Innovation, Disruption, Revolution!

Just off the plane after an excellent Finnovation event in Addis Ababa, Ethiopia, which discussed the future of FinTech in Africa. Just like similar events worldwide, there were many interesting panel discussions that showed views of both incumbents – your brick and mortar banks; as well as the newcomers – the small and nimble FinTech outfits.

Innovation! Africa is a great place for innovation. It has all the ingredients required for a significant improvement since it has lots of problems that need solving – thus the opportunity, and it has lots of young and educated people who live there and suffer those problems – thus the solutions. Amazing projects out there, especially FinTech projects like MPESA, InterSwitch, Cellulant and BitPesa to mention a few out of hundreds, have been changing lives of ordinary Africans for a decade or so, resulting in the continent of Africa having the largest number of mobile money subscribers and the largest number of active customers. So, innovation in Africa had taken deep roots and it is solving Africa’s everyday problems!

Disruption – well, one can easily say that many of the FinTech companies already mentioned in this text have caused quite a bit of disruption in the industry and the African continent as a whole. First, where the banks have failed, they have reached out to millions of the unbanked significantly improving the financial inclusion on the continent. Second, they have considerably contributed to the economic development of their countries with MPESA's system transaction volume equivalent roughly to 50% of Kenya’s annual GDP. Third, they have or are, in the process of pushing the larger incumbents in the financial industry to change and adopt modern technological practices and customer-oriented behavior or disappear as irrelevant financial relics of the past.

Revolution – as Jane Zhang, Founder, and CEO of Shellpay mentioned during the recent Finnovation event in Addis Ababa: “why would I want to help banks build blockchain solutions; banks are a thing of the past and will die very soon!” With that very powerful statement, we can understand how potentially revolutionary the entire FinTech space really is. At present, banks onboard new customers at the price of about US$ 100 per subscriber. At the same time, according to Salam Slim Director and Global Solution Lead for Islamic Banking at Oracle, typical FinTech onboard new customer for as low as US$ 5 per subscriber. This drastic difference shows just how revolutionary the FinTech can be and what large and powerful impact it could have on a banking industry as a whole.

Are brick and mortar banks going to die? I don’t think so, not yet for sure. At present, innovative and cheap FinTech solutions are breaking ground in customer onboarding, reaching to the unbanked, providing less expensive and faster transfer and short-term loan services by using only a mobile phone or an internet account. At the same time, banks are still better in savings, large structured and collateral-based loans, investment, insurance and so on. At the same time, there seems to be a polarization where each side has found, at least in Africa, it’s niche market and it’s still developing its full potential.

What does the future bring? As Ameya Upadhyay, Principal at Omidyar Investments has mentioned, the market is large enough for collaboration between the banks and the FinTech. In my opinion, in the short to medium term, the future will most likely show several collaborations and mergers between the larger-capital banks and their FinTech counterparts when both realize that the banks cannot reach the end-user as quickly and cheaply as the FinTechs, while the small and nimble innovators realize that bank loans could be significantly cheaper than control-stake losing equity investment. However, how long will this apparent calm last and will the Telco operators, which have beaten the banks to the punch when it comes to mobile money, take this laying down or will they enter the financial market and usurp the banking positions? Time will only tell, however, I’m sure the real revolution of the financial industry is happening as we speak and we are in for some interesting times!