Pandemic-driven shift to digital service helps upstart fintech firms
Innovation has always propelled the financial services sector forward. Previously, incumbents were at the forefront of innovation in the sector and new entrants played a peripheral role. However, the Covid-19 pandemic has driven significant shifts towards digital adoption, catapulting upstart fintech firms into the mainstream.
Incumbents have been forced to reinvent themselves to adapt, remain relevant and gain the ability to rapidly deploy digitised services to their customers.
They have also needed to find innovative ways to help their customers adapt to rapid and widespread change that has led to financial constraints for many South Africans.
We’ve noticed new trends emerging which are likely to continue. For instance, we are likely to see an increase in partnerships between big banks or insurers and other entities to provide innovative solutions, especially to those who were financially excluded, in line with the sector’s pursuit of inclusivity.
Some examples include one of the major banks partnering with the Small Enterprise Finance Agency to support spaza shops to get stock at lower costs, insurance companies raising funds for SMEs, and car insurance companies moving towards pay-as-you-drive insurance options.
Some banks have waived fees on their lowcost bank accounts, while all banks waived fees for Sassa grant recipients who use the ATMs of other banks to withdraw money during the lockdown period.
There has also been a flurry of new financial service providers clamouring to address the growing shift towards digital consumption.
One such new player to the industry provides low-cost digital banking, and a payment service provider has supported its customers — typically small businesses — during the pandemic by making funding available and helping many of them move online and go cashless.
New upstart fintech firms like these won’t necessarily wait for regulations to catch up, and regulators are at risk of being left behind as innovation outpaces the rate of regulatory change.
This has made it necessary for regulators to evolve their engagement model to ensure they keep pace with the times.
To this end, the Financial Sector Conduct Authority (FSCA) has partnered with other key South African financial services regulators under the Intergovernmental Fintech
Working Group (IFWG) umbrella to establish the Innovation Hub to ensure that fintech activity in SA is regulated effectively.
The IFWG launched the Innovation Hub in
February this year to enable regulators to continually promote and support responsible innovation and drive financial inclusion in the financial services sector.
To date, we have already witnessed how upstart fintech firms, consumers and financial regulators stand to benefit from the Innovation Hub, which is providing a space for safe experimentation and collaboration, and for market innovators to resolve specific questions regarding the policy landscape and regulatory requirements.
Going forward, the FSCA will also host a number of “hackathons” that will bring together key players in the fintech ecosystem to share ideas, develop financial products that address pressing problems in SA, and drive the formulation of policy.
The FSCA wants to see innovations that are beneficial to customers and the market, resulting in lower prices, increased competition, improved access and financial inclusion, lower costs, increased efficiency and improved regulatory compliance.
In recognising the need to also disrupt ourselves — particularly in the post-Covid-19 era — we are leveraging our proximity and access to emerging fintech firms to identify suitable technologies that can fast-track our internal digital transformation efforts and supervisory capabilities.
Ultimately, in the face of Covid-19 developments that are leading to greater degrees of digital adoption and accelerated change, our desire is to ensure that we promote responsible financial sector innovation that generates economic benefits for individuals and businesses in SA.
Mainstream companies have been forced to reinvent themselves to adapt