Judging by the progress they made last year, 2019 will see the rise of digital banks in SA, according to fintech industry players.
With the launch of Bank Zero, TYME and Discovery Bank, the retail banking industry is set for a shake-up, says Dominique Collett, senior investment executive at Rand Merchant Investments and head of AlphaCode.
"This offers many fintechs the opportunity to either partner with these new disruptors to help them with their new customer value proposition, or work with incumbent banks to improve their digital offering to compete with the new entrants," says Collett.
Co-founded by former FNB CEO, Michael Jordaan, and banking innovator, Yatin Narsai, Bank Zero launched last year and is described as "a unique and fresh approach to banking without any legacy systems", and is expected to offer added control and transparency, as well as a fresh take on banking.
Tyme Bank, which bills itself as SA's first digital-only bank, wholly owned by billionaire Patrice Motsepe's African Rainbow Capital, launched to the South African public in the second week of November.
During the same month, insurer Discovery also unveiled what it describes as the "world's first behavioural bank", a fully digital bank that anyone with a smartphone can join from March 2019.
The SME sector is another area that Collett believes the fintech industry will drive this year. "With the increased focus on the importance of SMEs in South Africa and the role they play in reviving our economy, there are many interesting, exciting products and solutions fintechs can bring to this sector. For example, Nisa Finance and InvoiceWorx have innovative finance offerings for SMEs," she says.
Insurtech will be yet another exciting space, Collett adds. "We are seeing more and more interesting companies enter this space, revitalising what was previously a fairly staid industry."
Again, she notes, many fintechs can look to work with the incumbent insurers to help them digitise their offerings and compete.
For fintechs to blossom this year, Collett believes partnerships with the incumbents will be key. "I'm a big believer in the fintech-incumbent partnership model.
"While it is recognised that fintechs find it difficult to work with large banks and insurers, I think it is becoming a bit easier, as these large organisations are more aware of the value fintechs bring and have an increased desire to partner with them."
She points out that combining the innovative thinking and cutting-edge technology of many of these fintechs with the large, established customer bases and distribution networks of the incumbents produces a powerful customer value proposition.
"We have seen successful partnerships over the last year; for example, Merchant Capital partnering with Standard Bank on their SME financing product. We've also seen incumbent insurers back the insurtech upstarts like Indie, Naked and Pineapple."
For Anton Gaylard, COO of fintech holding company Crossfin, after a multi-year period of constrained economic growth and difficult trading conditions, the business environment seems to have turned a corner and business confidence is on the up.
He points out the growing confidence in new technologies such as artificial intelligence (AI) will drive the adoption of chatbots, which ease the process of customer interaction with financial services companies.
He urges fintech companies to focus on solving specific identified everyday pain points that are not effectively being addressed with existing products in the market.
"I believe that fintech companies that work with and support traditional established businesses, and help them reinvent themselves, are best placed for growth in 2019. Fintech companies that explore relevant strategic partnerships will also do well.
"I think we will also see fintech companies partnering with trusted brands that have large, loyal customer bases outside of financial services to create exciting opportunities to create new forms of value," says Gaylard.
Clive Butkow, founder and CEO of Kalon Venture Partners, says with the increase in available capital from both angel and institutional investors, if correctly put to work, the capital should help grow and scale many of these fintechs this year.
He points out that with the SME sector projected to become the main driver of employment and economic growth in SA and the rest of the continent, we should expect local investors to follow the lead of their international peers and put serious focus on fintech solutions servicing this sector.
"I believe fintech companies that help solve issues around fraud and KYC (know your customer) will feature prominently, especially in South Africa, which has the continent's most advanced financial system but has very high banking fraud statistics."
There are also numerous opportunities across other fintech areas, including wealth advisors (robo advisors), payments, lending, remittances, AI, and big data, etc, says Butkow.
"I don't believe fintechs should be taking on established financial services companies and David beating Goliath. I believe, rather, that partnerships between corporates and fintechs will prevail," he notes.
"The initial thinking was that fintechs would destroy the banks and other financial services companies. This hasn't happened. In fact, we are seeing a rise in partnerships between fintechs and financial institutions."
According to Butkow, one aspect that drove this was the dramatic increase in banks' investments and partnerships into fintech. There is the recognition that fintech businesses require a lot of money to scale, and it takes time to build a brand that customers trust, he adds.
"In South Africa, we are seeing a lot more interest from banks and insurers to work with fintechs. A few years ago, the incumbents were more interested in building solutions themselves, but now they are opening their platforms to see how they can work together with fintechs.
"Banks are realising that they need to do more to keep customers happy, something that fintechs are good at. In addition, fintechs are maturing and figuring out how to work with corporates," he concludes.