As the normal pace of business resumes in a new year, SA’s largest banking group — Standard Bank — has sounded the alarm that traditional financial services firms risk losing their place in the market to competition from fast-growing financial technology (fintech) players that are working to offer services at faster and cheaper rates, mainly to the unbanked.
“As digitalisation drives the convergence of industries across the globe, traditional financial services groups are contending with a range of new competitors,” says Margaret Nienaber, CEO for client solutions at Standard Bank Group.
“The implications could be dire for financial services organisations that are unwilling to adapt their strategies in these changing times.”
In recent years, fintech companies, making it easier to send and receive money both locally and internationally — among a growing list of products and services — are in an all-out race to increase financial inclusion for the many unbanked people in Africa, resulting in the sector booming across the continent.
All this has culminated in start-ups like Nigeria’s Flutterwave, reaching an estimated valuation of $3bn by the end of 2021, just five years after its founding.
Much credit has to be given to mobile operators such as Vodacom, MTN, Safaricom and Airtel, whose large user bases have allowed mobile payments to spread quickly, from niche offerings to being the main medium of exchange in some countries. Falling voice revenues and shrinking margins in mobile data services are a huge incentive to grow these new lines of business.
In the past decade many of those people who had been left out of the formal banking system now have access to a digital store of wealth that has started to give them many of the benefits of banking.
With mobile payments now established, the next frontier for network providers is insurance.
Both Vodacom and MTN, which operate two of the continent’s largest fintech businesses with about 110-million users between them, have struck deals and are pouring in money to grow this next piece of the fintech pie.
In August, Sanlam and MTN formed a $100m joint venture to roll out insurance and savings products to the continent’s rapidly expanding consumer market. At the same time, Vodacom recently saw interim revenue from insurance increase 11.8%, supported by growth in policies which were up almost 7% to 2.1-million.
For both operators, insurance adds another element to a growing suite of financial services offered through their mobile super apps. Vodacom recently launched VodaPay in partnership with Jack Ma’s Alipay, while MTN recently reported that its Ayoba platform had just crossed 10-million users.
These super apps and platforms are the biggest indicator of the collision course between mobile operators and banks, which are also using the same strategy to offer their clients a range of services in one place.
Nienaber says in the financial services sector in particular “platform business models are increasingly shaping how financial products are distributed, how clients are served, and how underlying financial infrastructures are scaled”.
FNB — which has developed a reputation over the years as a digitally focused bank — has effectively positioned its online banking platform as a super app. It recently launched an e-commerce service through the platform, allowing people to buy and sell products and services, all with the convenience of making payments through its system.
Nedbank has a similar offering, akin to WeChat in China, while Standard Bank recently launched OneHub, a one-stop shop for corporate customers to access digital tools and services.
The stakes are high for the success of these platforms on both sides of the spectrum. Mobile operators have the advantage of large customer bases on their side, while banks likely have greater support from regulators, an important factor in the battle.
While competition continues to heat up between the two sectors, in another corner of the market, demand for faster and cheaper cross border remittances has fuelled the growth of companies such as Chipper Cash.
Chipper, which has more than 4-million users globally and processes 80,000 transactions a day in Ghana, Kenya, Rwanda, Tanzania, Uganda and Nigeria, recently began operating in SA. It specialises in helping people to send and receive money across Africa at no fee, and has received backing from Amazon founder Jeff Bezos’s venture capital fund.
Market research firm CB Insights estimates Chipper Cash is now worth $2bn.
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