Beyond Mobile Money - the FinTech future for Africa
By Pieter Zylstra, Regional Director, Digital Transformation, MEA, at Orange Business Services
Africa is a great testing ground for new banking services: the region’s relatively low penetration levels for traditional financial services married to high proliferation of mobile phones has not only helped to create the largest mobile money market, but also drives FinTech innovation and disruptive digital banking solutions.
Mobile money has found its biggest global foothold in Africa. According to the GSM Association, over 57 percent of the world’s mobile money accounts are located in sub-Saharan Africa, and the continent’s FinTech market has been forecast to grow from around $200m in value in 2018 to close to $3 billion by 2020.
According to the McKinsey research report “African Retail Banking’s Next Growth Frontier”, new innovative mobile financial services are rapidly expanding. Peer-2-peer borrowing, group-savings, micro-loans, micro-insurance and more will come into the financial services mix. South Africa alone can expect to see growth of around $4 billion in banking revenues across the next five years.
Why is this?
Most African citizens have a mobile phone even if they lack a postal address and a local high street bank branch, and over the last decade have been using their mobile phones to transfer money. The mobile money phenomenon has proven to be a profitable business in Africa: hundreds of millions of dollars is washing through Africa’s mobile networks. And it is mobile service providers that have been dominating the market, setting up quickly, disrupting the status quo, bringing banking to the unbanked and reaping the rewards of 1.5 to 2 percent profit – big numbers. Traditional banks are keen to get in on the act but are finding it isn’t straightforward as they are lacking the channel reach into the rural areas, don’t have the IT platforms to support the financial requirements of the unbanked population, and are tied up with regulatory constraints.
Banks have been missing out, but due to a number of developments this could be changing soon.
We see that traditional feature phones are being replaced by cheap smart phones, driving adoption of new and innovative mobile financial applications that are being offered by the new FinTech players in the market.
Furthermore, fast growing FinTech players are making their mark. Jumo, a mobile platform that provides digital financial services like credit and savings has now originated over $700 million in loans and manages over 25 million customer interactions per month. In 2017 Jumo was picked as one of Google’s Launchpad Accelerator start-ups and the company is now being funded by Goldman Sachs to continue its rapid expansion. Tulaa, a Kenyan FinTech start-up for the agriculture industry, recently raised over $600,000 in seed funding. Other success stories abound: Ecocash has been around for about 4 years providing mobile payments, Zoona is a mobile money transfer service that raised over $20 million in funding, and Cellulant, a pan-African payments system recently raised a massive $47.5 million, the most ever by an African FinTech.
These FinTech companies are disrupting traditional ways of doing things in Africa and becoming key players in a changing financial ecosystem. Increasingly traditional retail banks are looking to integrate their banking services with these innovative FinTech companies to cover the “last mile” in order to expand their footprint into the unbanked markets.
Wildcards playing a role too
On top of the FinTech start-ups thriving in Africa, there are a number of spin-off services from existing social media giants that are making their presence felt. WhatsApp, already Africa’s social media platform of choice, has the potential to be the continent’s biggest payments platform. WhatsApp’s digital banking offering could effectively create a single, cashless currency for Africa. 2017 saw social media use grow 12 percent in Africa, with the vast majority of people using only two apps, WhatsApp and Facebook Messenger. Similarly, Chinese giant Alibaba’s FinTech arm, Ant Financial, is gaining traction in various African countries, and its Alipay app could also make significant inroads. Large African retail banks would do wise to craft partnership deals with these FinTech players as well as social media companies, leveraging their existing banking licenses and pan-African market-reach to gain first-hand experiences of banking the ecosystem.
Changing times, changing business models
With growing customer expectations about more and faster mobile bandwidth to support the FinTech applications, and especially the fast-growing social media usage, over the coming years mobile operators will need significant amounts of capex to support the evolution of network technologies, mostly from 2G to 3G, from the cities into the urban areas. All this has prompted mobile operators to take notice and change their business models accordingly. To ensure profitability and high margins the mobile operators will need to invest in new digital banking platforms as well as in-house product management capabilities in order to compete with the FinTech players who offer mobile micro-payments and micro-insurance. Financial inclusion in Africa, according to the World Bank Findex survey, has “increased dramatically” from 23 percent in 2011 to 43 percent in 2017. Already a number of mobile operators are considering obtaining banking licenses to accelerate their digital banking strategies for Africa.
Beyond mobile payments and into the future
We are seeing a paradigm shift in Africa from the first phase focused on mobile money, onto the next stage of digital mobile financial services on the continent that focuses on micro-loans, micro-insurance, savings management and more - all enabled by digital technology.
FinTech is the way forward for Africa but success will mean embracing open banking and sharing more information with ecosystem partners. Furthermore, regulators will need to be involved in transforming financial services, historically something that has presented challenges in the past.
FinTech is forcing a change in mentality in Africa’s approach to financial services, and banks that do not want to get left behind are being forced to change their philosophy because mobile operators have proven to be formidable adversaries in offering mobile financial services to the African market.
Africa’s mobile financial services future will be all about a new generation of banking services, new business models and a new revenue mix by new types of provider. Incumbent banks and new disruptive entrants can harness new revenue streams by leveraging agile FinTech solutions and thinking progressively –with the customer experience more than ever being “king”.
Leading the way
Successful digital transformation in the financial services industry revolves around four pillars: innovation-on-demand, channel-as-a-strategy, banking-as-a-platform and network-as-a-service.
As a trusted advisor for digital transformation in financial services, Orange Business Services provides in-depth industry expertise and technology leadership across these four pillars, namely:
A new paradigm where financial institutions are pro-actively partnering with start-ups and technology partners to insource digital innovation capabilities. With its global labs and start-up incubators, Orange is already supporting numerous banks worldwide, creating agility to take advantage of new digital opportunities and business models.
An operating model that allows banks and insurance companies to differentiate between direct and indirect channel strategies. Orange as a digital company is supporting billions of digital interactions per year. We have launched API libraries, and can design, build and support the various digital banking channels. This simplifies business operations for customers, employees and the Internet of things.
These solutions will enable banks to create API-driven infrastructures and architectures where legacy systems and cloud-based systems co-exist, allowing for gradual IT transformation to meet the digital challenges head on. Orange as a global cloud partner provides Infrastructure-as-a-Service, Platform-as-a-Service and Software-as-a-Service banking solutions.
This will increase the cost-effectiveness, bandwidth flexibility, application-visibility and cyber security of all the applications in a hybrid network-environment. As a network operator, Orange is providing compliance by design and protection and mitigation against cyber threats. Financial institutions need to work with a partner they can
trust, who fully understands this complex environment, to successfully digitize. At Orange Business Services, we understand the multiple dynamics and changing disruptions across the financial services industry. Our solutions have been designed to increase productivity, advance innovation and optimize the customer experience.