Fintech is rapidly transforming the very essence of global financial services. Here at AlphaCode, we spend a lot of time researching and thinking about how technology, social media and a transforming consumer base is enabling new business models and changing the financial services landscape. AlphaCode is the Rand Merchant Investment Holdings (RMI) incubation, acceleration, and investment initiative that identifies, partners, and grows early stage financial service ventures.
Here are our predictions for the financial services market for 2020 based on what we’ve observed globally and locally with our members.
Even though international investors are somewhat wary of putting money into South Africa currently, there are enough dynamic local players to fund projects - with deals certainly starting to flow through. This is a tremendously exciting sector to watch.
While 2019 saw the introduction of consumer digital banks such as TymeBank and Discovery Bank; in 2020 the focus will turn towards the SME market.
Following its R3.56 billion takeover of Mercantile Bank earlier this year, Capitec Bank has shown that it views the SME and entrepreneurial sectors as providing significant growth opportunities. We expect them to do for SME banking in 2020 what they did for consumer banking over the last decade.
Bank Zero will also be launching, and it will be interesting to watch how this digital bank will put more pressure on the incumbents to innovate.
FNB has already responded to the influx of digital SME banks with the launch of its First Business Zero account. Designed for digital-savvy sole proprietors, this account provides zero-rated account fees to entrepreneurs and includes unlimited free card swipes.
Mobile point of sale (mPOS) players like Yoco and iKhokha are also making further inroads in the SME market - with more than 100 000 small businesses already part of their payment network.
Stokvels have become an integral part of South African society. A community of people serving as a vital savings scheme, stokvels illustrate the importance of how we relate to one another when it comes to money. Insurers like Sanlam are working with the National Stokvel Association of South Africa (NSASA) to offer financial services products to their base.
In line with this concept, mutual services will see strong growth next year. Iemas Financial Services is a group-buying community that leverages the power of its hundreds of thousands of members for collective bargaining. Arguably, it functions as a co-op that negotiates good deals on behalf of its members. This can include anything from discounts at a retail store to more affordable insurance products.
There is also PPS which has been around for some time. It provides financial services to professionals such as doctors, accountants, lawyers, and engineers. By segmenting its product offering and focusing on a niche, it puts professionals together in a risk pool. This enables the members to benefit from more affordable premiums. This shared finance trend can create an opportunity to grow.
Then, the Kin app is designed to track shared expenses and get paid. Whether people are living in digs together or a few friends are planning a trip abroad; Kin lets members track shared savings goals and expenses - like a WhatsApp for money. This secure service manages all the key elements of the payment process, and is likely to prompt quite a few discussions around the communal side of money in 2020.
Bitcoin will be making a welcome return to prominence this year. We have always said that the best use case for Bitcoin is in an emerging market. Typically, such a country would have political instability, a volatile market, high exchange controls, and expensive money transfers – all areas where cryptocurrencies can deliver significant disruption.
With this in mind, 2020 will put the focus back on the decentralised money discussions that were rife when Bitcoin first appeared. Today, the major difference is that the spotlight is firmly on Africa.
We are watching Centbee - which recently launched its Minute Money remittance solution. This uses Bitcoin SV to make cross-border payments to support family easily and more affordably.
Luno has continued to cement its position as a dominant emerging market crypto-currency platform with its relaunch in Malaysia and continued expansion into other African countries.
Another key trend will be around smarter insurance. Discovery and OUTsurance are using data to reward good driving behaviour with better priced premiums. This strategy is targeted at drivers under 25 who have had to deal with loaded pricing. Now, if these members drive well, the telemetry data will be used to improve and more fairly calculate their premiums.
Lumkani seeks to address the challenge of fires in informal settlements and townships with a sensor network of early warning systems. This has resulted in a partnership with Hollard to introduce affordable shack insurance for fire cover.
Taking this a step further, Sensor Networks is working with Sanlam, Nedbank, and Standard Bank to deliver smart insurance to customers. This uses smart sensors in people’s homes to provide an early fault-and-fraud detection system that allows for automated logging of faults and the easy coordination of assessment and technical repair teams. Everything from geysers to security cameras and fire detectors are linked to the network.
Without doubt, 2020 will also see a focus on expanding financial inclusion in Africa. Companies like Selpal, [Flash])(https://flash.co.za) and Nomanini are making it easier for informal traders to sell their products. These innovators bring alternative distribution channels to informal communities that easily connect merchants to suppliers and customers.
Zande provides trade and merchant finance to spaza shops to enable stock purchases. It offers brands in bulk at a lower cost with goods delivered to spaza shops within 24 hours of being ordered.
Spoon Money is a group-based micro-working capital finance platform for female informal traders. This platform enables them to access credit to support their businesses and create more sustainable and predictable income.
Another one to watch is uKheshe. This micro-transaction platform generates a QR code for street vendors and even car guards to use. People simply use Zapper or SnapScan to pay them instead of having to worry about carrying change. It has proven to be the ideal way to digitise these micro-payments.
These solutions are having a real impact on the lower-end of the market in a commercially sustainable way. Importantly, they are African solutions to solve Africa’s specific challenges.
A big area to watch in 2020 will be the proptech sector. For example, Jamii is creating a reward system for tenants where landlords can better incentivise their behaviour.
HouseMe provides a tech-enabled platform for better rental management. It does for rentals what Leadhome has been doing for the property sales market. However, Leadhome has pivoted and launched a rental service.
Innovators are quickly waking up to the fact that the local real estate market is highly fragmented and is one that can be improved and empowered with technology. When house prices are low and in a buyers’ market, people cannot afford to pay high commissions to agents. This is where proptechs will start dominating.
Coming to the market soon is IsiDuli. This is the AirBnB of the township market. It gives township dwellers the opportunity to create income from their land by providing financing to build a backyard room that can be rented out.
Alternative fintech partnerships
We have seen Root and Investec launching a programmable bank account for software developers. Essentially, this lets developers control their money programmatically, build their own features, and securely integrate with other services.
Lulalend and [Vodacom](https://www.vodacom.co.za have partnered to develop VodaLend. Designed to provide SMEs with finance through a digital portal in three steps; small businesses can apply for funding of up to R1.5 million over 12 months.
Retailers will also start coming back into the financial services space. Shoprite is looking at a number of financial services initiatives while Pick n Pay has partnered with TymeBank. Arguably, many retailers recognise that they cannot provide these kinds of services themselves and are identifying fintech specialists that they can work with.