Telecoms could plausibly use fintech to get into the banking sector. However, the biggest challenges they face will be in obtaining banking licences, existing competition and monopolies, and being able to comply with the regulations associated with having a banking licence.
This is according to Mark Walker, associate vice president for Sub-Saharan Africa at global market research group International Data Corporation (IDC).
Walker says South Africans will see a number of areas in the financial services sector impacted by technology in 2017 and telecommunications players entering the banking arena is definitely one of the highlights. "These companies will make forays into the banking environment on a partnership or shared-risk type model. They will partner with the smaller, already licensed financial institutions, and will then introduce fintech using technology."
A 2014 report by Accenture titled, The Future of Fintech and Banking: Digitally disrupted or reimagined? stated that global investment in fintech ventures tripled to $12.21 billion in 2014, clearly signifying that the digital revolution has arrived in the financial services sector.
According to Walker, telecommunications providers are looking for ways to increase their market share and profitability, and this approach creates an opportunity for them to do so. "Both banks and telecommunications companies are under pressure from a growth and performance perspective and they both have access to customer data that they can utilise to offer new and innovative products and services. That said, it's very much a wait and see scenario at this stage."
Despite the expected slow uptake of this digital disruption in South Africa, international markets have seen an increase in bank licences being issued to non-traditional banks. According to the Bank of England, there has been an influx of licence issuing since the UK's financial regulators relaxed rules for new entrants in 2013.
Companies such as Monzo, which has positioned itself as a "mobile first" bank offers a current account with a contactless debit card and a mobile banking app. The mobile app's standout features are intelligent notifications, instant balance updates and financial management. It has partnered with Thames Card Technology for debit card production and personalisation. Monzo was granted a restricted banking licence by the Prudential Regulation Authority and the Financial Conduct Authority late last year.
Similarly, the upstart Loot, which is not a bank, offers a mobile interface linked to a pre-paid debit card that will help customers manage their money and offer the same services as any other current account. The card is linked to a money management app that lets people track their spending and gives them insight into where their money is going. Loot uses GPS for processing and Wirecard for issuing.
"We do foresee deliver a couple of innovations in fintech this year, with innovative companies applying technology to create ways to do banking in a virtual environment," says Walker, concluding that in South Africa the regulator environment must catch up before it becomes mainstream.
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