Tech concoction to impact SA fintech firms in 2018
The latest emerging technologies are set to have a huge impact on SA's fledging fintech sector.
Local industry players believe technologies like blockchain, crypto-currencies, artificial intelligence (AI) and chatbots, among others, will play a bigger role as South African fintech companies look to disrupt traditional business models.
Fadzai Deda, best practices analyst at Frost & Sullivan, notes that in comparison to its African counterparts, SA is doing well in the fintech space, but is still growing and has not yet reached levels of maturity.
"While fintech is more accessible than it used to be, fintech penetration rates are relatively low," she says.
Among the technologies that will have a bearing on the sector, Deda says AI and machine learning will enable a personalised experience and analysis of behavioural patterns to identify anomalies and fraud attempts.
The other technologies she is tipping are open application programming interfaces for easy integration across the financial industry; mobile wallets to provide for financially underserved markets and those still using feature phones; as well as regulatory technology to ease customer on-boarding and regulatory compliance.
Peter Castleden, CEO of Sanlam-backed fintech start-up Indie, says SA's fintech sector was limited to adding small contextual conveniences to cumbersome services, like peer-to-peer payments within banking apps, and only catering to the top end of the financially literate with personal financial management tools.
"Now we are reinventing foundational products that affect every South African. We are improving and, in some cases, removing expensive distribution models and using data to reduce risk, lower pricing and bring superior quality and value products to every South African."
According to Castleden, as technology improves, the ability to solve new or old problems increases. "It is tempting to look at new emerging technologies and then find problems to solve with them, but I don't believe this approach is correct. Rather aim to solve a particular problem first, and then look at the best technologies which will enable you to achieve this best."
Dominique Collett, a senior investment executive at Rand Merchant Investments and head of AlphaCode, says fintech continues to surprise with little to touch the rise of Bitcoin and crypto-currencies in 2017.
"This will continue in 2018 and I make some predictions based on what we see happening globally and what we see taking place with our members at AlphaCode, a Rand Merchant Investments club for fintech start-up entrepreneurs," she notes.
According to Collett, Bitcoin is starting to be taken seriously by Wall Street and Silicon Valley. "We are also starting to see the large asset managers saying they believe their clients should be exposed to Bitcoin and are looking to structure Bitcoin funds. Serious institutional money is starting to consider Bitcoin, and it can't be ignored."
However, she points out that for Bitcoin to be used as a payment mechanism or remittance, people first need to be aware of it.
"That is what 2017 accomplished. This year, we expect to see more pilots and experiments opening onto the Bitcoin rails to see whether customers are open to using Bitcoin as a day-to-day payment mechanism. I believe that while the volatility will continue, in 2018 Bitcoin could begin to emerge as a payment system."
Collett also notes chatbots have been high profile overseas in the last year. She explains that a number of banks and insurers have tried to build their own chatbots but are now looking to partner with fintech firms as this allows them to radically cut costs without impacting customer experience. In addition, chatbot intelligence is advancing quickly, which increases the appeal.
For Warren Hill, special operations lead at BANKEX, blockchain technology certainly is the major game changer moving forward in the fintech space.
"There are so many wonderful start-ups and new businesses in the space, it is truly fantastic," Hill points out.
"We are in the middle of a global shift. Not just in the fintech and economic space, but in the broader geopolitical and socio-economical realms as well. Blockchain technology is here to stay. Start making provisions to understand what is happening in the blockchain space."
Nonetheless, Hill points out that historically, trust has always been a major fintech issue as it is at the centre of all financial transactions.
"Outside of the more common challenges, trust still remains one of the main challenges more specifically relating to the amount of time it takes to show or execute the trust between parties of financial transactions. Blockchain technologies have changed this whole dynamic radically and we are in the midst of a financial evolution as a result of it."
ICT veteran Adrian Schofield is of the view that with all the technologies around, the challenge for the consumer is to identify which providers have substance and which do not.
"The controversy surrounding crypto-currencies illustrates this dilemma. Blockchain technology appears to offer opportunities for improved transaction processing but cannot create value in a mythical coin."