Bridging the data trust gap in the financial ecosystem in Africa

With 219 million active Mobile Money accounts in 2022, Africa is leading the world in adopting digital financial services (DFS). However, the growth of these services has led to an unprecedented increase in the volume of data. As a result, financial regulators are faced with the challenge of not only managing the data but also of ascertaining its reliability. Bridging the data trust gap has therefore become a priority to ensure effective DFS governance. This will indeed support financial inclusion on the continent.

Bridging the data trust gap to unlock Africa’s socioeconomic growth

It was around the hot topic of data trust that the 2024 RegTech Africa Conference gathered policymakers, industry leaders and other experts in Lagos, Nigeria, on 23 and 24 May. During these two days, the attendees explored the crucial role of data governance in promoting financial inclusion and socio-economic development.

While data promises to foster compliance and security within the digital financial ecosystem in Africa, the current lack of data trust undermines its positive impact. In a statement to African Media Agency, Cyril Okoroigwe, CEO of RegTech Africa, emphasized the importance of data trust. “As Africa continues to embrace digital finance, we must prioritize data trust and security to safeguard the interests of all stakeholders”, he said.

Edouard Docteur, GVG’s Chief Service Delivery Officer, was among the experts attending the event. During the Supervisory Technology roundtable, Mr. Docteur made a presentation on the capacities of this technology, also known as SupTech, in terms of bridging the data trust gap in DFS. Mr. Docteur explained that while the growth of DFS in Africa has had a positive impact on financial inclusion, the huge number of digital financial transactions also produced unprecedented data volumes. Indeed, according to AfricaNenda, this number reaches 32 billion transactions for instant payment systems alone. As a result, regulatory authorities may find it challenging to assess the reliability of the data, due to inappropriate infrastructure, the absence of supervisory technology, and the lack of proper regulatory reporting.

The importance of data trust in the financial ecosystem: a regulatory perspective

Regulatory authorities rely heavily on data for effective decision- and policy-making. It is therefore crucial that the market data they access is an accurate reflection of what is going on in the sector they are responsible for overseeing. As PwC points out, data is worth nothing, and is even a source of risk, unless you can trust it.

The need for data trust is all the greater in the financial ecosystem. Indeed, the rapid digitalization of this ecosystem has not only enabled more Africans to access formal financial services. It has also led to an increase in both the number and the sophistication of fraud methods. According to a report from the High-Level Panel on illicit financial flows from Africa, the continent loses an estimated 50 to 60 billion USD annually due to IFFs.

To be able to make the decisions and create the policies that will help ensure compliance, security and transparency in the financial sector, regulators therefore need data they can trust. However, due to the sheer volume of data produced by DFS in Africa, they often encounter challenges not only in assessing the trustworthiness of this data, but also in ascertaining the reliability of the data sources, collection systems and processing mechanisms.

How SupTech contributes to bridging the data trust gap in DFS

Regulatory authorities can meet these challenges through the adoption of SupTech solutions. Indeed, SupTech builds the authorities’ capacities and efficiency in terms of data collection and analysis. According to a book published by the OECD and entitled OECD Business and Finance Outlook 2021: AI in Business and Finance, SupTech improves detection capabilities, data collection, and data management.

In his intervention at the RegTech Africa Conference, Edouard Docteur explained that SupTech could help bridge the data trust gap by providing data authentication and verification capabilities. However, he added that the technology required the support of comprehensive regulatory frameworks. GVG’s solutions, for instance, connect regulators directly to the regulated sector through near or near real-time data links. This enables the regulators to obtain complete and actionable information. Furthermore, this direct connection helps resolve the issue of the lack of regulatory reporting and meets the need for updated regulatory frameworks, as it ensures the automatic delivery of data straight from the source. Once processed, the data can be used to modify the regulations according to the picture of the sector they have painted.

In this sense, Ms Hannatu Adegboyega, Vice President of Sales, EMTECH, commented that central banks and regulators around the world are trying to move from manual processes, and asked Mr Docteur how GVG envisions the role of Suptech and its evolvement, considering the rapid digitization of financial services with regards to compliance and risk management. Mr. Docteur pointed out that the key is building efficient collaboration: “Once we establish the level of trust and transparency and how the data is collected and protected, and we reconcile it with the sector, we often get to a point of trust between the financial institutions and the regulators. We look forward to continue building this level of confidence in our platform moving forward.”

The effectiveness of GVG’s M3 solution earned the company a place on the 2024 Africa RegTech Horizon 100 list. M3 provides regulatory authorities and central banks with highly reliable data collected directly from Mobile Money services. It thus enhances data-driven policymaking, compliance, transparency, and security in the ecosystem.

Conclusion…

Looking into the future and the key considerations for regulators and financial institutions to consider in the implementation of SupTech initiatives, there was a unanimous vision across the panel on how collaboration and capacity building are the common denominators to better understand the role of Suptech as a roadmap to guide the way forward, ensuring data integrity and trust.

Indeed having continuous conversations between stakeholders around data ethics, can enable the harmonization of data collection, and how data is processed and protected. Ultimately, data trust supports the effective governance of the ecosystem, which in turn promotes financial inclusion and socio-economic development.

Click here to read the PR related to GVG’s inclusion in the 2024 Africa RegTech Horizon-100 List.