Bank of Zambia Governor Addresses Africa Fintech Summit: Embracing Digital Transformation for Financial Inclusion

Today, the Africa Fintech Summit officially opened in Lusaka at Ciela Resort and its aim is to bring together Africa’s financial industry players with a key focus on improving technologies in that sector.

One of the opening speeches was by the Bank of Zambia’s Governor, Dr Denny Kalyalya, and he spoke on the work of the Bank of Zambia’s Payment Systems Department. He expressed his gratitude and recognized the significance of the event, emphasizing its importance for stakeholders in the financial technology (Fintech) sector to explore ways of leveraging technology for the provision of financial services.

Dr Kalyalya highlighted how the adoption of financial technology has brought about notable transformations in the financial sector, increasing efficiency and fostering financial inclusion. He also noted the role of Fintech companies in disrupting traditional players through innovative, cost-effective, and efficient financial services.

The impact of the COVID-19 pandemic was underscored, accelerating the need for digital financial services as a means to mitigate its adverse effects. Digital financial services were lauded for their convenience, cost reduction, and efficiency, which benefit both consumers and service providers. The department emphasized the need for regulators to strike a balance between efficiency and stability while managing risks associated with cyber-attacks, money laundering, and terrorism financing.

He reported that the adoption of digital financial services, particularly mobile money, has played a pivotal role in driving financial inclusion, resulting in substantial growth in value and transaction volumes between 2017 and 2022.

In terms of Fintech regulation, he shared that the Payment Systems Department stressed its importance in supporting accessibility and safeguarding against criminal activities. He also reported on the Bank of Zambia’s strategic plan for 2020-2023, which places a strong emphasis on digital financial services to promote financial stability and inclusion.

He shared that the Bank of Zambia has undertaken several initiatives to support financial innovation. These include:

• ISO 20022 Migration : The Real Time Gross Settlement System (RTGS) in Zambia, namely, the Zambia Interbank Payment and Settlement System (ZIPSS) has been upgraded and went live on Saturday 14th October 2023. The ZIPSS was successfully migrated to the data rich ISO20022 messaging standard, and the topology of the system has been changed from Y-Copy to V-Mode. The adoption of the future language for payments (ISO 20022) will simplify Application Programming Interface (API) integration into existing process & systems thereby facilitating integration of payment systems and promoting interoperability. Other benefits of ISO 20022 include richer and structured payment data, and enhanced compliance with the Financial Action Task Force (FATF) recommendation #16 and local Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) regulations thereby enhancing efficiency of payment systems.
• Regulatory Sandbox: To foster innovation, the Bank of Zambia implemented the Regulatory Sandbox in 2021 to allow live testing of innovative products and services in a controlled environment, operating under special time-bound exceptions under the Bank’s supervision. Through the introduction of new innovative products, the Regulatory Sandbox will contribute to increased financial inclusion and access to finance.
• National Financial Switch (NFS): The NFS provides access to financial services for banks, non-banks, payment service providers and fintechs. The NFS allows for instant payment transactions such as wallet to bank transfers, bank to wallet, ATM cash out and Point of Sale (POS) transactions. The interoperability and real time features of the NFS has also allowed for development of merchant payment products that allow customers to pay for goods and services across various financial service providers.
• Digital Financial Services Campaigns: The Bank conducts annual awareness campaigns to promote uptake and safe usage of digital financial services. Last year, the Bank launched the ‘Go Cashless’ campaign. We must take advantage of this as using digital payments creates opportunities for various stakeholders. All stakeholders are therefore invited to join the ‘Go Cashless’ campaign.

Going forward, the Bank is looking at spearheading the following initiatives as part of its National Payment System Vision and Strategy:

• Centralised KYC: One of the challenges faced by regulators in driving financial inclusion is the “Know Your Customer” (KYC) requirement, which is considered as a barrier to accessing financial services. Leveraging on technology, the Bank is collaborating with Ministry of Home Affairs and Internal Security and other stakeholders to develop a Centralized KYC. The system will facilitate digital onboarding for financial service providers through a centralized electronic system. It will enable financial service providers to access customer data/information without requiring customers to submit the same data to every financial service provider.
• 24/7 Digital Economy: With the developments in information and communications technologies, economic activities will no longer need to be restricted to traditional working hours. Soon goods, services, and capital should be able to move at any time of day. To facilitate this, underlying payment channels must be available to support such economic advancements.
• Merchant Acceptance of DFS: The Vision 2027 envisages that deliberate measures will be put in place by all relevant stakeholders to promote acceptance of electronic payment methods by the MSMEs. This will include scaling up awareness campaigns on DFS with increased focus on merchants on-boarding, fair charges and transaction fees and proportionate regulations among others. This should include payments to businesses of varying sizes, including micro-merchants (corner stores and vendors) and cover several sectors, such as, transport (taxis, buses), health, and education.

Challenges that still need to be addressed were also reported, including cybersecurity and fraud concerns, low levels of financial and digital literacy, and insufficient ICT infrastructure in rural areas. The Governor emphasized the importance of tackling these challenges to ensure the continued growth of digital financial inclusion.