The Trend of Companies Transitioning into Fintechs!
The Evolution of Fintechs
It has been a decade since the fintech revolution has taken all over the African region. The impact of fintech on Africa’s economy has been a benchmark for the rest of the world. Not only is it a successful alternative to traditional banking but also a key to financial growth for African citizens living in rural areas. In 2017, the Food and Agriculture Organization of the United Nations (FAO) reported that about 90 percent of the 48 million smallholder farmers in Africa didn’t have access to formal credit from banks or financial institutions. This drastically changed— thanks to the innovation of fintech.
How did this start? Well, financial technology dates back to the 19th century. While the boost of fintech was only seen post the revolution of fintech 2.0 — Barclay’s introduction to ATM machines in the year 1967. Further, the first major growth was seen in the year 1971 when NASDAQ was set up as the first electronic stock market. However, it was only until the mid 90’s when fintech went through a major breakdown. This was the era when PAYPAL was launched and became a significant mode of cashless payments of the coming years.
The Fintech 3.0 revolution followed post the 2008 crisis. This is where new technologies such as Bitcoins, Wallets, P2P, and new unicorns were introduced. It was only until the fintech 3.5 revolution in the year 2014 onwards that developments were seen in Africa and were considered a growth engine for 2014-2018. This growth experienced a huge strike after the outbreak of the coronavirus where every grocery store and clothing shop started supporting mobile wallets for payment of the essential items. Other challenges faced due to Covid-19 such as paper bound invoicing and delayed cheque payments were also solved through digital payments.
Initially picked up by Kenya, now over 30 African countries have adopted the evolution of mobile money. Today, the African continent is home to over 300 million users, which is the highest number across the globe. In fact, about 48% active mobile money users from the world are from Sub-Saharan Africa. The fintech technology was also widely welcomed by Nigeria, which has made it Africa’s largest country by GDP and population and it is now home to 200+ fintech standalone companies, as per a survey by Mckinsey.
The Establishment of Fintech Startups
Fintech startups often start with simple high-demand services and later leverage the economies of density and a strong reputation across the globe to expand their portfolio of services and products by providing banking services, such as savings or credit products. The fintech providers are also leveraging their experience and growing customer base in payments services for providing other financial services, making digital payments a reliable mode for many people.
Earlier Africa suffered from limited access to traditional financial services such as banking, insurance and credit. However, in recent years, these opportunities have been made possible due to digital banking. The African population is utilising this financial tool to adopt growing digital payments, insurance, and lending services.
Clearly, fintech startups across the continent are breaking down the traditional financial and banking systems through new-age digital banking services with innovative and automated infrastructure. The fintech startups are doing this by centering their activities on specialised areas such as lending, insurance, payment, investment and other wide ranges of complementary services. In fact, about 25% of the new fintech startups are operating in multiple niches.
For example, Opay, founded in 2018 in Nigeria offers services such as loans, remittance, ride-hailing, and mobile payments. Currently, the fintech company is launching a digital overdraft product named Creditme. Another fintech company Flutterwave offers services such as developer APIs, B2B payments and payment gateway systems.
Regular Companies Turning into FinTechs
Not just established financial companies but also other companies are now turning into fintechs. Even regular companies and eCommerce portals have started to aggravate into offering different kinds of digital financial services. As per the latest trend in sub-Saharan Africa, non-financial constitutions are availing and delivering digital financial services such as mobile wallets and digital payments. We have recently seen many merchant accounts, eCommerce companies, and other startups shifting to digital, which is giving payment gateways more influence on capturing customers’ attention to use digital wallets for day-to-day expenses such as buying groceries.
For example, Jumia based in Nigeria has introduced the JumiaPay option that allows customers to shop for a wide range of products while sitting at home with secured transactions. Customers have also started using this stress-free and convenient payment solution for online shopping. All banks are now on Jumia, supporting cashless payments. The Pan-African eCommerce Jumia is reaping the benefits provided by its investors MTN, Orange, and Millicom telecom strongholds in Africa.
Vodacom Group Limited, a South African mobile communications company that provides messaging, voice, data, and converged services announced a partnership with Alipay, a digital payments provider, to build an app allowing customers in South Africa to pay bills online, shop at eCommerce portals and send money to their family members from cross-borders.
However, more surprising examples would include companies operating in completely unrelated industries such as car manufacturers, consumer product manufacturers, petroleum companies, and even mining companies, all located within the African and Middle East considering transitioning into delivering some sort of financial service over its existing internal systems.
The whole driver is multifaceted; first, to provide more added value services to its customer base from enabling various payments facilitation and providing different lending products or what is becoming an increasingly sexy model, the infamous “buy now pay later” model allowing the average customer in the midst of these tough global economic conditions a tool to better budget their finances. But it does not stop at that, companies are using that to utilize this approach as a customer acquisition tool where a lot have deployed personalized and easy-to-use mobile applications to digitally register their customers and provide online payments to the various products & services offered. Companies are particularly becoming more aware of the benefits of enriching their own business ecosystems by extending these financial services to their suppliers, their retailers, distributors, or agents depending on which industry the company operates within.
One definite common factor is that we see that Digital Payments is most often at the heart of all the financial services possible to avail. In fact, it is becoming the fastest and easiest way into delivering the very first kind of financial service. This is a topic for another article, but this is taking a new trend in itself where we find several companies trying to acquire payments licenses from their local regulators to transition and offer some sort of digital payments services. Some even have ambitions to acquire specific licenses enabling them to offer direct lending and credit services.
In a nutshell, it seems to come down to how easy it is to enable this huge growing wave globally and enable an existing Fintech or companies who want to become a Fintech. Evidently, VERICASH has been leading this across Africa way before it has turned into a trendy buzz phase. VERICASH is a Fintech Enablement Platform, whose technology provides the tools to easily configure any sort of financial services from its simplest forms to some of the more complex to easily deliver across multiple digital channels. It has in fact had the experience of doing so across numerous markets helping a variety of financial establishments such as digital only banks, microfinance institutions, and other Fintech startups easily deploy and launch in a staggering mere few months offering a very fast go to market launch which is crucially essential for a lot of them. It additionally, provides the agility and scalability that a lot of these Fintech require to easily expand and grow not only within a specific market but internationally too. Moreover, it provides the flexibility and ease for a lot of these non-financial companies to adopt a platform that empowers it to quickly offer these variations of innovative digital financial services whether through an acquired license or aggregating it through strategic partnerships it will engage in.
Conclusion
As the world continues to see the exponential rise in Fintechs with all its variations, what is a certainty is the nature of these Fintechs origins so not every Fintech that will shine into existence will be a classical startup scenario as we know it but will be the product of transition of both financial and non-financial institutions. The whole concept is to drive more value towards the end user and its surrounding ecosystem and finance is at the core of it all. Being a powerful driver for value, those who ride on the top would be how innovative they are able to deliver these different kinds of financial services to their customers and other stakeholders at hand. Having the right tools and technology will be pivotal in actually making that a reality and enabling a lot of these transitions as flexible and smooth as possible.
About CIT Vericash
CIT VERICASH is a division of CIT GLOBAL, an international leading provider of innovative eCommerce and mCommerce software solutions and services with solid expertise spanning 25 years, since its establishment in Toronto, Canada in 1993. By applying CIT Global’s dedicated centers of excellence and its specialized leading products, in cooperation with its strategic partners, the company has delivered innovative and award-winning solutions to its clients in more than 48 countries, serving leading brands from North America, Europe, Asia Pacific, the Middle East, and Africa.