Hilda Moraa is the founder and CEO of Kenyan lending startup Pezesha. Ninety percent of her customers have never had a credit history.
Not a problem.
“We can build that using financial data. We can leverage off digital payment platforms to build alternative models,” Moraa said.
Fintech Innovation has the potential to solve a host of problems across the African continent when it comes to access to financial services, but more can be done to ensure its impact is as big as it can be.
This was the general consensus of panelists at last week’s Finnovation Africa conference in Nairobi, Kenya, which brought together stakeholders from across the financial services space.
All agreed that the potential for fintech in Africa was huge given the problems that needed to be solved on the continent.
“A lot of investment is going towards agri-tech, ed-tech and fintech. That’s where the money is going, because there is potential. In fintech that is the unbanked masses of Africa. The majority still don’t have that level of access, so I don’t see the fintech thing going away. I don’t think there is a bubble, there is still unfulfilled potential,” said Ryno Rijnsburger, CTO of Microsoft 4Afrika.
“Where the potential is for me is the ability for African countries to share best practices that makes the continent a force to be reckoned with. Things are happening in the major tech space. Microsoft now has an engineering centre in Kenya. We see the potential.”
For this potential to be realised, however, traditional financial institutions need to partner with innovative fintech startups for the benefit of both, as well as the end user. Tom Kahigu, head of IT at DIB Bank Kenya, said this collaboration was on course.
“This is important for banks to serve their customers better because fintechs are more agile and more focused,” he said. “If a bank is going to be able to scale in the future it needs to develop these interactions with external parties.”
However, Christine Wanjiru, general manager of Upesi Money Transfer, said the scope of bank-fintech partnerships needed to be extended.
“We operate through partnerships, through integrations. This has more or less worked but some institutions are not so big in terms of how much data exposure they want to offer,” she said.
“If we all have the sense that we are sharing customers, and we can work together in terms of shared liabilities, then shared data should not be so limited and we can allow customers to have one wallet that can do everything. We integrate all these services into one, and we all win.”
Kahigu called for the development of a regulatory framework for the overall benefit of the sector.
“We need to develop a framework where we can have proper structure, a regulatory sandbox that brings in academia, regulators, startups, VCs, professional services, data service providers… all those parties,” he said.
One area that has seen particular development over the last few years is payments, with fintech solutions making it easier and cheaper for Africans to send and receive money than ever before. Sunny Walia, general manager for East Africa at Visa, said mobile had been crucial to this.
“The phone enables you to do things you cannot do with a card. A card is dumb until it is in the vicinity of a point-of-sale system. But the phone, with its computing power coupled with things like AI, big data, VR, becomes what the card can do plus a lot more,” he said.
“You can also integrate with fintechs in a much more innovative way.”
The impact of this will only become greater as time goes on.
“The phone has revolutionised payments, but with 4G and 5G coming online, data costs coming down, phone prices coming down, what that will do is generate a world of apps. That will change the way you sell and deliver services, and that’s what is coming in Africa,” said Walia.
Now that the payments space has become more developed, there is room to build in other financial services on top of these tech solutions, most notably loans and credit.
“Fintech is being leveraged in loan products for low-income populations through the use of data. Without data it would not be possible. Data gives us the capacity to be predictive and make better loan decisions,” said Agata Szydlowska, senior business development manager at Creditinfo.
“There is no excuse these days because these decision-making engines are quite easily available. It is all about open systems and easy integrations. More MFIs (Monetary Financial Institutions) are jumping on board.”
Hilda Moraa, founder and CEO of Kenyan lending startup Pezesha, said M-Pesa provided the infrastructure that allowed fintechs to do other things.
“We want to digitize existing behaviours,” she said, pointing to China, where a large number of peer-to-peer services were doing just that.
“We have a lot of catching up to do in Kenya. The data that comes from those platforms allows you to do a lot of interesting things such as credit scoring. Ninety percent of our customers have never had a credit history. We can build that using financial data and alternative data. We can leverage off digital payment platforms to build alternative models,” she said.
Leveraging existing behaviours and platforms people already use to roll out financial services was also key to Segun Adeyemi, co-founder and CEO of Nigerian payments company Amplify. He said the success of services like M-Pesa was based on the fact it leveraged on something people were already using, like unstructured supplementary service data (USSD), a platform for people to send text between a mobile phone and an application program in the network.
“These types of payments are getting very popular in Nigeria as well. This is because there is a context, people are used to this technology,” Adeyemi said.
“Any channel that allows people to leverage on existing platforms they are already using tends to see adoption. That is a progression that happens naturally. That is what is driving a lot of payments innovation.”
Understanding the customer was a key point emphasized by Russell Akuom, head of digital banking experience at Co-operative Bank of Kenya.
“We want to be there and offer our services to them. We realise that there are some things that we are missing, and we are seeking collaboration,” he said.
“We are introducing human-centered design, so we are co-creating with the customer. We are no longer sitting in a boardroom and predicting what people want. We are seeing what pain points they are having and handling them within our processes. We are also trying to become more agile and do short deployments on a more regular basis.”
This will serve to ensure fintech innovation has the desired impact, said Grace Njoroge of KPMG East Africa.
“The developments in the fintech sector are meaning that low-income customers have access to financial services. With the developments that we have now, even low-income traders in the market are able to increase their capacity. That contributes to economic development,” she said.
Tom Jackson is co-founder of Disrupt Africa, a news and research company focused on the African tech startup ecosystem.
