Fintech Developments in South Africa
South Africa is an emerging fintech hub (tier-2) in the middle category along with Nigeria, Kenya, Egypt, Mauritius, Ghana, and Tunisia. Some of the reasons why it becomes a fintech hub are because of its large population, well-established and operating banks starting cooperation with fintech startups, Cape Town’s role in hosting 47% of fintech startups, 500 other startups, and CiTi (Cape Innovation and Technology Initiative), the oldest technology incubator in Africa (The Fintech Times, 2021).
It should be noted that South Africa not only gave birth to several fintechs that provide innovative solutions for their own country, but also contribute to the African continent and the global scene. For example, fintechs born in South Africa but not limited to domestic operations are Jumo, Yoco, Retail Capital, The Sun Exchange, Naked Insurance, Wealth Migrate, and TymeBank.
Fintech is developing in South Africa with a big impact on the banking world there. There are five banks in South Africa that are the most representative in the retail banking sector, namely ABSA, FNB, Nedbank, Standard Bank, and Capitec Bank. Except for Capitec Bank from 2015 to 2017, there was a decrease in the number of physical offices or branch offices in the other four banks.
The development of fintech is forcing these big banks to embrace technology as part of the banking revolution program. Technology is an important instrument as a driver for efficiency, cost reduction, innovation, competitiveness, economies of scale, and simplicity or ease of business operations. One of the financial services companies in South Africa, FirstRand Group scoring 8% of total sales were sales with digital intervention or assistance.
Some of the most famous fintech disruptors in South Africa as of 2018 are TymeDigital, Bank Zero, and Discovery Bank. TymeDigital, which is a subsidiary of Commonwealth Bank from Australia, plans to become a bank whose services are fully digital. Bank Zero, a new bank founded by a former CEO of FNB, focuses on developing mobile applications and operating without a physical branch office. Bank Zero focuses on transaction services by using an aggressive strategy of applying low fees. This is a big disruption because most banks charge high fees. Meanwhile, Discovery Bank, which is driven by an insurance company, plans to launch a banking service platform for existing insurance customers through digital channels (Businesstech, 2018).
Fintech business development and size
The South African government has laws that are friendly to the development of fintech, one of which is the Financial Technology Program, an initiative from the South African Reserve Bank in reviewing the emergence of a fintech company and its impact on regulation.
The fintech market segment in South Africa, based on the Fintech Scoping in South Africa report, includes payment services, lending, savings and deposits, insurance, investment, financial planning and advisory, capital collection, and B2B financial service providers.
Payment services is the fastest growing fintech segment in South Africa. WiGroup, a payment service provider, launched a mobile wallet in 2008 and in 2019 transactions reached 7 billion Rand. Pick n Pay, Vodacom, and Woolworths. In 2019 alone, there were reportedly more than 200 fintechs operating in South Africa.
It is estimated that a total growth of 4% of the market will come from the retail payments industry alone from 2017 to 2025. Meanwhile, the growth of fintech is expected to exceed the growth of this market. The retail payments market in 2025 is estimated at 5,822 billion Rand, up from 2017’s 4,277 billion Rand. In the same year, 2017, fintech had a retail payment transaction value of 127 billion Rands.
Fintech products that have developed and will soon be developed
The products that have been developed from fintech in South Africa can be seen from the segment above to give an idea. Payment service products are in the form of cryptocurrency payment services, payments between countries, bill payments; lending products in the form of online loans (loans); savings and deposit products, for example, community savings; insurance products are risk analysis that is calculated automatically and claim management; investment product is cryptocurrency trading; financial planning and advisory products in the form of robo advisory; the most popular capital raising products are crowd investing; while the service products providing B2B technology are data applications, IT security and ID management.
Fintech, like other aspects of the global economy, has been impacted by the pandemic. This event helps to increase the need for technology among consumers especially the fintech service. As the whole world goes through a pandemic, fintech continues to shape the financial services landscape into the future.
The impact of fintech development and the obstacles faced
Coetzee (2018) in his research found the strategic impact of the development of fintech on conventional retail banks in South Africa. The first impact found was that skills related to technology became an obligation to be possessed by workers and regulators; second, moving customers away from a direct interaction policy towards a remote service distribution strategy; third, banks in the future will not rely too much on branch offices with physical buildings as in the past; fourth, new competitors enter the competition and offer competitive digital solutions; The five financial sector regulators must find ways to maintain accountability due to the innovation and growth that the creators of this disruption have created.
Future prospects for fintech development
Currently, many traditional financial institutions such as banks are collaborating with fintech companies to improve the services they offer. Quoted from Dr. Dorothy R. Auth that fintech will make transactions faster and more efficient, especially Blockchain will be a disruptive impulse and threaten traditional banking if they do not integrate into their system.
The potential for fintech growth is closely related to where the fintech operates (Fintech Scoping in South Africa, 2019). Several factors have been identified as contributing to the future growth of fintech in South Africa, namely (1) macroeconomic conditions, (2) funding options, (3) competitive environment, (4) readiness for the digital world, (5) ecosystem to innovate, (5) regulations from the government.
The evolution of fintech or technology in general will become a state asset (Cracknell, 2021). This prediction will occur in countries with well-established fintech such as South Africa, Kenya, Nigeria, Ghana, Rwanda, and Uganda. Fintech as a national asset will bring about changes in the world of education to support fintech itself; investment policies to encourage investment both locally and internationally; policies and approaches for skill development, as well as coordination between state regulators.
Issues related to fintech development
In some countries that are vulnerable to electronic fraud, there is skepticism about financial transactions and information coming from traditional financial institutions or government agencies (Ham et al., 2015). There have been several internet frauds against South African financial markets that have made market participants succumb to social pressures related to financial problems (Business Report Online, 2018; Steyn, 2018).
Based on the results of research by Mazambani & Mutambara (2019) on how the process of adopting cryptocurrencies concludes that respondents feel less confident about their control abilities in adopting digital currencies. This signals that participants have concerns about their ability to manage cryptocurrencies.
The research above provides information to policy makers and technology developers about the need for consideration of what factors must be considered in intervening in developing financial technology (fintech) on user behavior. Cryptocurrency policymakers and developers may have to visually educate fintech consumers in promoting their adoption.
Fintech brings several challenges that currently still make the process of adopting this technology look skeptical, namely: (1) cybersecurity threats, (2) unstable technology, (3) threats to privacy and biased algorithms applied, (3) algorithm discrimination. , (4) data protection.
One of the problems with data protection in South Africa is the mandatory registration of data protection entities or information officers with regulators. Meanwhile, on a broader scale, 31 African countries have implemented data protection laws. This legislation is an implementation that follows the European General Data Protection Regulation (GDPR) which emerged in 2018.
Source:
Coetzee, J. (2018). Strategic implications of Fintech on South African retail banks. 1–12.
Mazambani, L., & Mutambara, E. (2019). Predicting FinTech innovation adoption in South Africa : the case of cryptocurrency.
https://doi.org/10.1108/AJEMS-04-2019-0152
https://digitalbankerafrica.com/is-a-common-approach-to-data-protection-within-the-financial-sector-in-africa-possible/
https://www.linkedin.com/pulse/predicting-future-fintech-africa-david-cracknell
https://www.financierworldwide.com/the-future-of-fintech#.YqX1UnbP1D8
