How Tech can Help Create Safer Transaction Ecosystem in South Africa

How Tech can Help Create Safer Transaction Ecosystem in South Africa

Cornelius Johannes Steynberg, a native of South Africa, was accused by the Commodity Futures Trading Commission (CFTC) in 2022 in connection with a $1.7 billion bitcoin fraud scam. The CFTC asserts in a press release posted on its website that Steynberg established and ran a global foreign currency commodity pool through Mirror Trading International Proprietary Ltd (MTI), a business registered in South Africa.

The pool, which had a value of $1.7 billion, only allowed players to pay for membership using bitcoin.

Steynberg participated in an international fraudulent multilevel marketing scheme employing promotional websites and social media from approximately May 18, 2018, to roughly March 30, 2021, both personally and as the controlling person of MTI, soliciting bitcoin from members of the public.

The extent of market penetration by fraudulent organizations is one of the ongoing problems with anti-money laundering in South Africa. It seems that in the near future, fighting unintentional money laundering institutions and transactional irregularities will receive more attention.

It is anticipated that South Africa will suffer significant setbacks as a result of the Financial Action Task Force (FATF) gray listing of the country. Prior to being blacklisted, a nation is monitored more closely by the FATF while it works with the taskforce to solve important issues including money laundering and terrorism funding. This is known as the “gray listing” process.

Also, it increases pressure on these nations to take more action to address the root causes of organized crime, illegal funding, counterfeit trade, and improve their ability to fight financial crime. However, the growth of fintechs and escrow startups presents hope for safer financial dealings while also creating the possibility for financial oversight in the country.

Mitigating Financial Risks in Africa

Due to the real and relative size of its unbanked population—a population that requires access to financial services—Africa is a rich ground for Fintech development. A recent McKinsey analysis suggested that by 2025, fintech may boost Africa’s GDP by $3 trillion. Fintech has given businesses a huge chance to produce innovative products that cater to the needs of African consumers, with the ultimate objective being to offer dependable financial services to a sizable unbanked population.

Digital adoption and fintech processes presents various transactional risks when providing financial services to a sizable population of the unbanked and underserved in Africa, as it is relatively difficult to provide financial services to rural areas through the traditional banking system.

Regulating agencies are particularly interested in financial risk management, which necessitates investigation and the creation of new metrics. Underestimation of creditworthiness, market risk noncompliance, fraud detection, and cyber-attacks are pertinent examples of such risks.

Agencies in charge of financial consumer protection (FCP) are frequently at a loss on how to manage these threats despite having the necessary technological know-how and resources. Such hazards are illustrated by the rise in digital fraud cases, the failure of peer-to-peer lending platforms, and the borrower misery brought on by careless digital microlending practices. Although some of these hazards are recent, many of them are simply updated versions of concerns that have long existed in the financial markets. However, there is a solution to this problem thanks to technology.

Normalizing Escrow Services

Globally, financial risk has become more prevalent as digital services are increasingly adopted instead of traditional delivery methods. To ensure smooth financial dealing throughout South Africa, escrow platforms are acting as a middleman.

The fundamental goal of the escrow account is to offer a different institutional arrangement for the management of assets, taking them out of the hands of any financial institutions that might have participated in their transfer. The administrative costs imposed by the desired states may be decreased by implementing this idea. The regional development banks can offer asset management services at a lesser price because they are publicly controlled financial organizations.

Escrow services had previously been connected to large transactions. Yet given that people are being conned out of allegedly small sums, it only seems logical that platforms operating within the escrow unit start to reduce financial risks at all levels of transaction.

The purpose of escrow is to provide guarantees to the other parties to a transaction. The escrow provider holds escrow on any money or other assets given by a party to the transaction. An escrow agent transfers these assets to the other party when predetermined conditions are satisfied. The development of disruptive technologies like fintech and others has greatly benefited the escrow industry. And with greater adoption, we can witness safer transactions across Africa.