Financial technology, or fintech as it is commonly known, is rapidly making more headlines as financial institutions start embracing 4IR. Finance leaders say it is the first time we are starting to see innovation moving so quickly in this space since the global recession between 2007 and 2008.
While many are concerned about risks related to job losses, cybersecurity, money laundering and the disruption of established technology and markets across the globe, in South Africa so far, we have taken a more cautionary approach, and innovation has been slow. Not only are we lagging behind global players, we are also not on the same level as some countries on the continent such as Rwanda and Kenya. It is also difficult for the government and companies to punt modernisation, when just recently two banks announced mass retrenchments to streamline their services.
But as analysts and the WEF have reiterated, South African companies and its citizens need to come to grips with 4IR and use technological innovations, including fintech, to benefit all in the country, while ensuring it does not impact negatively on profit margins.
According to SA Reserve Bank Governor Lesetja Kganyago the attraction of fintech lies in its potential to challenge how and by whom financial services are delivered, resulting in the reimagining of financial services and the questioning of the status quo. He says the mantra of fintech is “cheaper, faster, better, simpler, easier-to-access, and on-demand services delivered through a combination of mobile and online platforms”.
The modernisation of fintech will impact on all South Africans eventually, whether it is on the way we bank, pay insurance, choose medical aids, get access to credit and what currencies we use to buy products. In South Africa though, we are very far from tapping into the township and informal economy, which leaves millions of people behind and they do not benefit from the technological revolution in the finance sector.
The Reserve Bank established a fintech programme last year to assess the emergence of technological innovations in the sector and consider their regulatory implications.
According to the Centre of Excellence in Finance Services report titled: The impact of the 4th industrial revolution on the South African financial services market, the country’s financial sector consistently ranks amongst the most robust and sophisticated in the world.
“With a high proportion of the adult population formally banked and
rising adoption of smartphones across the market, the potential for digital disruption is significant. Encouraging digital innovation through fintech is important because of the significant benefits it can bring. Fintech has the potential to increase access to financial services through digital channels and the use of alternative scoring models,” the report reads.
“The use of digital infrastructure lowers barriers to entry and can introduce competition to the market, reducing the cost of financial services. Technology has the capacity to improve the customer experience by offering continuous and convenient services with fast execution and highly personalised service offerings.”
Ultimately these benefits lead to broader social objectives as a wider selection of financial products and services cater to broader segments of the market, including people on lower-income brackets, and SMEs as their access to finance improves.
The centre says South Africa’s fintech industry is small but growing. Local start-ups dominate the African Fintech Top 100 Awards and a handful have been recognised internationally.
But this growth is being hampered by many of factors. South Africa’s funding does not favour high-risk start-ups and there is a general shortage of entrepreneurial skills. The necessary skills for the development of sophisticated financial technologies are also in short supply.
South African fintechs are competing in a highly banked market with sophisticated banking infrastructure. But the population scores poorly on financial literacy rates and income inequality. This means that most lack the resources to take advantage of more complex financial services products or solutions that are available using smartphones and more advanced digital devices that require more data to run.
For this reason, the sector has not been as disruptive to the structure of the financial market as we have seen in other countries. The bulk of innovation has been concentrated in the payments space.
As the country heads towards its first Digital Economy Summit, participants at the Financial Sector Workshop started thrashing out what we need to do to catch up with other countries and even leapfrog where possible.