Emergence and Growth of FinTech in South Africa

Small businesses seep into the corporate landscape like tea from a teabag. They identify niche spaces that were so far untargeted or unsaturated, and serve these well, without competing with (and often assisting) their much larger counterparts.

No wonder then that SMEs play a critical role in the South African economy, contributing about 34% of GDP and employing around 60% of the labour force. Not only do small businesses promote diversification of enterprise, they support inclusive development.

Tradesocio, a leading fintech brand is gearing up for a highly active 2018 that will see the launch of a new Alpha Suite platform. According to CTO Wael Salem, Alpha 2018 will include major releases like the Alpha Mobile Application, MT5 and the launch of the Global Funds platform. In this article, Wael takes a look at the emergence and growth of Fintech in South Africa. 

Parched Even for Pittance

Despite being such a vital driver of holistic economic growth, SMEs remain strapped for funds. They need nurturing, but remain parched. Innovative ideas, capable teams and viable plans atrophy, simply for the want of funds. The reason is that their fund needs are dynamic, and cannot be met by one-size-fits-all solutions.

Start-ups and small businesses need short-term loans and fast approval processes. While South Africa has an incredibly strong banking sector, it was just not financially viable for them to offer such products and services. In fact, the larger the financial institution, the more time consuming is its loan reviewing process and the more stringent its eligibility criteria.

Change Was Inevitable

This huge mismatch between demand and supply gave birth to innovative ways of providing access to funds. FinTech – the combining of Finance and Technology – addressed all the bottlenecks inherent in the traditional financial systems. Robust computer programs and powerful algorithms could complete the entire process of loan application, risk assessment, compliance and funds disbursement within a matter of hours.

Amid doubt and scepticism from industry participants and experts, FinTech exhibited great resilience. It emerged and evolved rapidly, providing flexible and affordable solutions, and soon became the way we access money and conduct financial transactions in the 21st century.

Apart from reducing the cost and turnaround time of financial transactions, the FinTech sector put the customer in the driver’s seat.

South Africa: Spearheading the Revolution in the Continent

Start-ups and small companies benefited from the massive cost reductions achieved by FinTech offerings of digital identities, blockchain, compliance and alternative credit scoring.

Financial inclusion was not limited to firms, but extended to individuals through mobile wallets and easy payment solutions. This is probably the biggest boon of FinTech for Africa, a continent where as high as 80% of the population is still outside the banking system.

Africa offered unique opportunities. The continent has a growing middle class, which is typically the segment that’s most open to innovation and known for rapid technology adoption. Africa also has a huge migrant population that was looking for economical ways to send money to loved ones.

South Africa’s FinTech innovators were swift to recognise the opportunities presented by these factors. Leading venture capitalists from the US and Europe also began considering Africa as a tech destination. African FinTech start-ups have raised more than $100 million in the past two years.

FinTech is now being considered as a facilitator of economic growth in Africa. And, South Africa has evolved into the FinTech hub of the continent, spearheading this latest development in the financial landscape of the continent. This is the land where FinTech innovation emerged and surged, giving hope to the under-served SME segment and underbanked population.

Who would have thought peer-to-peer lending, mobile wallets and personal finance management tools would become commonplace, or that companies would be using machine learning and predictive behavioural analytics to determine the financial products to offer their customers? More importantly, FinTech has significantly reduced costs, breaking barriers to business success and personal prosperity.

The Future of FinTech

While there are vast opportunities, the prospects of South Africa’s FinTech sector needs support, mentoring and access to funding. Moreover, regulation needs to keep pace with innovation. Otherwise, this will become an obstacle for the FinTech sector, which thrives on agility.

In their role as disruptors, FinTech companies often tend to burn bridges, when their focus should be on forming partnerships with the legacy entities. This is critical for such companies to achieve economies of scale, which will define their survival and growth in the years to come.

Tradesocio are currently in South Africa as a part of their global world tour. To arrange a meeting visit www.tradesocio.com