Fintech is disrupting the way ordinary Africans manage and use money. And these fintech players are standing up to traditional institutions as a force to be reckoned with.
Accenture estimates that over one-third of mainstream financial services’ revenue is at risk due to disruption in the industry from fintech. Many reports show how the rapid development of African fintech, which exploded in the years following the 2008 global meltdown, is threatening established players in the mainstream financial services sector.
Africa is fertile ground for new fintech services which are leveraging the power of communities and social media to make financial services more relevant, while using data to deliver more meaningful financial services on an ongoing basis.
In my role as head of AlphaCode, a club for fintech entrepreneurs – an initiative of Rand Merchant Investment Holdings, I meet these motivated and innovative entrepreneurs daily.
The mushrooming of new and successful fintech companies on the African continent can be directly linked to innovations that meet the needs of historically under-serviced market – the unbanked. This has seen fintech itself become a facilitator of economic growth in Africa. It is lowering the barriers to entry for consumers by playing a development role and helping to reduce financial exclusion. And financial inclusion combined with a strong financial sector is the backbone of any thriving economy.
While infrastructure development, internet penetration and access to finance remain real barriers to economic opportunities in many parts of the African continent, the continent has overall experienced strong economic growth and made major inroads into poverty. An improvement in the quality of economic governance has also played a role. The costs of starting a business have fallen, as have the delays in starting a business.
African fintech success stories
There are remarkable fintech businesses that have developed into exciting fintech African success stories. We have seen innovators and fintech-preneurs build new platforms that consumers can easily understand, trust, and in a just click or two, can transact, borrow, save and insure. Critically, these fintech innovators first made sure they understood the system they intended to disrupt; they considered the competitive landscape; and niched their fintech solution to meet specific needs of a specific customer grouping. Today, fintech businesses like these are thriving.
Success versus failure hinges on distribution
The difference between success and failure of fintech in Africa is often about distribution. People need to be able to access the product and it needs to have utility. I have found that many fintech businesses starting out do not pay enough attention to the distribution of their product – they tend to focus on the technology. I always say that technology is a hygiene factor in financial services and the product needs to work but most of the innovation is actually in how you get the products to customers.
This is where fintech founders need to really focus. Rather get a product that is 75% right out to a large portion of the population, than a product that is 100% right to a tiny base.
What I see in a lot of fintech businesses is that they focus on tech and the product with no or little regard to its distribution. They have a great product and great tech but have no clear strategy on how to get to their customers. Ultimately, they do not achieve commercial viability. In financial services, distribution is everything and is where a lot of the innovation really lies.
About the author: Dominique Collett is a senior investment executive at Rand Merchant Investment Holdings and heads the firm’s next-generation financial services business, AlphaCode. Her fintech startup TYME was sold to Commonwealth Bank of Australia in early 2015. She has worked throughout Africa, Russia and Turkey and was based in both Brussels and London. Dominique’s career spans both banking and management consulting. Follow her t @domcollett1