Fintech has changed and will continue to alter the way financial services operate in the process tilting scales in favour of consumers as far as service fees for banking are concerned.
Nonetheless, there has to be tight regulations and collaborations between central banks and traditional financial service providers which in the end will be important to protect the ultimate beneficiary-- the consumer. This was the general message expressed by various speakers at a two-day conference on fintech, payments and financial inclusion organised by Bank of Botswana (BoB), International Monetary Fund (IMF) and Bank of Canada (Boc) in Gaborone recently.
Fintech: The new normal of banking services
Fintech is generally defined as new technology and new innovations that are aimed at competing with traditional financial methods in the delivery of financial services. “Fintech brings cheaper and more efficient financial services,” opined Scott Hendry who is a special director-fintech at BoC.
In Botswana, some commercial banks have joined hands with mobile telecommunications service providers in the provision of e-money services such as Orange Money and Myzaka. The two services do not need a bank account to use, and they are critical in financial inclusion. “Fintech is critical especially to the unbanked people,” said Henry. In Botswana, nearly 40 percent of the adult population remains unbanked. With fintech comes reduced banking fees, which in Botswana have been a concern. The concern has also been in the form of those engaged in business regionally and internationally.
More and more locals are engaged in cross-border payments for various services. Cross border payments come with charges which vary due to a number of factors such as value and destinations.
According to Dong He, Deputy Director at IMF’s monetary and capital markets division, cross border payments are probably high because of traditional forms of service delivery which are often slow because they involve too many players who are also paid. The Hong Kong born stated that fintech companies provide reasonably affordable services which also deliver services on real time, a plus for customers and suppliers.
‘Disruptors of old financial delivery model’
Even the transport and communications minister Kitso Mokaila concurs with the two experts that, fintech, although they have been labeled as ‘disruptors’ in the financial services by traditionalists, are an important tool especially as far as financial inclusion and inclusive growth are concerned.
“Financial technology, commonly referred to as fintech, continues to transform the conduct and delivery of financial services, while embodying great potential to broaden the scope for financial inclusion and ultimately inclusive growth. There is no escaping the fact that financial technology is pervasive in all areas of economic and social activity; as well as modern day global interaction,” stressed Mokaila whose ministry also regulates mobile telecommunications companies through BOCRA.
The Canadian-born Hendry told the gathering which included top officials from private and public space that, fintech will go a long way in revolutionising the financial services sector, especially at a time when consumer demands are changing on daily basis. “Fintech is a global phenomenon right now. Look at M-Pesa,” he said. M-Pesa (M for mobile, pesa is Mobile banking"mobile phone-based money transfer, financing and micro financing service, launched in 2007 by Vodacom, the largest mobile network operators inTanzania"Tanzania.
It has over 40 million accounts in Africa. He added that through fintech, banks can be in a position to be able to get the full credit worthiness at their fingertips, enabling consumers to be helped in a record time. Henry added that, there has been a lot of development in the fintech space in Africa in the past decade, but a lot can still be done. Fintech space also allows for more startups in the field which can create the much needed jobs and opportunities especially for Africa’s young population.
Some of Africa’s top fintech companies include Rainfin, 22 seven, Bankymoon, Lendico and Paga. In Botswana, government-owned Botswana Innovation Hub has launched a P12 million innovation fund for those fields such as mining technologies, information technologies, business services among others. According to forecasts, Africa’s fintech space will be in the value of around $3 billion by 2020.
Fintech companies cut monopoly, increase competition
Various presenters at the conference stated that, fintech can help reduce monopolistic tendencies by existing players in the financial services space. In cutting monopolies, more and more players especially in the remittance space can be formed and this will be a plus to customers as far as fees are concerned. “We need to make our payments system more efficient and this explains why fintechs are important,” said He who was presenting on the topic Fintech and cross border payments.
Even BoB, who regulates banks, appears to be warming up to fintechs as another channel of financial services delivery. In a recent report, Botswana’s central bank which is headed by Moses Pelaelo noted that, “Fintech is undoubtedly accelerating the evolution of the financial sector, resulting in increased access to financial services and promoting financial inclusion”.
A few months ago, ABSA’s Managing Executive: Alternative Business Model and group innovation, Oupa Monyatsi told a conference in Gaborone that, Fintechs can help deliver innovative solutions which can result in more accessible product, improved products efficiency among others. He said that every year, ABSA, which rebranded from Barclays Africa, last week, invites applications from all over Africa, looking for those with innovative fintech solutions which are either sponsored or bought by the group. Monyatsi is former acting MD for Barclays Botswana.
‘Regulations need to be tight for fintechs’
As much as fintechs are important and will continue to revolutioniise the way banking is done, there is call for tight regulations which can help protect consumers against risks, as fintech will be acting as third party service providers. Since fintechs will be having access to consumer’s personal data, cyber crime occurrences cannot be ruled out, said Kenya Central Bank Chairman, Mohammed Nyaonga.
The professional lawyer stated that central banks need to play an even bigger role in regulation of fintechs. “Regulatory perimeters must change in tandem with innovation,” said Nyaonga. In Botswana, the central bank has not come up with any regulatory guidlines for fintech, but they have admitted fintechs are important. Mokaila disclosed that government is in the process of enacting Electronic Payments Services Providers Regulations.
“The aim is to facilitate orderly application of Fintech in financial services and payments. As we harness opportunities, we should recognise and mitigate the risks such as disruption and losses arising from system failure, cybercrime, misconduct and criminality, generally,” he told the meeting.