From education to agriculture, health service and more, recent years have seen technology disrupt traditional practices in almost every sector. Tech startups keep springing up, providing solutions to unique problems and making processes a lot easier and faster.
Among these sectors, the Financial Service sector has grown to be one of the most popular for technology innovations. Globally, all eyes are now fixed on the sector, and the changes that are set to occur in the nearest future.
Financial Technology, popularly known as FinTech has become like a buzzword. Across Africa, more and more FinTech companies are innovating, putting the continent on the global landscape. These companies leverage technology to provide innovative financial service, including payment, lending, savings, financial advice and financial infrastructure, resulting in greater efficiency, better service and lower costs.
In the words of Philippe Gelis, CEO of Kantox, “Fintech is changing the finance sector just like the Internet changed the written press and the music industries.”
The words of Gelis aptly describe the rate at which FinTech has grown in the last few years, changing the traditional financial service sector we used to know, and impacting how increasing numbers of individuals and businesses alike conduct their financial transactions.
FinTech in Africa
According to Disrupt Africa’s Finnovating for Africa Report, the continent began to witness a boom in FinTech startups in 2015, and is currently home to over 300 startups. The bulk of these startups are in Southern Africa and West Africa, as they lead the FinTech space with 34.2 per cent and 34 per cent respectively. By country, South Africa, Nigeria and Kenya remain at the forefront of startup activity in the FinTech sector.
From banking to international money transfers, business and personal loans to personal investment, and much more, all of these FinTech startups are changing finance in virtually all its numerous offshoots and subsectors. The Finnovating for Africa Report revealed that payments and remittances has grown to be the most popular subsector in Africa’s FinTech space, followed by lending and financing.
Innovations and Investments
In the top 3 countries driving FinTech in Africa, companies worthy of mention include Nigeria’s PAGA and Paystack. Both companies offer payment solutions, with Paga focusing on mobile payments and Paystack geared towards SME’s, allowing its customers to securely accept payments.
Yoco and Zoona are based in South Africa, leading the country’s growing FinTech space. While Yoco is aimed at delivering smart technology that is able to accept payments, and using this payments data to offer insights and automation to SMEs, Zoona is aimed at financial inclusion and providing funding for low-income communities across South Africa.
Kenya’s M-Pesa can be said to have birthed the FinTech industry in Africa and pioneered the adoption of digital payments across the world. The mobile money platform was launched by Safaricom – Kenya’s largest telecoms company – in 2007. It enabled millions of Kenyans to send and receive money easily via their mobile phones, garnering two million customers in just two years. Today, the platform has over 25 million customers across 10 markets in Africa, Asia, and Europe.
The increasing innovations going on in the African FinTech space has continued to make the fledgling industry attractive to investors. In a report by Disrupt Africa, FinTech was the most popular destination for funding in the tech sector after solar in 2015. As of June 2017, the continent’s FinTech startups had secured over US$92.5 million in investment since 2015. By August 2017, this figure went beyond $100 million, with Nigeria’s Flutterwave, raising $10 million in its Series A round, one of the largest Series A rounds by an African startup.
Threat or Opportunity?
Since the existence of FinTech, the banking industry has felt the most threatened, compared to other sub sectors in the Financial Service industry
FinTech startups are redefining the industry’s perception of what it takes to be called a bank. They not only offer bank-like services, including receiving financial transactions and making loans, they also innovate faster and are able to rapidly grow their customer base.
Recognizing that the growing FinTech space comes with a lot of threats, the banks have begun to move with the times.
In the PwC Nigeria FinTech report 2017, key players in Nigeria’s traditional financial sector revealed some of the threats and opportunities of Fintech startups. For Jumoke Ogundare, CEO and Director of Asset & Resource Management Company Ltd (ARM), “Market share and talent are two major risks that the emergence of FinTech poses to us. We see opportunities in the form of collaborations or acquisitions with the aim of being able to leverage their efficiencies.”
On the part of Deji Oguntonade, Head, e-Paymemt Solutions Group, Guaranty Trust Bank Plc, “FinTechs are gradually eroding the transactional business of Banks from the Payment and Loans perspective. While the impact may be insignificant today, it is definitely an irritant that needs to be addressed quickly. It would therefore good for Banks to partner with FinTechs and take advantage of their agility.”
The Future of FinTech
FinTech has become the next big thing in Africa, and in the next few years, would take over the financial service sector that we used to know.
While banks and other financial service providers may feel threatened, the presence of FinTech would most likely improve traditional financial service, rather than phase it out. This means the financial service sector has a chance to grow alongside FinTechs, but it can only be achieved when they collaborate with FinTech companies and take advantage of the numerous opportunities it presents, to improve their traditional offerings.
Companies hoping to flourish should also fully leverage the potential of FinTech by having a top-down approach, embracing new technologies in every aspect of their businesses, shifting their thinking to better meet customer needs, constantly track technological developments and integrating digitisation into their corporate DNA.