Digital commerce is now advancing rapidly in many parts of the world, with China at the forefront. The growth has come in part because new providers have been able to leverage low-cost mobile channels and fully digitize their processes: e-commerce leaders like Alibaba and Paypal, for example, earn almost double the revenue per employee (around $600k annually) of incumbent banking giants like ICBC or Citibank ($327k & $384k respectively in 2017). But the real potential of any organization to grow sustainably is certainly not measured by sales per employee; rather, by its capacity to survive and thrive in times of disruptive change.
How does one build the capacity of institutions, especially financial institutions, in this digital era? The International Forum for China Financial Inclusion met in Beijing recently under the theme “Capacity changes the world” to consider this question. As my contribution to that event, I shared the way in which we at the Digital Frontiers Institute, a new Edtech entity based in Cape Town, South Africa, think about this question which is at the core of our mission of building capacity.
First, digitization challenges not only incumbent banks but also existing professions. The profession of banking as we know it has existed for centuries. Institutes of Bankers have sprung up around the world to provide training for this profession. China is no exception to this. Increasingly, however, non-bank entities like Paypal or Ant Financial have come to have an important role in the retail financial sector. And in their approach and their capacity, they don’t look like conventional banks even though they both engage directly or indirectly in some lending activities. The point here is not that banking skills have become irrelevant—far from it—but rather, as Fintech innovations sweep many parts of the financial sector, that the capacity necessary to succeed in retail financial services has been deconstructed into at least two parts: first, what we call a ‘Fintech’ component which covers the user interface and customer experience of initial engagement through payment using whichever digital channel she chooses; then, the banking component which addresses the intermediation of those funds into credit. To draw a distinction based on risk, the former component is concerned primarily with operational risk; the latter with credit risk in its various forms. This is not to suggest that Fintech companies cannot do credit nor that banks cannot manage customer interfaces effectively: to draw that inference is to confuse the capacity with the institutional form. The point is rather that Fintech companies which offer credit will need the capacity to manage credit—artificial intelligence does not alter the ‘laws of gravity’ with respect to credit defaults, indeed it may amplify them. And banks which offer digital channels will need Fintech-like capacity to succeed. To succeed in their mandate, financial regulators also need greater Fintech-like capacity to understand the payment systems they oversee and the risks they face.
That is why at DFI we frame our mission as supporting the growth of a new generation of Fintech professionals globally, wherever they work—at banks, at e-commerce companies or mobile operators, startups or government agencies.
How do we translate our capacity building mission into life? Capacity is a function both of institutional characteristics and individual competencies, as shown in the picture below. Institutional characteristics are what makes the organizational whole more than the sum of the individual parts. These characteristics relate in part to the structure of an organization—how reporting lines cluster skills and promote accountability, among other things. The process of digitization challenges all sorts of organizational structures: as one example, central banks have traditionally split their functions dealing with oversight of the payment system from the supervision of banks. That split corresponds to a distinction between operational risk and credit risk. However, as payment providers become involved in storing value as e-money issuers, and as banks face escalating operational risks, the traditional organizational structure often leaves gaps in understanding. In addition to structure, institutional characteristics shape the incentives under which an organization functions—as regulators and politicians seeking to implement deferred compensation arrangements and other constraints on bankers’ bonuses to reduce the incentive to take unwise leveraged bets with other people’s money.
We at DFI want to see strong institutions which can offer and sustain good career opportunities for Fintech professionals. That is why we have recently commissioned research across a range of institutions which need and use Fintech competencies across 10 African countries. We asked HR managers and executives about the skills they are looking for and also the remuneration scales at different levels across countries. This full report will be published soon; but, as a preview, it reveals that African financial institutions of all sizes encounter talent gaps in areas B2B sales and marketing, and in managing cyber risks and security. And institutions are looking for individuals with a solid foundation of digital competency.
For individuals, we understand competency in the workplace to be the sum of three components:
· The knowledge necessary for a job: this is dynamic and can no longer be acquired through a one-off course or qualification;
· The skills which enable that knowledge to be appropriately deployed;
· The attitudes which the individual has towards his or her work which affect behaviour and performance in the workplace.
The foundational DFI course for building the competence of Fintech professionals is called the Certificate in Digital Money (CIDM). To date, well over 1000 students from over 60 countries have taken this course in English or French. They have come from banks, telcos, Fintech startups, government and development agencies. 88% of them have satisfied the certification standards agreed with the Fletcher School at Tufts University, Massachusetts USA.
The CIDM builds competencies in these ways. Knowledge is transmitted through a series of 6 modules, most 2 weeks in duration, containing video lectures, readings and case studies. These modules introduce students to the broad range of concepts which the Fintech professional must understand:
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Knowledge is tested through weekly quizzes and a final exam at the end which contribute towards the points score. During the course, we seek to develop the following skills in our students:
· Ability to undertake research about payment systems and arrangements in their own country;
· Ability to engage online with faculty and other students through written posts and self-filmed videos;
· Ability to share experiences and opinions with students from other countries in live webinar conversations facilitated by a coach;
· Ability to collaborate with a student in another country on a comparative research report;
· Ability to write a coherent, succinct report on a payment system.
Students earn different numbers of points towards certification based on the intensity and manner of these engagements. This approach to evaluation rewards skills building activities alongside knowledge.
The European Union’s Digital Competency (DIGCOMP) framework recognizes the relevance of each of these three components of competency even at the level of the ordinary citizen who must learn to function well in a digitizing society. The DIGCOMP framework aims to encourage citizens to develop confident, creative, critical and collaborative attitudes online. Those also are the attitudes which we expect to see from our graduates as well. And surveys of students who have completed our course indicate progress in this direction.
Of course, capacity building like this cannot be one-off. The knowledge base is changing rapidly. We are building out a set of specialist elective courses in areas like mobile money, blockchain, remittances and more. These courses will enable Fintech professionals to specialize in different streams of interest. And our SWITCH networking platform allows graduates to stay in touch and to join in regular exchanges via online Communities of Practice which link professionals worldwide in fields of interest.
Last week at the China International Financial Inclusion Conference, we announced our partnership with the Chinese Academy of Financial Inclusion at Renmin University Business School to offer a Certificate in Digital Financial Services and Financial Inclusion in Mandarin. The localized version builds on the international CIDM course but includes relevant cases and experiences from China’s burgeoning DFS sector and features Renmin faculty led by Professor Bei. The twelve-week online course will start in March 2018. It aims to create a new standard for digital education for Fintech professionals in China.
Our hope is that Chinese Fintech professionals also will be confident, creative, critical and collaborative online in an era in which Fintech innovations from China are starting to spread well beyond its shores. We welcome Chinese professionals to the emerging international Fintech professional community and wish them well on their professional journeys towards greater competence which supports greater capacity.
By David Porteous