Fintechs vs banks: What’s the future?

Due to Covid-19, the extraordinary shift in customer behaviour from using traditional banks to digital financial services has been extraordinary, but only thanks to those African banks that have able to adapt quickly in these uncertain times, said Nvalaye Kourouma, group head, digital channels and innovation, Ecobank

"Every bank understands that the traditional bricks-and-mortar model is not sustainable. That’s very clear and every bank that you see across the continent is trying to go through this digital transformation. But the speed of transformation was much slower than expected,” he told fellow panelists during a webinar entitled: ‘Leapfrogging solutions: the digitalistion of Africa’s financial services’, held by Invest Africa.

“What Covid-19 created was the acceleration of digital transformation for those banks who have been able to respond quickly. The regulators started acting vigorously and created an environment to banks to lead in areas like the flexibility of payment. This started the right environment for banks to start innovating.”

But he urged that banks need to do more to provide a better customer experience.

“Cultural transformation needs to happen where we see ourselves much closer to the customer in providing them a better customer experience, using all the digital technologies that we have.”

Demonstration effect

Hence, the integral role fintechs can play to show banks how to improve their customer banking experience. Instead of disruption, Titi Odunfa Adeoye, founder and managing director of Sankore Investments, said fintechs have shown banks what can be done.

“Five years ago, there was much talk around this aspect of disruption. Are these new fintechs going to put banks out of business? This hasn’t happened. The total fintech industry in Nigeria contributes less than 1% of the retail banks’ revenues,” she continued. “One would argue that this is a relatively small amount of impact. Why is that? The fact is that it’s been  driven by a global trend of interest in fintech by investors and increased allocation to venture capital.”

However she questions whether the funding has gone towards what Africa really needs. 

“Payments and lending solutions are built in Nigeria. The more interesting and relevant subsectors of fintech have not been addressed yet, such as regtech, tools and data. SMEs have started to pick up but we haven’t got where to we really need.”  

According to Adeoye, half a billion dollars has flown into the fintech space over the last three years and the impact on the market has been significant in terms of capacity and use and reliability of the technology. 

“In markets like Nigeria, trust is a very big problem and so fintech has shown what is possible. Imagine if the incumbent banks were to partner and take on the capacity of the fintechs and apply it to the increased trust in these platforms – that would then take us to the future and shape the next five years.”

Wayne Hennessy-Barrett, co-founder and CEO of 4G Capital, which operates in 90 locations across Kenya and Uganda, agrees that the technology is allowing us to progress to heights not seen before, especially through the smart use of verified client data, providing responsible access to credit to people most in need. 

However he points out there is not enough investment in the fintech industry to take it to next level.

“The financing gap in sub-Saharan Africa remains at US$331bn, according to the IFC. In Kenya, the financing gap is estimated to be US$19bn, the amount of micro-SME credit needed to move from an informal to formal existence. The impact is happening but it is not enough, and the size of the problem is getting bigger as population growth continues.” 

He continued, “There’s a growing sense of urgency to see fintechs and banks and other players within the ecosystem; payments, regtech, verified ownership and more confidence in value chains and distribution, coming together so that we can actually have an exponential accelerated effect to catch up with the problem – and  that’s where the opportunity lies. That’s why the entrepreneurs are very excited and optimistic to meet this problem and address it.” 

By Samantha Payne