The next frontier in banking is in fintech

Last week, two things happened in the ICT industry and caught my attention.

The first was news that Kenya’s quest to bring to life the first technopolis was confirmed as a pipe dream, blamed on a lack of funding and labelled as “too ambitious”. Heaped with much praise and touted as what would finally emboss the Silicon Savanna title on Kenya, it was expected that in another year, we would have basic infrastructure in place, a handful of institutions training a tech-savvy workforce commensurate with the opportunities from the country’s bustling tech-enterprises.

The second thing was that my bank — a legacy financial institution I have been with for the last 25 years — sent me a couple of text messages, notifying me of a new piece of innovation. Never mind that it is an update to my mobile banking app. I would, upon considering the offer, access instant loans up to a certain limit with flexible repayment periods. For the indifferent ones like myself, it bothered me that my bank took that long to jump onto the bandwagon, seeing as I have been drowned with options left, right and centre to date. The question was whether it was a task to stay competitive and relevant albeit with very little, too late. Again, is the service really new or are they simply trying to update their legacy systems? But I chose to pick my battles carefully.

Every day, the tech space and by extension adjunct sectors of the economy are all littered with the word innovation; whether as a commitment to their customers or a tag to attract better sales in products and services. “You want to sell that?” they seem to say, “Put ‘innovation’ on it”.

It is the buzzword that has driven markets in the last couple of years but, for those of us in the finance industry, it is time we asked the hard question whether any new financial solution we birth is better enabling customers to use their money.

CONVINIENCE

In the late 90s, banks introduced us to ATMs. First, they stood far in-between; and then they were at every block — accessing money became easy. For the banks, it was an operational process to give customers better access to services, though at the time only limited to withdrawals. This was followed closely by the entry of those ATMs that would take deposits and just about the same time, mobile banking made its entry and banking just became convenient. The current phase of Banking 4.0 — banking everywhere, never at bank — has seen banking become internet and mobile technology-based, further enabling services that were restricted to visits.

As the industry continues to enthuse over an innovative financial sector for a financially included population, we must ask ourselves how the next frontier will go beyond access and convenience. Is innovation really our priority, or are we simply availing alternative avenues?

What new ways are we developing to enable Kenyans to work with their money? Until we do this, let us simply tuck away the innovation tag and stay up with the development and improvement processes.

The concerted effort by commercial banks to get onto the digital lending space points to one thing, the fact that legacy banking is grappling with meeting customer expectations and fighting hard to save this loss. We are in a situation where Fintechs — or the new bank — have taken over customer interface owing to their flexible culture, leaving incumbent banks to their financial intelligence, experience and scale.

In 2017, Accenture points out that global investment in fintech ventures reached an all-time high, driven by increased funding for start-ups in the US, UK and India. Accordingly, 2018 was also heralded as the year when the incumbent would face the wrath of the challenger bank, which I can attest has played witness from the number of fintech’s operating in Kenya today.

OPPORTUNITIES

The rising fear that the conventional bank is well on its death bed does hold true — to some extent and that financial services industry is a big and immensely profitable business. The strength of the new bank will be drawn from partnerships rather than competition, it will be driven by the adoption of enabling technologies and new business models, in order for us to take advantage of the opportunities and risks.

To borrow from the analysis of the Basel Committee on potential future scenarios of fintech on banks, a few options exist. We work towards a better bank by modernising and digitising the current players. Build a new bank, which replaces the incumbent with the challengers. Distribute the bank, by fragmenting financial services among banks and Fintechs or relegate the bank altogether by turning it into a commoditised service provider with customer relations at the hand of Fintechs. The true north of innovation in the financial sector and fintech need adaptation to new technologies, but also within the appropriate prudential standards. This is the only way we can influence the future of financial services, drive innovation and not replication.

The writer is the CEO of Stawika.