Africa's banks are running scared. On a continent where traditional banking has clearly failed - 80 percent of the population, around 330 million adults, don't use formal or semiformal banking services - new services are emerging that could yet render banks redundant.
...the market in Kenya has a thriving community of developers and startups, some of whom have leapfrogged the need for traditional infrastructure with mobile apps.Joyce-Ann Wainaina, Citibank East Africa
Banks have already had to cope with the success of mobile money, Africa's major technological success story. Mobile money transactions in Sub-Saharan Africa hit $656 million in 2014, and could more than double to $1.3 billion in the next four years. Yet African startups are further challenging the unsatisfactory status quo.
Banking executives are clearly aware of this situation. Derek White, chief digital officer of Barclays, admits that startups can execute up to ten times more efficiently than incumbents. David Lynch, MD at Hong Kong-based DBS Bank, goes further, saying banks have a choice: observe and lose their customers, or participate and turn the situation to their advantage.
A number of banks are choosing the latter course. African fintech startups joined the DBS Accelerator programme in Hong Kong, while Citibank ran a Mobile Challenge in Nairobi to identify exciting tech solutions. The biggest step was taken by Barclays, which ran its Tech Lab Africa accelerator programme in Cape Town and has partnered with three startups from the continent already.
The industry admits it needs to change, and working with innovative startups is the way to do that. "The banking industry is redefining itself more quickly now than in recent memory and we believe that we have the opportunity to embrace new ideas and create strong new partnerships around the world, including Africa," says Joyce-Ann Wainaina, CEO of Citibank East Africa. "For example, the market in Kenya has a thriving community of developers and startups, some of whom have leapfrogged the need for traditional infrastructure with mobile apps."
While the banking industry tries to avoid being left behind, there are also serious benefits for startups participating in programmes run by the likes of Citibank and Barclays. Rahul Jain, co-founder of South African mobile payments company Peach Payments, says banks have realised the worth of startups, but collaboration has positive results both ways.
"One of the big fundamental changes we've seen in past years is that businesses have realised there's more value to be created in collaboration than in competition," he says.
"Fintech startups are re-imagining the concept, delivery and consumption of financial services for individuals and businesses. We've seen that it's quite difficult for many large banks to take a radical break from their way of doing things and disrupt their own business. Partnering with fintech startups such as Peach Payments, they are able to offer these innovative solutions to their customers without the large upfront investments of developing the solution from scratch. At the same time, they can continue to focus on their core business and drive innovation there."
For the likes of Peach Payments, there are also benefits. The startup was one of the trio that partnered with Barclays for a proof of concept after Tech Lab Africa, with Jain and other entrepreneurs that took part in the programme saying the 'unprecedented access' to senior management at Barclays and the ability to work with them to create new products was vital.
The Barclays programme is relatively established, but new in Africa. The bank has been creating accelerators as part of its RISE open innovation platform, with the Cape Town chapter following previous launches in London, Manchester and New York. Another will follow next year in Tel Aviv.
Zachariah George, CEO of Cactus Advisors, which assisted in running the Barclays programme, says the process is intensive. Companies received access to industry expert presentations, one-on-one mentor sessions, office hours with subject matter experts and content workshops, and pitched their businesses each week.
"With regard to support to the ventures once the programme ended, the ten ventures were offered three months of free membership at the RISE Cape Town space. Apart from that, they're engaging with their Barclays mentors on an ongoing basis," George says.
Barclays has demonstrated its willingness to go beyond the programme outside of South Africa. From its other programmes, almost 30 startups have signed agreements with the bank. Three more did so in Cape Town. Even those that did not put in place formal partnerships were satisfied and have hope for the future.
Akinola Jones, co-founder of Nigerian fintech startup Aella Credit, says his company gained a lot of technology and strategy knowledge, and is now in talks with the Barclays Seeker Fund and also in talks regarding debt financing to service its lending needs.
"We see the bank taking a chance and using some of the market knowledge it has gathered to make a digital push into the Nigerian market in the near future," he says. "We definitely see Barclays as a long-term partner."
This article was first published in the [March 2016] edition of ITWeb Brainstorm magazine. To read more, go to the Brainstorm website.