The focus on digital credit in Kenya may erroneously lead you to believe that fintechs are all about lending particularly emergency loans. The media, investors, and regulators, all focus on lending, yet there is so much more to digital financial solutions. This misconception is evident in the proposed Central Bank of Kenya (Amendment) Bill 2020, where the Central Bank of Kenya (CBK), seeks to regulate and supervise all digital financial products. Should the CBK be responsible for regulating insurance, what role would the Insurance Regulatory Authority (IRA) play on digital insurance products or the Capital Markets Authority (CMA) on digital investment products? Anyway, that’s a conversation for another day!
Fintech is a derivative word that means Financial Technology and refers to any innovation that changes how people transact. We take advantage of technology to design new products and services, re-engineer processes or create the right regulatory frameworks to govern in the current financial environment. This article introduces other possible fintech plays related directly to the end-user, the customer.
The payments play focuses on the movement of money from one place to another. The fintech can choose to enable peer to peer payments (M-Pesa, Airtel Money, Venmo), bill payments to merchants and corporates (Lipa na M-Pesa) or local or cross-border transfers (WorldRemit, Remitly). The objective here is to make transactions easier, cheaper and faster, whether the customer is at the store, online on the move.
Digital wallets are another fintech play around payments. Digital wallets seek to replace your physical wallets. In your physical wallet, you may have cash, ID, loyalty cards, a transport card and bank cards (credit and debit). A digital wallet seeks to recreate all these digitally, eliminating the need for the physical wallet. ApplePay, SamsungPay and GooglePay, for instance, link your account to a card you already own. You can then use your phone to make payments rather than the card. You can use this wallet for online shopping or in-person shopping where the retailer has an NFC-enabled device. Others like Venmo, PayPal, Uber Cash and M-Pesa hold actual cash. You can top up your account with real money and transact directly from the wallet without linking to your bank account. You can also store tickets and passes on your digital wallet eliminating the need to have a physical token. We are yet to have one wallet that does all these functions, so there’s room for more innovation.
As access to digital payment methods increases, demand for online shopping has also gone up. In post-COVID Kenya, we are shopping online more than we did before the pandemic and using digital payments. Jumia has a food cupboard, clothes stalls in the CBD are restocking from China online, and I’ve discovered the pleasures of Sephora and Banana Republic online. Businesses, farmers, property owners too, are going online to reach customers outside of their physical premises. There is a growing demand for fintechs that allow people and businesses to buy and sell reliably and securely over the internet, whether it is business to business, business to consumer, consumer to consumer, or consumer to business.
Bookkeeping and Financial Literacy
While these are two separate plays, I will talk about them together. With an increase in transactions, people and businesses need to keep a record of their transactions. Further, they need to categorise them. I hate going through my bank statement at the end of the month to categorise each transaction and then track it against my budget. I’d prefer instead that my bank’s App or the M-Pesa App classified spend at the point of payment. The bank could then use this info to give me financial tips on how to save more and earn on investments, automate bill payments, follow up on debts and arrange credit if I’m falling short. Instead of installing accounting software and Apps separately, I could track both my personal and business finances from one place.
There has been a lot of development in Insurtech over the last few years. Other than digitisation of the process, the insurance industry is using technology to create solutions for customers at the bottom of the pyramid. Companies like Bluewave Insurance have created a micro-insurance health product that allows you to pay as little as KES 150 in monthly premiums to get cash against hospitalisation from the second night, death and disability cover. The premiums are very low and we need technology to enable the companies to handle more volumes so they can make a profit. Other fintech companies are approaching insurtech as a platform that provides customers with different insurance products to choose from. You can download their App and see products from a variety of companies for Motor insurance, Home insurance, among others. You can then select the best based on your chosen criteria.
Savings and Investment
There’s a lot to be done towards re-engineering savings and investments. We’re using the same old bank accounts and investment vehicles even though we call them by different names in each financial institution. Sadly, people think sending money to my savings account over M-Pesa is an innovation. Every savings account you see is bank-led. We don’t have any fintechs innovating in the space, creating products linked to other financial plays. Yes, savings can only be stored by a regulated entity, but that doesn’t mean we have to be boring. Come up with an idea and partner with a regulated entity to execute.
When you think of incentives in Kenya, Bonga points and supermarket loyalty points come to mind. However, this barely scratches the surface. When you hold customer data, there’s a lot you can do with it that would be beneficial for the customer and your business. Data analytics helps you offer discounts based on customer behaviour, tailor your engagement with the customer, cross-sell, offer advice and reward your customers or even link your customers’ spending habits to charities and causes. Incentives enhance customer loyalty and will have a positive effect on your top and bottom-line.
We have barely scratched the surface on credit. Fintechs focused primarily on automating the process for short-term loans. There’s work to be done on long-term loans like mortgage, car loans, invoice financing, lines of credit and overdrafts.
Identity and Addressing
Identity is a set of attributes that uniquely identifies an individual or entity. Legal identity is who you are in law, and your identity assigns your rights and responsibilities, behaviours and capabilities. Without an identity, you are not able to participate in government, benefit from public services or access financial services. In other words, no voting, no tendering, no government aid, no registering businesses or opening accounts. 1.1 billion people in the world do not have a legal/formal identification and are therefore financially excluded because they cannot meet the KYC checks. We are now using digital IDs like Aadhar to solve the identification problem, although there’s more to be done in this area.
Addressing in developing countries is also a challenge. I must admit we’re doing better due to the increased use of ride-sharing and delivery services in Kenya. It is, however, still challenging to collect and verify an address for either KYC or deliveries making access to financial services even more difficult. Imagine trying to track down a defaulter in a slum or area where there are no street names and individual buildings are not uniquely identified. Companies like OkHi are doing a great job to address, pun intended, this issue.
Despite the hype, fintech, and financial services, is more than lending. The idea is to revolutionise how financial services work by providing new products and services that give businesses and individuals ubiquitous choice on how to manage their finances. We shouldn’t focus too much on digitisation and automation but go back to basics and create solutions that speak to the customer's needs. Innovation is essential to take financial services to the next level where banking is not somewhere you go but something you do.