BANKS VS STARTUPS: WHO LEADS AFRICA ' S FINTECH INNOVATION?
Startups typically bring innovative solutions to the table quickly while banks have the scale, data and resources to deliver these solutions to millions of customers,” says Camilla Swart, ecosystem manager at Rise, Barclays Africa.
Others agree. In east Africa, KCB Bank has partnered with more than 10 startups on projects and is involved with multiple projects supporting entrepreneurship in the region. This is bearing fruit: the bank’ s mobile banking app was built by a startup.
KCB says that far from posing a threat, there are significant advantages to partnering with newcomers.“ Fintech startups have significant advantages in how they are organised, with a refreshing perspective to solving existing friction in delivering financial services to consumers,” says Edward Ndichu, KCB’ s head of digital financial services.
“ For KCB, it is a model of attracting new ideas and innovation, and continuing to remain relevant all the while supporting entrepreneurs [ as they ] build great businesses.”
What’ s in it for startups?
It is clear why banks see fintech startups as a ripe source of innovation. But what does partnering with traditional banking behemoths offer Africa’ s innovators?
South African startup Peach Payments offers payments solutions for online and mobile merchants, enabling them to accept payments across multiple channels. For businesses like Peach, the head start banks can offer in terms of scale and acceptance by regulators is an advantage.
“ Since financial services are highly regulated globally, sometimes only banks are able to offer certain services and access certain market segments. Also they have the advantage of scale and usually deeper pockets,” Rahul Jain, the company’ s co-founder, explains.
Peach Payments took part in the Barclays accelerator in 2016. Upon completion, it signed a proof of concept with the bank to explore further collaboration.
“ Being part of Barclays Rise helped us engage with the Barclays Africa executive team and explore partnership opportunities. It also helped us discover new opportunities across the different business areas of Barclays Africa,” Mr Jain says.
Not everyone sees the bank-fintech relationship as symbiotic, however. South Africa-based accelerator Sw7 supports numerous fintech startups. It has also partnered with financial sector heavyweights including Standard Bank and Rand Merchant Investing( RMI) as they look to engage with startups.
However Keith Jones, co-founder at Sw7, believes that despite their efforts banks have so far failed to develop a mechanism to effectively engage with startups.
While the intent is there, he says, the strict corporate mindset of financial institutions has meant they are slow to adapt to new solutions and models. They can also have a tendency to“ smother” small businesses rather than help them to thrive.
“ We see corporates competing for brand positioning in the innovation sector. If a small business shows promise, the corporate engages the emerging business, and a long, complex and undefined procurement process ensures, or they strike a deal with the small business that either has exclusivity clauses or comes with strong branding rights,” he explains.
This way of working can slow promising startups down. For these collaborations to work, he thinks financial institutions need to treat working with startups more seriously- rather than as an interesting, often informal side project.
“ It needs to be treated as a proper business transaction for it to work, which is not really happening right now. We see much of the engagement [ happening at ] arm ' s length and not having any real commercial substance. This needs to change.?”
Is internal innovation the answer?
Reaching out to startups is one way big banks try to remain at the forefront of digital product innovation. The other is to encourage internal employee-led innovation.
Internal hackathons are becoming increasingly common at big corporations around the world. Many banks now have in-house innovation teams. But can these initiatives ever effectively mimic the fresh thinking collaboration with outside startups brings?
According to Kevin Johnson, head of Innotribe innovation programmes at Society for Worldwide Interbank Financial Telecommunication( SWIFT), the answer is no. Innotribe seeks to boost innovation in the financial services space through global events and research initiatives.
But there is a caveat to his answer. He says in-house corporate innovation teams are precisely the“ missing link” Sw7’ s Mr Jones is referring to. These divisions make serious bank-fintech collaboration possible. Without internal teams, Mr Johnson says, effective implementation of innovative solutions just does not happen.
“ If you look at companies that most people would consider to be innovative, part of this is driven by internal teams, and part of this is through the acquisition of startups who bring new ideas, technologies or processes to the table,” he says.
Johnson predicts that when successful engagement is put in place, more African fintech innovators will scale their solutions globally.
“ Through our Startup Challenge we have seen a number of solutions that are solving local problems, but these local problems exist in multiple places,” he says.
“ I can see some amazing innovations coming out of Africa and making a real difference across the world.”- ThisisAfrica
2017 | Business Times Africa 27