Regulations in the Digital era


There’s no doubt that digitalization offers massive opportunities, however does regulations impede digital revolution? What about the user demand, will it eventually force regulations to adapt to rapid technological change? In its simplest form digitalization is about designing tailored customer products, digitizing customer journeys and improving the entire business value chain. The customer demand is ever changing and this trajectory is perpetuated in the digital economy. Most organizations are embarking on the digital transformation journey to ensure they remain relevant and competitive in the digital era. The race now is about who can provide a superior, more convenient and distinct customer experience. Digital has shifted the power to the consumer. In light of these developments, tough regulations can make or break businesses and new business models in the digital ecosystem. Most organizations will find collaborative and innovative ways of working to address these challenges or other mechanisms of disruption will come into play fostering a rethink of regulations. These opposing ideas between digital revolution and regulations are best depicted in the diagram below:

The benefits of Digital revolution

Digital has become the heartbeat of the economy, as it offers great benefits for many industries, to name a few:

  • Big data offers retailers and insurers unprecedented opportunities, for example predicting and managing customer expectations.

  • Smart grids are revolutionizing the energy sector.

  • Digital is transforming modern healthcare services.

In addition, Cloud adoption offers low cost and agile services for most organizations across the globe. However there are still challenges that limits Cloud adoption, for example The Protection of Personal Information Bill (POPI) is now law in South Africa. Chapter 9 of the Bill, which deals with trans-border information flow, further states that a responsible party may not transfer personal information about a person to a third party that is in a foreign country unless this operator is bound by an agreement that upholds the principles of the reasonable processing and protection of the information. Cloud adoption still require further motivation and approval from South African Reserve Bank (SARB). Unfortunately for South African companies, most of the world leading cloud providers are based in foreign countries. Cloud computing offers significant benefits to businesses which includes:

  • Drastic reduction in total cost of ownership (TCO), for example Amazon Web Services (AWS), offer greater efficiency, flexibility and lower operating costs.

  • The speed to market new products, most organizations still takes longer to provision new infrastructure/applications due to legacy systems and processes.

  • Ability to scale compute resources based on customer demand, for example with auto scaling functionality, AWS is able to automatically match customer demand with supply, drastically reducing a surplus or deficit in capacity.

  • Enable organizations to take advantage of leading edge technology at a fractional cost.

There are inevitable challenges as well, for example security and broadband connectivity. The recent cyber-attacks, WannaCry and Petya exacerbated the security concern even further. Governments and organizations needs to improve cyber security to prevent these attacks. Broadband or Fiber roll-out in emerging markets is still lagging behind compared to most developed countries, as a result this is pushing up the cost of data. These are some of the barriers to digital transformation.

According to the Research study done by "Applied Research Unit Joburg Centre for Software Engineering at Wits University" on the use of Cloud Services in the South African Government – Governments have a role to play in further spurring the use of cloud computing, for instance, through removing unnecessary legal and regulatory barriers, being lead users, through fostering skills and education, through supporting R&D projects and establishing public-private partnerships.

The effects of regulations and digital revolution

In fact, the regulations are extremely necessary to shield and advance the economy. For example, the weak regulations led to the collapse of the global financial system, known as the 2008 financial crisis. One would argue the global economy is still recovering from that. At the same time over-regulation could restrain the economy. There needs to be a balancing act between the two. In a struggle for survival and market share, the traditional players are demanding more regulations, for example in South Africa, Johannesburg and Cape Town, there’s clearly a serious conflict and struggle between the meter taxis and Uber drivers. The meter taxis are asking the government to impose tough regulations to these disruptive digital newcomers like Uber. The growth model for Uber is based on intangible assets and they compete on innovation and software development, rapidly achieving a higher market value than their traditional competitors, meter taxis. Another example in the financial services, is fintechs are disrupting the market with innovative financial products targeting low-end customers and creating new markets. One of the most well-known fintech company in South Africa, SnapScan (B2C) has simplified the way consumers pay for items, using the prevalent mobile phones. RainFin (B2B) uses an ‘intelligent’ scorecard to review the applicant’s transaction history, financial health, and other aspects such as social media profiles. It is also governed by the FSB, NCR, and is registered as a loan provider.

Challenges and Recommendations

The challenge for traditional players is that, the new digital newcomers don’t play by the same rule. However, digital newcomers are increasingly confronted with regulatory issues that could possibly lead to the disappearance or transformation of these platforms. The regulations and new laws should support innovation and digital transformation. Especially across Africa where the market dynamics are changing, for example, commodities are losing traction and services starting to gain power. Typical example is the slump in global oil prices hammering the Nigerian economy. Inadequate supply is also adding to the problem. African countries needs to diversify their resources and take full advantage of the fourth industrial revolution. The fourth industrial revolution can enable Africa to leapfrog in many industries, for example, Agriculture, Manufacturing, Technology etc. It is essential that regulations maintain equilibrium for both traditional and digital competitors stabilizing the economy and protecting consumers.

Regulations need to be proactive and flexible, for example should predict the future of the economy. This however will require the government to collaborate with market leaders, consultancy firms (Buhlebenkosi 4.0) and establish regulations that will benefit the people, businesses and the economy. Digital transformation needs to be part of both the public and private sector DNA for South Africa and Rest of Africa to be competitive and successful in the future.

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