Online transacting had been growing steadily for years, but 2020 saw online payments explode as consumers avoided touching cash or point-of-sale devices and as e-commerce increased dramatically. The pandemic also increased interest in smart and digital insurance as consumers avoided meeting their brokers. The year also saw its share of partnerships between banks, insurers and fintech companies, says AlphaCode head Dominique Collett.

Notable among these was the joint venture between Capitec and low-cost investing platform EasyEquities, which sees Capitec market EasyEquities to its client base. Vodacom partnered with Ant Financial, part of the Alibaba group, which it hoped would allow Vodacom to accelerate its financial service aspirations, while Ant provided the technology platform. Standard Bank bought TradeSafe, a digital escrow services provider, and OUTsurance and Shoprite partnered to offer funeral and life insurance to Shoprite customers, a smart move for both parties. In addition, Telkom partnered with fintech startup Fundrr to offer quick, no-fuss loans to small businesses.

What can we expect from 2021?

Q: The obvious place to start is with cryptocurrencies, which went parabolic last year. Do you expect the same for this year, and what do you believe could happen to these currencies once a sizable and trustworthy government bank from a politically stable country makes a crypto sibling of their fiat currency and pushes it on a public ledger? 

A: Cryptocurrencies have reached a tipping point gaining strong traction. We believe we will continue to see an explosion this year as more institutional investors get involved. The case for cryptocurrency adoption in emerging markets also remains strong. The world’s largest blockchain investor, Digital Currency Group, acquired SA-founded Luno last year as a platform into emerging and other markets, and Luno now has over six million users on its platform. 

When it comes to the adoption of government-backed cryptocurrencies upending the current market, I’m less convinced. Cryptocurrencies were developed by, and adopted by, people who tend not to trust government or the monetary system. They see cryptocurrencies as an alternative store of value and I don’t see that changing in favour of government-backed cryptocurrencies.

Q: 2020 was an inflection point for digital payments globally. Contactless and online payments came to the fore. Is this set to continue?

A: To answer this, one needs to understand that the constraint to digital payment growth in SA was cash. Ours is a cash economy and, unlike in the rest of the world where money supply has been decreasing, the opposite has been happening in SA. But this shifted last year as people deliberately avoided handling cash. 

This year we expect to see mass adoption of QR – contactless – and mobile payments. 2021 will see mobile network operators like MTN and Vodacom, which have had many fits and starts in mobile payments, coming back aggressively and this might be the year they can mainstream payments on their platforms by partnering with fintechs.  

We are expecting growth in three areas: 

• Virtual card payments – these are online EFT payments and are directly proportional to the growth of e-commerce;
• New payment options – like SnapScan or Zapper – which enable payments without the customer touching a machine or handing over their card; and
• Person-to-person payments.

There has been a lot of activity in the latter arena, with the likes of Ukheshe making it easier to make micropayments to individuals like car guards or petrol attendants.

FNB also has a product, FNB Pay, that allows consumers to pay via phone from any FNB terminal. With a rise in digital payments, there is increased concern around online fraud. Payment providers will therefore be looking for identity authentication solutions, which positions businesses like Entersekt well in both local and international markets.

Q: The insurance sector seems to have been slow to come to the party. With people being confined to their homes and not buying new insurance via brokers, how have insurers reacted?

A: The provision of digital platforms to engage with your insurance company, investment house, financial adviser or bank has been a developing trend, but 2020 was the tipping point.

In particular, 2020 was a stellar year for savings apps like Franc, and investment platforms like OUTvest and EasyEquities. In fact, the pandemic and lockdown were a boon for EasyEquities, bumping new account openings from 300 per day to 2,000. It’s counter-intuitive – you would think that when people have lost money, they wouldn’t want to save, but it forced people to start thinking about having a financial safety net and how to protect against future financial shocks. 

On the insurance side, we saw movement too, with digital-only companies like Naked and Pineapple who are taking on the likes of Sanlam and OUTsurance. Their challenge is that insurance is a product that is sold and not bought. So you need to think strategically unless you have the marketing budget of an OUTsurance. We expect to see some partnerships in this arena.

Q: Is this the year that we will see the rise or the fall of the challenger banks? 

A: Last year saw a massive uptake at Discovery Bank and TymeBank. How this year plays out will be interesting. Like Apple has done so successfully, Discovery Bank is locking people in using its ecosystem and its digital bank proposition is extraordinary. TymeBank has shown how it is possible to sign up people digitally en masse. They have different strategies, but for both the real proof will be increased deposits. That is a signal that your customers trust you. 

That said, don’t underestimate the banks. In particular, FNB and Capitec are formidable players in this space. Capitec has invested in its online and mobile platform, making it absolutely simple to use. FNB has invested in its service offering; for instance, you can renew your car licence through its app.

Q: Financial inclusion has long been a concern in South Africa, but ironically the rise of the gig economy, which sees an increasing number of people working part-time, or for themselves, is making it harder for them to access finance, such as home loans. Is this going to change?

A: People have had severe financial knocks. We’ve had to pay more attention to the vulnerable and those with no safety net. SA’s middle class is under intense strain too, so the financial services players are going to need to widen their focus. You’ll see more impact funding (funding that generates a beneficial social impact in addition to a financial return) and more product development. 

Banks and insurers will have to find different ways to credit-score people. How do you assess an Uber driver, for instance? There’s a much deeper appreciation now for “side hustles”. Financial services traditionally view those with stable employment as the best risks. Now, there’s a change in mindset. A big trend in Europe is specialist insurtechs that score gig economy workers, such as those who have a job by day and work as an Uber driver at night. No one locally is doing this (yet) and financial services providers need to look to develop products for this market. Entrepreneurs will no doubt start exploring this “white space”  and we think we will see more start-ups enter this space. OysterPay is one company in SA that advances loans to hourly workers.

Q: Covid has forced people to look after their health and we are seeing the rise of health apps. How is this sector likely to develop? 

A: There are interesting apps emerging. Guidepost, which offers diabetes coaching, works with health insurers and helps members change their lifestyle to reduce risk. The Discovery/Vitality premise is centred on this. FNB has moved aggressively into this space and has reworked eBucks to reward improved behaviour by introducing a wellness offering.

We will also see the rise of low-cost health platforms like Oyi, which offers a medical savings card, and others which will offer low-cost medical savings accounts or low-cost insurance plans. 

Q: No discussion on fintech is complete without asking about regulations, which always seem to lag technology development. How is SA faring in this regard?  

A: The SA government’s Intergovernmental Fintech Working Group is doing good work on cryptocurrency, digital banks, digital payments and open-loop systems. I expect they will continue to produce favourable regulatory frameworks. We need to keep an eye on international regulatory movements to understand how South Africa may view fintech regulation going forward. DM/BM