Putting the fin into tech
Fintech entrepreneurs are finding practical solutions for banking Africa’s unbanked
Innovation and sustainability are the current buzzwords and entrepreneurs in the financial technology (fintech) industry are coming up with new, exciting ideas to solve the problems of their target market.
One such innovation is ukheshe, which provides a payment system targeting informal traders who do not have access to mainstream payment solutions. The company is one of 12 finalists in the 2019 Global Fintech Hackcelerator @ Southern Africa — a South African Reserve Bank and KPMG Matchi initiative — which showcases fintech firms that demonstrate innovative solutions to complex financial challenges.
Co-founder of ukheshe, Clayton Hayward, said the prerequisite to be a merchant who uses tech solutions such as Snapscan or Zapper, or even a point-of-sale terminal from a bank, poses insurmountable challenges for informal traders. These include providing financial statements, such as proof of income, a business plan and proof of residence.
Hayward said informal traders might not have the records of their business activity and, therefore, are by default excluded from receiving digital payments. “They’re limited to cash-only transactions,’’ he says, adding that many subsistence entrepreneurs can double their daily income if they are able to accept digital card payments.
Entrepreneurs start by buying an ukheshe card which has a QR code, at Pick n Pay for R20, or they can get it directly from the company. A QR code is a machine-readable code of an array of black and white squares, typically used for storing URLS or other information that can be read by the camera on a smartphone.
The user can then register the card with their cellphone number and start receiving payments from all the major banks in South Africa.
Hayward said the big benefit is that the Ukheshe cardholders do not need a bank account: they access funds via an ewallet. Users dial *120*82274# and follow USSD prompts to view their balance and can withdraw the money at any Pick n Pay till nationwide. The company started doing business in November last year; so far it has 275000 clients.
Co-pierre Georg, an associate professor at the University of Cape Town’s African Institute of Financial Markets and Risk Management, told the Mail & Guardian that fintech will shape the financial services industry in the next decade or two.
“There is not a single function within a bank or money market fund that won’t be affected by fintech. From payments to underwriting to compliance, in all areas of financial services we now see fintech companies successfully compete with industry incumbents,” he said.
Georg said many South African innovations have tackled the issue of remittances, that is, cross-border payments by migrants.
“South African remittance companies are recognised internationally and have seen solid growth over the past years. This sets us slightly apart from the United Kingdom or Europe where there is more of a focus on artificial intelligence startups,” Georg said.
Paycode is another South African fintech company in the Hackcelerater finals. It facilitates payments and helps to store electronic data.
The company, established in 2014, operates in Ghana, Zambia, Nigeria, Mozambique, Guinea, Botswana and Namibia. It doesn’t currently operate in South Africa because of the previous presence of Net1, a universal electronic payment system that handled the payment of social grants in the country.
Paycode partners with governments, nongovernmental organisations and financial institutions, enabling them to make payments to recipients. The company’s goal is to “financially include the 590-million deep rural and urban population in Africa who have up to now been unbanked,” said Grant Haarhoff, chief financial officer at the company.
Haarhoff said the slow rate of infrastructure development in many African countries had left a large proportion of the continent unbanked. That’s what inspired the idea for Paycode.
Recipients receive a Paycode card that is registered with the user’s personal data. The cards are biometric secured, allowing individuals to use a fingerprint to withdraw money from point of sale devices close to where they live, provided for by Paycode.
Haarhoff said Paycode already has 3.4-million registered users, with a five-year target of 100-million.
“We are taking affordable, secure financial services to the people under the mango tree, without the need for physical branch structures or data connectivity,” he said.
Although innovations such as these are transformative, there is more that can still be done, according to Georg. He said to support fintech the Reserve Bank and the government need to implement a token-based central bank digital currency.
He said the sector needs this infrastructure to develop new and innovative products. Georg says once a product is developed in one country, it can easily scale globally. “We have a unique opportunity in South Africa to become world leaders in this field and we need a sense of urgency among our policy makers,” he added.
The 12 Hackcelerator finalists will participate in a demo day on October 29 to strut their stuff to the judges, who will adjudicate two winning innovations. The winning companies will have the chance to attend the 2019 Singapore Fintech Festival.
Tshegofatso Mathe is an Adamela Trust business reporter at the M&G