The drivers of future financial innovation

COMMENTARY – TECH WORLD

A wise man was walking along a path followed by a peasant assistant, and they passed by a dead rotting stinking cat. The peasant held his nose a little while later, sensing that the sage might not have noticed the dead cat they had just passed; the servant politely asked, “Master, did you not see that stinking dead cat?” The wise man turned and answered his servant, “Did you also not see what white, pearly and shining teeth the cat had?”

My lecturer Professor Gitile Naituli often told this fable to inculcate in us the value of having multiple perspectives instead of tunnel vision. The Covid-19 pandemic has been so far the biggest disruptor of global trade and investments in the last 50 years. It shattered all efforts to achieve borderless trade and investments over the years but was covered in gloom and doom. A lot of islands of productivity and inventions cropped up. At the sight of the dead stinking cat, there are pearly white teeth that are gems to behold. 

Covid-19 has acted as a catalyst for the world’s resiliency. So hardened are we for external shocks such that yesterday’s breaking news does not come with the punch they used to. Terrorist attacks, extreme weather, climate change, civil wars, religious extremism, stock market losses and inflation all continued unabated by the pandemic. They did not hog the front pages: the pandemic did.

Under this dark veil of the pandemic, the development of the Malaria vaccine, which to date is the single biggest killer in Africa, was welcome news. The World Health Organization (WHO) recommends extensive vaccine use among children in sub-Saharan Africa and other regions. Kenya was one of the focal points of the study.

Further, an experimental HIV vaccine based on mRNA—the same technology used in two highly effective COVID-19 vaccines—shows promise in mice and non-human primates, according to scientists at the National Institute of Allergy and Infectious Diseases (NIAID). 

The financial sector also experienced these game changing developments. Kenya has experienced a steady growth of financial technology (Fintech). Fintechs have revolutionized how financial services are provided to consumers and businesses. 

The government is putting proper regulatory frameworks that promote Fintechs and the Central Bank of Kenya (Amendment) Act, 2021 amendment allows licensing and oversight of unregulated digital credit lenders. It has opened up space for market and product development that will enable fintech to scale to levels of multi-financial service providers. Several Fintechs are looking to partner with established financial eco-systems such as banks, SACCOs, Insurance and micro-finance Institution as more or less equal partners.

Such partnerships will remain viable and attractive, especially with SACCOs or Neo-Banking-as-a-service (BaaS) service providers.

Notable benefits of such partnerships may rid unnecessary duplicities. As such, a Bank or Sacco partnership may exempt the fintech from specific entry barriers such as minimum capitalization requirements, charges on money transmission, regulatory and licensing requirements while also permitting the fintech to focus on customer acquisition, user experience, and technology-assisted transactions. Technically the partnering fintech will be held at the same standard of due diligence as the partnering Bank/SACCOs. 

Kenya ranks highly in Africa, with an access level to formal financial services at 83.7 per cent in 2021, according to FinAcess Household Survey. Bank, SACCOs and Fintechs are locked in competition, but as we examine the drivers, challenges and opportunities in the financial services industry, it’s increasingly evident that they should all be sitting on the same side of the table. 

Innovative financial institutions have partnered with Fintechs, especially on Mobile wallet solutions. Equity Group Holdings launched its fintech subsidiary, Finserve, signalling a future defined by disruptive innovation beyond its current financial services. The nimbleness and innovativeness of Fintechs hold the promise for financial engineering that would negate the effects of climate change through deepened coverage of all the dimensions of financial inclusion, such as sustainable finance (green finance).

The author Billy Mito works as a Research and Strategy Manager at Skylinks International Linkage Company. [email protected]