Updated: Oct 10, 2019
Accra, Ghana - Early this month, KASI was invited to join forces with the Pan-African Bancassurance Conference in Ghana as one of the knowledge partner. In one of our presentations, we discussed the perceived disruption of Fintech in banking, especially in Africa.
Africa has one of the most exciting banking industries in the world with a market size expected to grow to over $129B by 2020 with Kenya alone forecasted to reach over $10B by 2020.
Technology innovation is viewed as one of the main drivers of the banking growth but banks should really understand at how technology and especially Fintech will impact their business: banking adoption, channel/distribution, competition, revenue mix and regulation. The banks that will truly understand how fintech can help to solve their client financial challenges will win big.
Here are 4 take-aways from our presentation based on our research.
1. Fintech has always improved banking
From credit cards to ATM, Fintech has been always been part of banking. When carrying cash became in challenge, credit cards were introduced in the 50s to replace cash and make transactions more convenient and secure. ATMs brought the basic banking services (withdraws, deposits) to the customer.
Today, Fintechs looks like smartphones, mobile wallets, or robo-advisors and tech companies at least in the US, Europe or Asia are offering banking services (loans, remittance, money transfer, etc.).
2. Fintech in Africa is mostly payment and remittances
In Kenya, one of the largest banking markets in Africa, the Fintech ecosystem looks pretty crowded. The majority of the Fintech companies are operating in the payments/remittances space, followed by business solutions. Unlike Kenya, Ghana's fintech space is still in its enfancy and mostly geared towards payment and remittances.
The apparent skew in the African fintech ecosystem is due to the lack of bottom up research to identify the best use of these technologies given local markets and conditions. Our consumer research shows that providing banking services that are relevant to the African consumers requires a customer-centric approach instead of a tech-centric approach.
3. Fintech is not disrupting banking in Africa
We looked at typical banks revenue mix in the west (US, Europe) and it is usually 50% interest income and 50% fee income. Fintech companies are lowering customer fees and providing convenience through digital, in fact, they are going after the incumbent fee income mainly with lower transaction fees. As a result, it makes sense to claim that Fintech companies are disrupting banking in these markets because they are putting half of banks revenue at risk. The same doesn't hold true in Africa. Furthermore:
Banking penetration in Africa is still low
Interest income will continue to dominate bank revenue
Financial services breath is low
Infrastructure is still in its infancy
The mobile experience is far from perfect
4. Fintech can drive new revenues
The future of banking in Africa will see the rise of new banking services, new business models and new revenue mix. For incumbent banks and new intrants, the market is wide open. Instead of focusing on the technology, players should focus on the customer and the market. The ultimate goal is to become clients best partner in helping them achieve what we call "Financial Freedom". Players should adopt a strategy with the customer as the platform.