Written by Jean-Paul Mergeai – President of APAC and EMEA, Temenos
There is a radical transformation taking place in financial services and a rapid rise in digital banking – a worldwide trend only accelerated by COVID-19. Yet according to a McKinsey study released in September last year, the European fintech sector faces an “existential crisis”.
It is fair to say that European fintech had a tough 2020. Recent results have demonstrated – like many had suspected – that fintechs are struggling to monetize their scale to turn a profit. Now COVID-19 has slowed ventured capital funding and is exposing business model vulnerabilities. Dealroom figures shows that investment into the sector dropped by 30 per cent in the first half of 2020. That is compared to 10 per cent globally. Fintechs also find themselves exempt from Government loan bailout schemes due to their pre-profit status.
To survive, fintechs must ensure a path to profitability and create long-term sustainable business models. They could learn a lesson or two from an unlikely source – Africa. And as the world’s second largest continent by population which is projected to reach 2 billion by 2050, fintechs have capitalised on this huge financial opportunity in a continent where still only one in five people have a bank account.
Of course, the European and African markets are completely different in myriad, largely obvious ways. But what connects them is true of any business in any location: the importance of identifying customer needs and innovating to solve them.
Nowhere is this spirit of customer focus and innovation more evident. The African banking industry has demonstrated a visionary approach to retail banking. So much so that in an Economist Intelligence Report for Temenos, 60 percent of African banking executives agreed that cash will drop below 5 per cent of retail transactions by 2024 – a staggering statistic demonstrating the rapid rate of innovation in the sector.
The African fintech market has spawned creative technological solutions that are helping millions. Through placing the needs of the customer at the heart of their offering, many fintechs in the region are succeeding and most importantly, doing so whilst turning a profit.
First, the fintech industry in Africa has focused its efforts on building products that everyone, not just the city-dwelling millennials can use. With 80 percent of Africans without access to a bank account, fintechs have come to the rescue.
Digital banks in the region have spurred on what is known as the telecoms banking revolution. Through partnerships with mobile telecoms companies, digital banks have provided access to micro-finance for millions of people. What we have witnessed is an explosion in access to financial services.
Take M-Pesa in Kenya as an example. Africa’s leading mobile money service kick-started the movement in 2007 and has utilised the customer reach of the Vodafone group to provide mobile financial services to over 60 million customers currently through their mobile phones.
The affordability of smartphones is of course a key driver in the new development of building mobile-only banks but technological solutions have also been adopted to enable those without smartphones to access financial services. For instance, Barko Financial Services caters to customers relying on cellular phones by establishing an SMS system, which can provide lending to customers after just three or four text messages. The significance of this innovation, in a part of the world where just years ago a farmer would have to walk many miles to access their local bank branch, cannot be overstated. It has democratised banking services making them accessible to all.
Fintechs in Africa are devoted to solving societal problems. Using technology, they have provided customers with the services they require. Their target market is not the young white-collar workers in the city, but those who are struggling to access the services they require to live a dignified life. Orange Bank Africa, for example, runs natively in the cloud using Software-as-a-Service (SaaS) to meet the surge in digital banking adoption on the continent and provide innovative digital banking services in West Africa.
Secondly, African fintechs are leading the world in focusing on the broader lifestyle needs of their customers rather than limiting themselves too narrowly to banking services. The extension of banking into lifestyle businesses and the emergence of cross-selling various products from the outset has opened significant revenue streams. Whilst European fintechs have had to be reliant on funding rounds due to their narrow focus on current account banking, African fintechs are focusing on the money-making features first.
Vodacom’s plans to roll out a “super app” is just one of many examples. Being released in South Africa, the app bundles messaging, digital banking, digital media content and e-commerce into one tidy package. The app will allow customers to do everything from pay for a morning coffee, listen to podcasts, send money to their entire family, pay utility bills or shop online in one transaction. All from one mobile app. It will provide a marketplace of goods and services tailored to each customer’s own needs which is updated in real time. It also assists businesses – providing medium-sized enterprises access to lending, insurance, and advertising services all within the app.
This broader focus allows the collection of financial and customer data, which can drive a better experience for customers. Fintechs in the region are now microtargeting customers with hyper-personalized digital banking and lifestyle experiences.
The innovative mindset amongst the fintech community in Africa is remarkable. The industry is driven by the needs of their customers. Through innovative technological solutions, they have transformed the financial wellbeing of millions. European fintechs would be wise to take a leaf out of their book: put the customer at the centre of your offering.
Source: Global Banking & Finance Review