENTS OF BANKING SERVICES IN MOROCCO WITHIN THE
LAST DECADE

Branches Number of branches

Banking Cards
per 10,000 inhabitants
6283
1,9 12,9

2451 0,8
3,5

2006 2016 2006 2016 2006 2016

ATM Rate of bancarization

6821 71%

2761
24%

2006 2016 2006 2016

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 HISTORICAL POSITIONING IN EUROPE SUPPORT THE DIASPORA IN MOROCCO …

England Denmark
4 1

Netherlands
9
Germany
9
Belgium
16

Switzerland
France 1
65

Spain
25
Italy
22

… More recently in North America and Asia through representative offices (Canada, USA, UAE, China).

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 DES
PRESENCE IN ALL OF THEBANQUES MAROCAINES
5 AFRICAN REGIONS THROUGH 26 COUNTRIES
EN AFRIQUE

3
North
Africa
10
6 West
Africa
North Africa Central
Africa
West Africa

7
Eastern Africa
& Madagascar

Central Africa Eastern Africa & Madagascar

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 INCREASING NUMBER OF INITIATIVES WHICH ENABLE BANK TO EXPAND ON LINE
SERVICES

Branches

Automates PHYSICAL NETWORK

multi-services
SRC & SVI ATM
(Out-of-
branches)

ON-LINE BANKING
SERVICES
MULTI
CHANNELS ON-LINE BANKING
SMS- Corporate
INFORMATION
banking website

M-banking E-banking

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 Summary

1 DIGITAL FINANCE

Digital transformation of Financial Services

Digital Finance: a socio-economic development lever

Challenges and risks

2 MOROCCAN CONTEXT

National framework of digital economy

The banking sector and the digital transformation

Future non-banking players of payment services

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 FUTURE NON-BANKING PLAYERS OF PAYMENT SYSTEM

 Payment Institutions

Funds transfer
A new category of non-banking
institutions, introduced by Act No. Opening of payment
103-12, entitled to collect deposits account
and to offer one or more payment
services Execution of
withdrawals or
payments

• Accreditation process;
• Minimum capital adapted;
• Accounting and prudential provisions;
• Lighter identification system for payment
account holders;
• Opening of a global blocking account with a
bank, to protect the funds of the payment
account’s holders;
• Two categories of payment agents: exclusive
main agents and retailers paying agents

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 FUTURE NON-BANKING PLAYERS OF PAYMENT SYSTEM

 CROWDFUNDING:
A draft law on collaborative financing has been prepared by the MEF, currently being discussed between stakeholders

Collaborative Financing
Company whose activity is
the management of CFP *
Requirement for an
accreditation and
subjected to a
control

Funded Projects
(Capped amounts)

3 types of operations: investment, loan, donation

Contributors

Limited amounts of contribution per project and platform

* Collaborative Financing Platform allowing the connection between the project promoters and the contributors.

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 THANK YOU FOR YOUR ATTENTION

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