Fintech, a shortened form of ‘financial technology’, refers to the application of technology to enhance and streamline conventional financial services and procedures.
This encompasses a diverse range of products and services, including online banking, mobile payments, peer-to-peer lending, digital wallets, and financial management tools.
Fintech enterprises frequently leverage cutting-edge technologies like artificial intelligence, blockchain, and big data to develop novel financial products and services that surpass traditional financial institutions in terms of efficiency, accessibility, and customer experience.
The fintech market encompasses start-ups, well-established financial institutions, and other companies employing technology to revolutionise and innovate within and outside the financial services sector.
According to Research and Markets, South Africa’s financial services sector is internationally recognised as one of the most sophisticated. In the last decade, this has been complemented by a small but fast-growing fintech sector that is transforming financial services through digitisation, streamlining and/or disruption.
Accounting for 40% of all fintech revenue in Africa, Research and Markets adds that South Africa has a relatively mature fintech market with a strong focus on development.
South Africa’s fintech sector has the potential to enhance operational efficiency, cut down on operating expenses, enable smooth real-time customer transactions, and foster a high degree of personalisation.
These advancements can significantly boost the effectiveness of Financial, Retail, Telco and other industry domains, by contributing positively to bettering the financial well-being of the everyday South African.
Fintech can address issues related to payments, credit, and remittances, while also delivering accessible and suitable financial products like investments, savings, and insurance on a large scale.
The local fintech sector has largely been credited for disrupting the traditional financial services sector.
Amid the rapid growth of the fintech sector, start-up companies playing in this space have attracted investments from local as well as international investors.
A McKinsey & Company analysis report reveals that Africa’s financial services market could grow about 10% per annum, reaching about $230 billion in revenues by 2025. This amounts to approximately $150 billion, excluding South Africa, which is the largest and most mature market on the continent in this context.
The report states that South Africa boasts almost 100 innovative fintechs, that are filling a massive void left by the traditional banks. Small business owners in particular feel the support of fintechs more than anyone else.
Fintech led companies provide businesses with an offering that is not readily provided by traditional financial services institutions, for example, seed capital for start-ups, flexible micro loans, unconventional financial advice, native digital financial solutions, contactless services and many more.
McKinsey & Company adds that as one of the fastest-growing industries in Africa, the success of fintech companies is being fuelled by several trends, including increasing smartphone ownership, declining interest costs, and expanded network coverage, as well as a young, fast-growing and rapidly urbanising population.
The US Department of Commerce has taken notice of the growth the sector is witnessing. It says South Africa’s fintech industry has seen substantial growth in recent years, driven by factors such as rising financial inclusion, the adoption of digital technologies, and a growing middle class.
According to the department, the country’s well-established financial sector and supportive government policies create an ideal ecosystem for fintech innovation.
Sustaining growth
There are several ways in which the fintech firms can sustain the tremendous growth that they are experiencing.
Fintech companies need to stay at the forefront of technological advancements by regularly introducing new features, services, or products that keep them competitive and appealing to customers.
Expanding into new markets, both domestically and internationally, can also open new revenue streams and reduce dependency on a single market.
To remain competitive, fintech businesses must forge strategic alliances or what are known as ‘value partnerships’ - collaborating with other industry players, traditional financial institutions, other fintech companies, or complementary businesses that can provide access to new customer bases and expertise. These value partnerships also unlock cross-selling opportunities.
It is crucial for these firms to stay abreast of evolving financial regulations and ensure full compliance in order to build trust and avoid regulatory setbacks.
Fintech companies should focus on providing exceptional user experiences and addressing customer needs. This leads to customer loyalty, positive word-of-mouth, and sustained growth.
Data security is another critical element. Fintech companies handle vast amounts of sensitive financial data, including personal identification information, bank account details, credit card information, and transaction histories. Ensuring the security of this data is crucial to prevent theft, fraud, and unauthorised access and sustain industry growth.
Sustaining growth in the fintech sector requires a combination of forward-thinking strategies, customer-centric approaches, and a commitment to regulatory compliance and data security. By continuously adapting to the changing landscape and addressing customer needs, fintech companies can remain competitive and expand their market presence. DM
Author: Mpho Matsitse, Executive: Digital Transformation Consulting at BCX