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