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Banks need to brace for digital disruption

Mar 05 2017 06:00
Steve Kretzmann

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Johannesburg - Increasing digital innovation in the financial sector (fintech) will result in the same disruption to the banking sector that Uber has wrought on the taxi industry and Airbnb on the hospitality trade.

This is worrying for established banking institutions, but good news for their customers, as fintech development will provide cheaper, more efficient services which can be tailored to individual needs.

This glimpse into the future of financial services was presented by a number of speakers at the recent eCommerce MoneyAfrica Confex in Cape Town, backed up by numerous start-ups already affecting the sector.

READ: World has 5 years to earn, learn and care - WEF 

Rand Merchant Investment (RMI) Holdings believes this strongly enough to have established the tech innovation hub, Alphacode, in September 2015, in an effort to develop future fintech entrepreneurs and benefit from future shifts in the financial services industry, said Alphacode head and RMI Holdings senior investment executive Dominique Collet.

Merchant Capital, which provides upfront business loans paid off through an agreed percentage of each transaction rather than the traditional model of a fixed monthly payment, is one such shift towards customer-centred solutions, and one in which Alphacode holds a 25.1% equity stake.

“Banks have archaic systems and cannot evolve quickly enough. They want to get involved but are struggling to find a way to plug in efficiently and they’re highly regulated, yet customers are desperate for solutions,” said Paul Feenan, Africa director of Jumo, a tech company that facilitates financial access through mobile wallets.

The Cape Town-based company uses data from mobile transactions to create financial identities for SMMEs and match them up to banks offering the best services for their needs.

READ: Tech impact on future banking 

Feenan said 80% of their customers had never interacted with a bank before.

He said it was not enough for banks to continue to simply supply loan, insurance or credit products, but they needed to work on an individual level at which the customer could, for instance, choose the rate at which a loan would be paid back.

“This empowers the individual, gives them choices; it is not the traditional banking model,” said Feenan.

“The wave of tech gives customers transparency and makes processes more efficient. It strips out the noise … to provide clarity to customers,” said Collet. Innovation would also bridge the digital divide, she said, as lots of businesses were trying to provide mobile-based financial services to the low end of the market through SSB technology used by “dumb”, or feature, phones.

And, with the rising penetration of smartphones, together with the predicted lowering of data costs, fintech apps allow for financial education, as well as interaction and engagement, in the vernacular.

Additionally, with 80% of adults in sub-Saharan Africa having no access to formal financial services – according to a 2009 report by McKinsey & Company – “we’re looking at amazing market opportunities”, said Goodwell Investments partner Wim van der Beek.

The next decade would see mobile operators, banks and new entrants trying to grab that market, Van der Beek said.

“There will be a wider range of clients offering a wider range of services. We’ll be seeing new start-ups and big tech companies switching on a little button to transfer money – on WhatsApp, WeChat and so on.”

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He said the Dutch-based, Africa-focused investment company had researched tech start-ups in Africa and found 2 000 active start-ups, 500 of which were in fintech, particularly on e-commerce and lending.

Home to mobile money operators such as M-Pesa, which originated in Kenya and was celebrating a decade of operation, Africa was driving the fintech market, and was “a good decade” ahead of the US, said Startupbootcamp partner Philip Kiracofe.

“The opportunity in Africa dwarfs anything I’ve seen in the US,” said Kiracofe, who cut his teeth in the Silicon Valley dotcom bubble of the 1990s, adding that Startupbootcamp Cape Town had just received 700 fintech start-up applications in their latest call for submissions.

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