Financial technology (fintech), refers to the use of the latest technologies to provide financial services to individuals and businesses, who are in need of the convenience which the technology provides. It can be used to make local payments, send cash domestically or internationally, acquire credit, access insurance products, and so forth. A major advantage leading to its rapid adoption by financial organisations and customers, is that it typically reduces costs on both ends (for the fintech company and the customer), whilst it enables most transactions to occur quicker than traditional financial methods would possibly do. In order to benefit from the mentioned advantages, traditional financial institutions (banks, insurance companies, etc) also buy the fintech companies or collaborate with them, time and again, as they incorporate technology into more of their products and services. The digital banking platforms of major banks, are a good example of financial technology. Examples of companies which specialize in fintech within South Africa are; Getbucks, Wonga, PayFast, Yoco, Mukuru, Live Stock Wealth, PriceCheck, Compare Guru and Jumo, among others.
SA’s fintech landscape
The country has the largest fintech industry in all of Africa, generating as much as 40% of all fintech revenue attributed to the continent. The fact that 89% of all banked South Africans use digital banking also shows the market’s desire to work with innovative fiancial products. Digital investments are the largest component of the domestic fintech sector, with as much as US$567 million (R10.6 billion) of funds deposited, as of 2023. Regarding the use of digital payments, the number of local users is expected to reach 37.42 million (over half of the population) by 2027. Digital payments are also one of the largest and oldest subsections of the domestic fintech space, with 30% of fintech companies serving this market segment.
Opportunities for growth
Since SA is a leader in fintech innovations, regionally (in Africa), it is advisable for the government to encourage local companies to expand their operations to foreign countries. Nigeria, Egypt, Kenya, Algeria and Morocco, for example, offer lucrative regional markets. It will also be commendable if the local companies develop products for overseas markets such as the USA and Europe, as well. This will earn the country foreign exchange, through repatriated profits and other revenues. Such moves will be crucial because the local market has smaller customer numbers and lower disposable incomes.
South Africa’s collateral (asset) registries will also need to include cattle and other forms of assets owned by villagers and MSMEs. This will enable the issuance of higher-value loans to villagers and MSMEs. Villagers, MSME owners, and small-holder farmers, should be able to pledge goods of smaller value such as cattle, inexpensive equipment, or the previous year’s harvest (if stored), as collateral for small loans from fintech companies. This will be a noble move because new job roles for urban and rural citizens will be created, through the formation and management of such collateral registries. The ability of the aforementioned small economic participants, to improve their liquidity positions through small loans of a higher value, will enable them to be more productive. Some of them (villagers, MSME owners, small holder miners and farmers) will ultimately be able to develop larger formal businesses or powerful export companies, through such loans.
In order to nurture more talent in computer programming and data analytics, which support the fintech and other IT sectors, the government may work on campaigns to actively recruit more students for the mentioned IT classes, at state universities. Privately-run universities should also be encouraged to do the same. The advantage of gaining more skills in this space is that; if they are not utilized locally, they can still be exported, since they are in high demand, internationally. The government, through the Department of Science and Innovation as well as the Department of Higher Education, may also support universities by providing the latest software and technologies, which will help in developing relevant and highly-skilled graduates. The support can be in-kind or in cash, through direct grants, etc.
Both the government and private sector should also be encouraged to regularly sponsor university competitions pertaining to the development of IT products. The products can eventually be monetized for commercial returns. This will inspire the culture of innovation among the students. Academic institutions should also strive to search for a market for any feasible product created by scholars, even outside of competitive programs. That would also mean that universities should be turned into “academic incubators”, which train scholars on how to develop entrepreneurial skills and fundraise for the commercialization of their inventions.
The government can also promote the growth of the domestic fintech sector through enabling pensions and other social grants to be accessed digitally, on local fintech platforms. That will provide a greater market for fintech products. If the local taxi industry can be influenced to adopt digital payments, then the market would be made much larger. This would also encourage more competition and innovations, in the domestic fintech sector.
Development partners such as DFID (UK), USAID (USA) and SIDA (Sweden), along with the government, can also be encouraged to provide partial guarantees for loans made to local MSMEs and small holder farmers, by domestic fintech firms. This will enable local fintech firms to have the “breathing space” to develop and refine lending facilities for the informal sector, whilst the recipients (of the loans) will have greater access to the much needed cash flow. Once domestic fintech firms become adept (skilled) at lending to the informal sector, they will then be able to operate independently without assistance. Resultantly, they will eventually serve a unique and important role, of assisting the informal sector with credit, which traditional banks cannot do. This can drive strong economic growth, since a growing proportion of South Africa’s economy is becoming increasingly informal. The success of such products will also enable the local fintech firms to export their services to foreign markets, which do not yet have such innovative products (as lending to the informal sector).
Kevin Tutani is a political economy analyst- tutanikevin@gmail.com
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