Banks or banking for Africa, or will Fintech reign?

Written by on December 18, 2015 in Guest Blog with 1 Comment

africa politicaOver the years, the ‘Fintech’ (financial technology) industry has acquired extensive experience in addressing Africa’s business needs, consumer needs, technology challenges and has continued broadening its boundaries, scales and improving peoples lives by providing and developing a broad range of innovative solutions and services.

On the other hand, banks with their restrictive approach when it comes to on-boarding customers, have generally failed to understand or establish the change in their basic business model. I am very comfortable in saying that “banking is needed, not the banks and that Fintech is killing banks, not the banking.”

Banks need to accept change and become true Fintech partners. It’s time to come out of their 100-year sleeping mindset and blindfolded approach to customer banking needs otherwise banking may well survive – but without the banks.

Banking Fintech

Mobile payments under the Fintech market will continue to grow exponentially. We are sure that all players will adopt the mobile device (to run internet/data based mobile apps) or actual mobile phone (to run on GSM/3G/4G network) as an official and convenient gateway for their financial requests and we will see unlimited options and innovative solutions built and based on mobile handsets.

Leveraging digital channels and operations will allow banks to also reduce the cost to serve the market, whilst acquiring new customers and increasing profitability, but bankers still think this is not enough and that they still need a compelling digital value proposition – one incorporating financial and non-financial needs that will help customers grow their businesses and satisfy their own needs.

Demand for upstart services is strong (piqued by widespread frustration with big banks) and supply is growing, fueled in part by financial types itching to do something new and different. Low interest rates have made capital, the raw material for startups, cheap and plentiful.

The Fintech industry has come to life and become one of the Most Promising Industries of 2015 and looks very confident to continue in the same light in 2016 and beyond. It was not a particularly interesting space to be in just three years ago. At that time, it was seen as a highly technical and highly regulated industry dominated by giant banks that resisted disruption, other than the occasional global meltdown.

The broader finance industry is now riding an entrepreneurial wave. Fintech started as ‘innovation in financial services’ first targeting the banking and insurance sectors as potential areas to disrupt. If you tried to open a new bank account you will be requested to deposit varying sums of money depending where you live, whilst with only few cents you can get your self a new SIM card and start transacting online immediately.

Fintech companies often face challenges from financial regulators along with tough competition from established players.  The online financial sector is also an increasing target of ‘distributed denial of service’ extortion attacks. This security challenge is also faced by historical banks that also offer Internet connected customer services.

Despite all the challenges, issues and bottlenecks Fintech is experiencing tremendous growth. Fintech startups are enabling services like peer-to-peer money transfer, instant payment for goods and services with help of mobile device based services like mobile apps, USSD, NFC, QR Codes etc. Lending services are also on the rise. And Fintech companies have received billions of dollars funding which is a very clear sign of confidence and a bright future.

They also present enormous opportunity for entrepreneurs in the insurance sector and shows that incumbents are recognizing the potential for startups. Despite being such a large industry, insurance remains one of the highest cost areas of financial services and presents a significant opportunity for disruption. With improvements in technology, we should see reduction in insurance overheads and, subsequently, premiums. Examples include automating policy administration, improving distribution via marketplaces, reducing underwriting risk using big data and machine learning.

Data security is another issue regulators are concerned about because of the threat of hacking as well as the need to protect sensitive consumer and corporate financial data. Any data breach, no matter how small, can ruin a Fintech company’s reputation. Even though Fintech may be transforming through technology it is often marketing that plays a significant role and it is here that Fintech companies are often outspent by their larger, older rivals.

Banks also have to follow compliance regulation whereas some of the new Fintech players are able to skirt around it. It is a very similar situation to that being experienced by telcos and the new over-the-top digital service providers. Both are having to learn how to adapt to the disruption or introduce their own innovative startups to compete more evenly.

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Vinod Sharma

About the Author

About the Author: Vinod has worked in the mobile payments, mobile financial services (MFS) & telecom industry across domains like Network, Prepaid charging & Billing, IT and Value added services for over 15 years, Vinod has provided his insights and product knowledge to various initiatives across four continents. He currently holds senior roles in MNO in the IT, BSS and Mobile financial services space. In past he helped the founding and set-up of several start-up business units. He is currently based in Harare, Zimbabwe. There is only one goal: create value for society & industry by innovating and building mutually beneficial products, businesses and world. .

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  1. Sheetal says:

    Banking is Needed

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