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FORESIGHT FINANCIAL SERVICES REPORT

By Joseph Carpenter,2014-05-16 18:12
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Chapter 4:Sector-specific Scenarios and SWOT Analysis 2 60 The Financial Services Sector Working Group utilised the SWOT analysis to ?

FORESIGHT FINANCIAL SERVICES REPORT

Foreword

    Broadening the stakeholding in our competitive economy is an extremely challenging goal for the financial sector. We must succeed, as failure is not an option.

    The path to success is strewn with enormous but not insurmountable obstacles. One

    needs a strategy and Foresight was a necessary start. A lot more work needs to be

    done. Foresight merely points us in a direction the pace of change is up to us.

Critical success factors for the future are

     Instilling a culture of national pride. If we as a nation are not proud of who and what we are it is almost impossible to ask people to make the very necessary sacrifices to become a winning nation.

     The spectre of AIDS hanging like the sword of Damocles over our future must be risk-managed to acceptable levels. Levels which will ensure foreign and local investment. Every person in South Africa will gain if this is achieved and should be actively involved in finding solutions.

     The world competitiveness report placed us at number forty-six in the world.

    Foreign investors will obviously be guided by it. It is important to note that our financial services sector featured quite well and we need to build on this strength. There is no room for complacency.

     The most frustrating thing for me at school was that no matter how well I did I was always told I could do better. With a bit of maturity now I can understand the rationale but still find criticism hard to accept. The point I am trying to make is that criticism and compliments must go together and we have endeavoured to praise government where appropriate.

     The new paradigm of being customer rather than product driven must take off in a big way. This will ensure that we are always aware of who ultimately foots the bill. In the global village customers are extremely well informed and as a result discerning. The question of how expensive our labour is is easily answered. It's not. The more difficult question is whether our labour regulation is investor friendly. We certainly believe that a lot more debate followed by urgent action is required.

I now wish to thank:

    (1) The Department of Arts Culture Science and Technology for this initiative.

    (2) Jeremy Berlyn and Glaudina Loots for superb coordination.

    (3) Phil Mjwara and his team for the quality of the input.

    (4) The excellent team I have had the privilege to work with.

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Finally, I believe that the fruits of our labour, if implemented, will lead to a better

    life for all. It has certainly been a pleasure being of service to South Africa.

Chairperson

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    1.1 South Africa's Foresight Process .......................................................................................... 2 1.2 Introduction to the Foresight Process................................................................................... 2

    1.3 South Africa's Approach to Foresighting .............................................................................. 3

    1.4 Foresight Sector Selection ................................................................................................... 4 1.5 Broad Foresight Methodology .............................................................................................. 5 1.6 Identification of expertise for the Foresight Sector Working Groups ....................................... 7

    1.8 Participants in the Stakeholder Group .................................................................................. 8

    1.9 Scope of the Financial Services Sector .................................................................................. 8 1.10 Sector Terms of Reference, Mission Statement and Foci ........................................................ 9

    2.1 International Scan ............................................................................................................. 12 2.2 Socio-Political Trends ....................................................................................................... 12 2.3 Strategic Plans and Foresight Studies ................................................................................ 14

    2.4 Economic Scan ................................................................................................................. 14 2.5 The new environment in which financial services will operate .............................................. 16

    2.6 Global Economical Situation of the Sector .......................................................................... 18

    2.7 Technology in the Business and Financial Services Sector .................................................... 25

    2.8 Business Solutions through Technology Application ........................................................... 28

    2.9 Traditional and Innovative Channels for Marketing and Delivering Consumer

    Investment Products .................................................................................................................. 35 2.10 Innovative Channels for Marketing and Delivering Consumer Credit .................................... 35

    2.11 Electronic Media for Selling Life Insurance .......................................................................... 35

    2.12 Developments in On-line Trading ...................................................................................... 35

    2.13 The Future of Technology in Finance ................................................................................. 36

    2.14 The Workplace of the Future ............................................................................................. 36 2.15 Virtuality .......................................................................................................................... 37

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    2.16 Electronic Commerce ........................................................................................................ 38 2.17 Corruption and Fraud Could Technology be Preventative? ............................................... 45

    2.18 Summary of Local Scan ..................................................................................................... 47

    3.1 SWOT definition................................................................................................................ 55 3.2 SWOT .............................................................................................................................. 55 3.3 Research, Science and Technology ..................................................................................... 59

    4.1 Macroscenarios ................................................................................................................ 60 4.2 Development of Sector-specific Scenarios .......................................................................... 61

    4.3 Key Uncertainties in the Financial Services Sector ............................................................... 61

    4.4 Sector-specific Scenarios .................................................................................................. 63 4.5 SWOT 2 derived from the Sector-specific Scenario Process .................................................. 65

    4.6 Research, Science and Technology Issues ........................................................................... 67

    5.1 Introduction ..................................................................................................................... 71 5.2 Profile of the Respondents ............................................................................................... 71 5.3 Structure of the Questionnaire........................................................................................... 72 5.4 The Top 20 Topics: Results of the Survey ........................................................................... 72

    5.5 Summary and Conclusions ................................................................................................ 81

    6.1 Key Themes ..................................................................................................................... 83 6.2 Recommendations ............................................................................................................ 85

    APPENDIX A ............................................................................................................................... 93 APPENDIX B ............................................................................................................................... 94 Abbreviations and Acronyms

AIDS ............................................................................... Acquired immune-deficiency syndrome

    ATM ...................................................................................................... Automatic teller machine CFE ..................................................................................................... Certified financial engineer DACST ....................................................... Department of Arts, Culture, Science and Technology

    DDI .................................................................................................................Direct data Internet E-com/EC ....................................................................................................Electronic commerce EDI .................................................................................................... Electronic data interchange GDP ......................................................................................................... Gross domestic product GEAR .............................................................................. Growth, employment and redistribution

    HDI ..................................................................................................... Human development index HSRC ....................................................................................... Human Sciences Research Council

    ICT ........................................................................Information and Communications Technology

    IDRC .................................................................. International Development and Research Centre

    IMF .................................................................................................... International Monetary Fund IT ............................................................................................................. Information technology

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    IVR ....................................................................................................... Interactive voice response NGO ............................................................................................ Non-governmental organisation

    NIC ................................................................................................... Newly Industrialised Country NRTF ........................................................................National Research and Technology Foresight

    OECD ............................................................Organisation of European Community Development

    OFX ................................................................................................................. Open file exchange OTC.....................................................................................................................Over the counter PC .................................................................................................................... Personal computer PKI........................................................................................................... Public key infrastructure POS ............................................................................................................................Point of sale RDP ........................................................................ Reconstruction and Development Programme

    RSA ......................................................................................................... Republic of South Africa SADC ............................................................................ Southern Africa Development Community

    SAIB ...........................................................................................South African Institute of Bankers SET ................................................................................................. Secure electronic transactions S&T .......................................................................................................... Science and technology SMME ................................................................................. Small, medium and micro-enterprises

    SSL ................................................................................................................ Secure sockets layer STEEP ............................................... Social, technological, economic, environmental and political

    SWG............................................................................................................. Sector Working Group SWOT ............................................................... Strengths, weaknesses, opportunities and threats

    TAG .................................................................................................... Transaction auditing group TCP/IP ................................................................ Transmission control protocol/Internet protocol

    TROR ............................................................................................................... Total rate of return UK ........................................................................................................................United Kingdom USA ........................................................................................................ United States of America WWW .................................................................................................................... World Wide Web

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    The National Research and Technology Foresight (NRTF) project is one of a number of initiatives launched by the Department of Arts, Culture, Science and Technology (DACST) as part of its mandate to review and reform the science and technology

    system in South Africa. The NRTF project looks at various sectors of the South African economy, and financial services was one of the 12 sectors chosen.

    The Foresight Financial Services Sector agreed up front on the areas of focus for the sector. Six areas of focus were identified. They are:

1. What should be done? (Services focus)

    2. Research focus

    3. Training focus

    4. Marketing focus

    5. Focus on the creation of enabling environment

    6. Financial Services focus.

    The local and international scans were then analysed for the purpose of benchmarking the sector locally and internationally. It transpired that the sector was doing well in incorporating new technologies and providing services as efficiently as possible. Areas such as ATM, Internet banking, electronic account payment, etc. were identified as areas in which the sector is ahead of that of some developed countries. There were other areas in which work still needs to be done, such as fully providing other services relating to e-commerce and the use of multifunctional smart cards.

    Whilst the sector is world class in terms of service provision in certain areas, a need to expand the services to the traditionally 'unbanked' was identified if the sector is to grow in future. Scenarios depicting the future of the financial services sector are presented in Chapter 4.

    Several technologies that are relevant for the future of the South African financial services sector were identified using the Delphi survey. Most of the technologies, such as better human/computer interface, the use of various devices to access the Internet, advances in speech recognition, laying optic cables and satellite infrastructure, were identified as crucial for the sector. In most cases it was felt that these technologies could be implemented in a short time frame (five years) and that this should mainly involve the customising of existing technologies.

    Four themes were recommended by the Financial Services Working Group. These are the refocusing of education and training, the creation of an entrepreneurial climate and venture capital provision, the provision and extension of financial services for rural

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and informal/'unbanked' people and, lastly, extending financial services through

electronic delivery systems.

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    Chapter 1:

    Introduction and Process

1.1 South Africa's Foresight Process

    The National Research and Technology Foresight (NRTF) Project was one of a number of initiatives launched by the Department of Arts, Culture, Science and

    Technology (DACST) as part of its mandate to review and reform the science and

    technology system in South Africa. The South African interest in foresighting started in 1993 when the International Development Research Centre (IDRC) of Canada

    conducted a 'Mission on Science and Technology Policy for a Democratic South Africa'. The Mission report outlined the steps that needed to be taken into account when

    transforming science and technology and also assessed the status of the existing

    system. The report emphasised as part its recommendations that a foresight exercise should be conducted.

    Shortly after the establishment of the Ministry of Arts, Culture, Science and Technology (DACST) in 1994, the then Minister announced the Ministry's intention to carry out a Foresight exercise. The project was formally inaugurated in July 1996. In the White Paper on Science and Technology, DACST committed itself to using the

    results of the Foresight exercise as an important input into its investments in research and development within the science budget. The Foresight results will also inform the management of the Innovation Fund and research capacity-building programmes in

    the Higher Education sector.

1.2 Introduction to the Foresight Process

    Foresight is a family of processes intended to capture the dynamics of change by placing today's reality within the context of tomorrow's possibilities. It acknowledges a range of potential futures and seeks to add new dimensions to current thinking by

    providing

     a way of thinking about the longer-term future and how it could differ from the present;

     a means of testing current views and policies; and

     a way of overcoming the difficulties of static or retrogressive analyses.

    Foresight provides a valuable mechanism for serious consideration of significant technological trends and how they relate to socio-economic needs. Foresight is

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    inherently proactive and reflects the belief that the future is influenced by today's decisions and actions. Building complex pictures of alternative futures provides a better assessment of how well current research and technology systems might address future needs.

Although a foresight exercise may use several forecasting techniques (e.g. Delphi

    analyses, trend analyses, scanning or scoping), the outputs do not differ significantly. The emphasis in foresight is not on prediction, but on the realisation that addressing the future necessitates the management of uncertainty. A richer and better-informed context for current decisions is developed through a dialogue involving all relevant stakeholders and emphasising the human abilities of forethought, creativity, systems thinking, analysis and judgement. The wider the range of perspectives that are explored, the more broadly the benefits will be felt.

    Transparency is essential for foresight processes. The underlying assumptions, analytical framework and information inputs must be accessible for universalreview. Such openness will also provide equal weighting for non-conformist and conventional views, thereby encouraging the identification of emerging paradigms. In several countries, the establishment in both the public and private sectors of a foresight culture has been a precondition for the comprehensive long-term visions of future possibilities and needs that are so important in providing appropriate contexts for the effective integration of foresight with decision-making.

Creating such a foresight culture is a complex exercise and requires an appropriate

    balance between two of the intrinsic tensions in foresight, namely science-push versus demand-pull, and top-down versus bottom-up. The following five common errors have to be avoided for this culture to flourish:

a) Lack of prior consensus on the need for foresight;

    b) Failure to address initial suspicion/cynicism of researchers, professionals and other stakeholders adequately;

    c) Bias towards established disciplines of panels dominated by élite specialists and scientists;

    d) Lack of institutional machinery to translate foresight findings into specific policy initiatives and resourced action, preferably involving both the public and the private

    sectors; and

    e) The approach that money can solve all problems, or that the lack of finances will be the only factor inhibiting most future-orientated initiatives.

1.3 South Africa's Approach to Foresighting

    Although foresight exercises have been conducted in various countries, the objectives, foci and approaches tend to vary according to circumstances. A case in

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    point is the nature and extent of participation in the foresight process by wider

    communities. In Japan, for example, such processes tend to involve only science,

    technology and industry experts, while in countries like the Netherlands, the broader community is usually involved.

    Methodologies in foresighting exercises differ as well. The Japanese usually focus only on conducting Delphi surveys of future technological trends, while the UK

    foresight employed various methodologies, including Delphi surveys and scenario

    analyses. The United States concentrates on drafting lists of critical technologies.

     Internationally, science and technology is increasingly being used as a tool to enable economic growth and to increase global competitiveness. This is shown by the

    increasing number of countries which are conducting technology Foresight exercises,

    inter alia, Japan, Korea, Germany, United Kingdom, Hungary, and China.

     The Foresight process benefits participating countries in the following ways:

     They are able to anticipate or influence future global technological developments and trends.

     They are able to contribute towards and influence national research and technology priorities.

     The foresight process helps to identify niche and future markets.

     The foresight process stimulates innovative capability within the country, thereby increasing investment opportunities.

     The foresight process enhances the working relationship between industry and academia leading to transfer of expertise, increased mobility of skills base and opportunities for networking.

     The 'culture' of foresight encourages participants to think in the longer term, a strategic advantage both for the institutions and the nation.

    The Foresight exercise in South Africa, though informed to some extent by the approaches of other countries, had to adopt its own approach to fit the South African context. Some of the unique features of the South African Foresight are addressed

    below to provide greater clarity:

    Perhaps one of the more distinct features of South Africa's Foresight project is the extent of wider community involvement in the process. The Foresight programme has

    been deliberately designed to involve stakeholders such as industry, government,

    organised labour and civil society. This inclusive participatory approach is an attempt to give ownership of the process to all sectors of the population.

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