The financial technology (FinTech) sector has experienced remarkable growth in the last few years, giving rise to an innovative range of developments that are impacting the lives of consumers in many markets. After an initial surge in the retail banking sector, now FinTech is making its presence felt in the commercial banking sector, with more and more banks, insurers and financial service companies looking to integrate this new technology into their own systems in the near future. In fact, the Global FinTech Report 2017 estimates that 82 percent of existing operators will increase their FinTech partnerships over the next three to five years.
Many observers might think that this dramatic rise in the implementation of FinTech is restricted to developed countries, but in fact, South Africa and other developing countries have a number of rising FinTech stars of their own.
Technology boosts financial inclusion
FinTech has been around in South Africa for a number of years, with providers like Wonga offering instant cash loans online to South African consumers. But where advancements are really been needed is in the area of financial inclusion.
The FinScope South Africa 2016 Survey found that 77 percent of South African consumers have a bank account, although if South Africa Social Security Agency (SASSA) cardholders were excluded, that figure falls to 58 percent. About 51 percent of adults are currently borrowing from various sources to supplement their income, while only 33 percent are saving and 15 percent saving through the banks.
Although those results show levels of financial inclusion still need to improve drastically, there have been significant increases in the last few years. Mobile payment platforms are considered to be a major reason for this, with the number of people with a financial account across Africa rising from 21 percent in 2011 to 63 percent in 2014.
Levels of financial exclusion fall
As FinTech has expanded its reach into more of the financial services market, levels of financial exclusion in South Africa have fallen. About 11 percent of the adult population are now financially excluded. That means 4.3 million people have no form of financial account at all. Of those, it is the youngest members of society who remain excluded, with 38 percent of 15-17 year olds having no account, compared to 18 percent of 18-29 year olds. It is thought that the majority of the excluded young adults are not employed and are economically and financially unsettled.
FinTech investment in South Africa
Chinese companies have been quick to identify the huge opportunity that exists in South Africa, particularly when it comes to reducing the cost of money transfer into and across Africa. China has recently invested in the South African micro-jobbing service Money for Jam. There was also a significant investment by Standard Bank, Africa’s largest asset lender in 2015 when it partnered with tech company WeChat to give it a stake in the growing mobile payment market. This was first launched in South Africa before expanding across the continent.
Although FinTech is helping to improve rates of financial inclusion in South Africa, there is still a clear gap in the market for more FinTech and mobile banking companies to help boost this struggling economy.
What FinTech products do you use and what new services would you like to see? Please share your thoughts in the comments below.