Fintegration is the new game
It’s not business as usual in financial services, and that’s a good thing
THE global financial services sector landscape has changed significantly in the past few years as new entrants — from individual innovators to large technology companies — introduce new funding solutions in specialised areas traditionally serviced by banks.
Crowdsourcing, for example, has enabled individuals to secure funding from a crowd of people online, rather than from a bank. Blockchain, the technology behind virtual currencies such as bitcoin, could introduce a level of transparency not seen before in global supply chain transactions.
The speed and scale of innovation in the financial services sector, particularly through technology, is gaining momentum.
Last year, global investment in financial technology, or fintech, ventures tripled to $12.2-billion (about R175-billion), according to Accenture’s report on the future of fintech and banking, which joins others in saying that the digital revolution is in full swing in the financial sector.
This is good news for consumers, particularly in Africa, because technology has the potential to bypass generations of physical infrastructure developed in first world countries to bring financial services to consumers. Just as mobile devices replaced thousands of kilometres of copper cable, innovation and technology in the sector will render physical infrastructure obsolete in many instances.
Africa is, in fact, already leading the way as an early adopter of some of the latest banking solutions. In sub-Saharan Africa, for example, 12% of adults have mobile money accounts compared with just 2% worldwide, according to the World Bank’s 2014 Global Findex Database. This trend is set to intensify as smartphone penetration increases.
Innovation and technology can boost financial inclusion and help to reduce inequality as people who may not live near a bank increasingly have access to financial services.
Innovation, enabled through technology, also brings significant benefits to business. Peer-to-peer lending, which connects borrowers with lenders in online marketplaces, is increasingly popular in many parts of the world as businesses look for alternative sources of funding. One example is RainFin, a South African peer-to-peer lender part-owned by Barclays Africa. RainFin expanded from personal loans into small business loans, hoping to mimic the growth of the US’s largest peer-topeer lender, Lending Club.
With a maximum term of 24 months, small and medium-sized businesses can use the website to solicit lenders for as much as R250 000. These can range from people like you and me to large corporates looking to improve their yield on surplus funds.
Lending Club started in 2007 and its revenue almost tripled last year to $98-million, according to its annual report. The San Francisco-based company, and RainFin, connect individuals and institutions to borrowers through the web. RainFin’s annual interest rate for a loan is between 10% and 32%.
The well-published failure of traditional unsecured lenders highlights just how important the role of alternative lending models can be in offering borrowers an easier, cheaper alternative.
The financial services industry has been challenged in the past by disruptive technology, but with that has come opportunities. And rather than watching disruption from the sidelines, forward-thinking tradi- MONEY FROM NOTHING: Brian Ochieng waits for customers at his second-hand clothing shop in the Kibera slum in Kenya’s capital, Nairobi. The M-Pesa service he uses — which enables mobile money transfers — is a model of how technology can be used to financially include millions of people with cellphones but without access to traditional infrastructure such as the banks that are available to the wealthy or those living in cities
Innovation and technology can boost financial inclusion and help reduce inequality
tional providers are becoming active participants in this process, in many cases facilitating and accelerating innovation and technology advances.
The focus is no longer just on competition — it is also on collaboration. This is where the smart banks will adopt the art of fintegration. Rather than competing with financial disruptors, which can often move more quickly because they are small or technology-based, fintegration calls for collaboration. This way, large financial institutions gain by tapping into innovation to offer customers the best solutions available, while innovators benefit from the scale, reach, resources and trusted brand that large financial institutions can offer.
An example of fintegration is Barclays’ Rise initiative — an umbrella programme for a range of programmes that give innovators and start-ups the ability to scale their ideas in new markets. Part of the Rise initiative is establishing hubs and digital platforms where innovators can work with Barclays and others to co-create technology-based financial solutions.
This is particularly relevant in Africa. It provides developing markets with an opportunity to leapfrog ageing analogue infrastructure deployed in most developed economies, and with it the capacity to solve some of Africa’s development challenges.
In the next year or so it won’t be unusual to see young, independent technology developers working with managers of large bank divisions. It’s certainly not business as usual in the financial services sector. Innovation is making strange bedfellows in the financial services industry. This is a very positive development for innovators and banks, but even more so for customers and clients.
Bond is the CEO of retail and business banking at Barclays Africa and Absa