Want a loan? Who needs a credit rating when you’ve got Facebook shares and likes?
Fintech is changing the financial sector, and many African countries are embracing the trend. Younger generations are skipping the step of securing loans through credit ratings at conventional banks – instead, they’re being assessed through the social media profiles, and securing loans on their smartphones. How does this work, and what does it mean for our financial futures?
So what exactly is ‘Fintech’?
Put down your headphones – Fintech is not a Techno DJ from Finland. It just means ‘financial technology’ and it’s exploded over the last five years. Now money is pouring into the industry. And it looks set to radically change how we do business and run finance.
How is it changing our lives?
These Fintech companies are allowing people to manage payments, money transfers, loans, fundraising and even asset management through their mobile. This is changing the way companies do business and is fast becoming mainstream. Just consider, when was the last time you went to the bank? When was the last time you wrote a check? Now there’s a new generation of consumers who are always online, which has created new markets, new jobs, and new services, all delivered digitally.
Like what?
Crowdsourcing, for instance - a model pioneered by Kickstarter - allows people with big ideas to get funding quickly and easily from anywhere in the world from people they’ve never met. No lengthy negotiations needed, no back and forth with investors. Just a nice, well-presented pitch on the Internet and projects are given the chance to get off the ground.
Need to transfer money across borders? No problem – TransferWise is enabling small firms and individuals to transfer money in far cheaper and far quicker ways than were previously possible.
Other platforms like Zopa in the UK are providing hundreds of millions of pounds in ‘peer-to-peer’ loans. It’s putting people with money and people in need of money together more efficiently than ever before. It’s a bit like Napster for money.
The bigger threat to the traditional financial sector lies in payment systems and digital currencies. Bitcoin (and its underlying technology, the blockchain) is probably the most famous but there are loads. This could remove the need for cash transactions and, eventually, electronic bank transfers.
But the big banks are not sleeping on the job. After a slow start, they’re now investing in many of these startups. UBS, Barclays, Santander, Goldman Sachs, and JP Morgan are all running Fintech programmes to capture this new wave of financial innovation.
Should you be excited or scared?
Both. Expect great and amazing things. Fintech will make things easier and cheaper. Little efforts and globally connected people doing business without ever seeing each other. Loans opportunities being offered left, right and centre. The expansion of financial services to low-income families who have been unable to afford or access them creates a vast potential for business innovation.
However, wherever there’s money, there’s crime. So expect criminals to also seize on Fintech’s potential: both moving dirty money and cyber crime could be made easier. And without mass financial education, there’s a risk that people might get themselves in trouble by falling into fraud schemes or taking on too much debt.
And what about Africa?
Because many people in Africa don’t have traditional bank accounts, Fintech offers the chance for people to access in different ways.
Many of these platforms are actually doing things the big banks never have. MFS Africa, for instance, has connected 80 million mobile wallets. Another famous example of a mobile wallet is Kenya’s M-Pesa. Over 50% of adults in Kenya have a M-Pesa account. No wonder Nairobi is called the Silicon Savannah.
There are plenty of further examples: Zoona, a thriving money transfer business operating in Zambia and Malawi; Rainfin, a Cape Town-based lending platform focusing on SMEs. Live Stock Wealth, also from South Africa, allows customers to invest in cattle and get a return on their investment by selling the offspring.
For those seeking economic security or business opportunities, this could really change things. By developing an entirely new infrastructure, these new financial services are contributing to much-needed economic growth across the continent. Now that really is something to 'Like'.