The future of fintech
In the last decade, Africa has blazed a trail in its adoption of financial technology (fintech), as it has provided ways to reach previously unserved populations and leapfrog generations of infrastructure. In the US, you might be able to pay with a chip and PIN if you’re lucky. In South Africa, you can open an account with a selfie. Are we world leaders in fintech? If so, where is innovation in the sector going next? Brainstorm convened a roundtable of experts to find out.
“I’ve just got back from a trip to Nigeria,” says Ian Jansen van Rensburg, lead technologist and senior systems engineer manager for VMware EMEA. “They used to have 80-odd banks, and they’ve consolidated down to less than 30. The biggest thing on the CIO’s mind there is to protect customer trust and brand; that’s what’s important to them. They want to innovate, they want to be digital and go beyond bricks and mortar on the ground. They’re looking at digital kiosks, similar to ATMs, but with more features. There’s a lot of innovation going on.”
“We’ve had to innovate out of necessity,” adds Pheello Maboea, digital development specialist at Franc. “We’ve had such bad existing infrastructure that it’s been unfeasible to get people into branches. The problem is that when you look inside how banks are functioning, there’s a lot of sticky tape holding things together.”
It hasn’t been easy for banks, says Solid Systems Global chief executive for Africa operations, Andre Hartley. They lack the agility to compete with young fintech companies, although they remain the most trusted institutions by customers. Innovation is being held up by regulations, especially those that hold up payments between reserve banks.
“The keys to the kingdom will be held by those companies that can do real-time gross settlement in the mobile space,” Hartley says, “like M-PESA in East Africa.”
There was, however, much praise for the forward-thinking mindset of the South African banking regulator.
“The office has been particularly impressive in fintech,” says Old Mutual CISO Tags Moodley. “It’s been creating sandboxes for businesses to operate in, collaborating internationally and really helping local companies. It’s been very accepting of trends in fintech and promoting innovation.”
Microsoft’s Financial Services and Insurance Industry lead Gordon Barnes agrees.
“We've been very impressed by their propensity to cooperate and seek guidance and listen on how things are moving,” Barnes adds. “And the office is becoming a hub for other African regulators to help promote acceleration of best practices.”
Discussion of international regulators brought the focus of the conversation to Europe, where the new Payment Services Directive (PSD2) comes into force this September. PSD2’s primary aims are to help protect customers in the digital age through better security features, and to promote innovation through initiatives such as open API banking, allowing third parties to directly access a customer’s banking data on demand, so that they can build new services on top of it.
There was some scepticism about whether or not this is the path to further innovation in African markets.
“Many banks in Europe will not meet the deadline around PSD2,” says Brian Richardson, founder and CEO of mobile banking provider Wizzit. “Even if they do, it doesn’t necessarily reflect the needs of the market.
“Banks are great at assuming the needs of the mass market are the same as the needs of the top end, that it’s a one-size-fits-all, whether you’re a farm labourer or a pensioner, and that’s not true in 2019,” Richardson says. The fact that so many in Africa are unbanked is a disgrace, he points out, and the development of smartphone apps and digital banks isn’t helping people to take part in the digital economy.
“You can’t pay for Netflix with cash,” he says. “When an app-only bank launches, it shows you which sector they are going for. There’s no interest in the sector with the most potential.”
Solid Systems Global’s Hartley agrees. “Mobile networks are focussing on 4G or 5G and not on USSD, which is still a primary function at the grass roots level. Right now, everyone has two or three phones, but they can’t real-time, gross settle, even between those SIMs.”
The security challenge
“The reality is that as we become more digital, criminals see opportunity. It’s a $1.5 trillion industry,” Richardson says. “No bank can admit it, because it would fundamentally destroy trust. The complexity is that security has to be frictionless and it has to be seamless. I’m not going to give blood samples and DNA to do a simple transaction.”
This, he continues, is also part of the ‘one size fits all problem’. Security solutions designed for high-end smartphones don’t work on SMS – but there are opportunities to provide safe, secure solutions using emerging technologies such as chatbots, which could provide safe, secure access.
When you look inside how banks are functioning, there’s a lot of sticky tape holding things together.Pheello Maboea, Franc
“Security is always a concern and it has to be addressed,” adds Felix Antonyasamy, business development head at WiPro. “However, the issues are the same as the ones around onboarding customers, it’s all inter-related. Current ‘Know Your Customer’ processes aren’t designed to suit 70% of people in the market. There needs to be more innovation using things like GPS location to stimulate financial conclusion.”
Nothing is ever 100% secure, Old Mutual’s Moodley points out, but there needs to be more attention paid to core information security too.
“You need to be deliberate about doing things that reduce the likelihood of attacks happening,” he says. “And you have to be exceptional at response. You have to be in a position to detect incidents very quickly and respond before they become serious.”
One of the key challenges around security is skills, says Black Beard Technology’s Josh Zuckerman.
“Even the large institutions are struggling with skills,” he says, adding that it's not just the technical skills, but management of security. “One large bank we work with last updated their security policy in 2014. We're doing a lot of education with banks around how we want them to secure data, and improving the security officer's knowledge around that.”
That ethos doesn't just apply to security, adds Khonology co-founder Musa Nyamande. “We see this as well, but the data quality in South African institutions is also behind the rest of the world,” he says. “And you have to get that right so that you can do AI and all the other cool stuff that’s important.”
Solving the two is also linked, Nyamande says, as enforcing FICA rules should improve the quality of data relating to customers.
“Compliance with FICA should help banking inclusion happen at a more rapid pace.”
“Data is your biggest asset if you leverage it in the right way,” says Old Mutual's Moodley. “But the first question you should ask is, 'do you know where your data is?'”
Banks are great at assuming the needs of the mass market are the same as the needs of the top end, that it’s a one-size-fits-all, whether you’re a farm labourer or a pensioner, and that’s not true in 2019.Brian Richardson, Wizzit
Even with the data in place, he continues, one of the biggest barriers to innovation is culture. He says: “You have to have organisational change management. We shouldn't still be saying that we're in the age of 'digital', that's like saying we're in the age of electricity. We have to shift the culture and behaviours to catch up.”
To really understand a customer's needs, new data-driven services have to be more than old-fashioned up-selling, Moodley says.
This, adds Drushen Naidoo, Industry Value Senior advisor, Financials Service Industry at SAP, is one of the fundamental reasons that customers and banks often have a very different idea of the levels of innovation being delivered.
“Between the perceptions of customers versus the perceptions of executives, there's a big disconnect,” he says. “Why does x bank say, 'we serve our customers best', and yet customers see things differently?”
When banks can bridge that perception gap and truly provide seemless, secure customer interaction, then – and only then – will the job of innovation be done.