Payments and FinTech in South Africa: two reports

Just had a wonderful time in South Africa, a country I love to visit. Going between Johannesburg and Cape Town, there were many great meetings and networking opportunities, and it made me realise how vibrant the African fintech scene is after my recent visit to Cairo.

Cape Town is particularly noteworthy as one of the earliest and brightest fintech communities in the region, and I attended a great meeting hosted by Crossfin Holdings, where their Armada of start-ups presented their progress.

Probably the most impressive was Tyme Bank, a digital bank launched in 2019 that already has 8 million customers. They’re now looking at Asia for future growth. But there was also Adumo, Akelo, Efficacy, GAAP, iKhoka, mypinpad, Sybin, Tory Gold, Valors, Vantagepay and more. It was a great meet up in a beautiful part of the world.

Due to Chatham House Rule, I won’t say much more except to share two reports shared with me whilst I was there.

The first it the South Africa Reserve Bank’s digital payments roadmap report. I was particularly interested in their views on CBDC (Central Bank Digital Currencies) and cryptocurrencies. They say they are still investigating CDBCs for South Africa, with the aim of concluding these investigations by 2026. On cryptocurrency, Crypto-assets are emerging as alternative digital payment methods/assets.

Crypto-assets are based on DLT and smart contracts, with the potential to they are more risk averse, underlining the fact that crypto-assets are not legal tender in SA. Having said that, SA has not taken a position to ban the use of crypto-assets for payment purposes.

Interesting.

Another report I quite liked studied the positive and negative impact of fintech on finance in South Africa. Their conclusion is that fintechs hurt incumbent financial institutions by lowering the prices of financial products and services. This ends up reducing industry profits.

Furthermore, fintechs have exposed that incumbents are not agile enough and are slow to respond to customer demands because of their legacy systems and bureaucracy. Fintechs also increase competition for the incumbents.

Because fintechs are not regulated like the incumbents and usually fall outside the traditional regulatory framework, they are more likely to introduce new regulatory risks into the industry.

The fact that fintechs are not subjected to the same regulations as the incumbents creates an ‘uneven playing field’ because incumbents must invest massive amounts of money to ensure regulatory compliance.

In contrast, fintechs are not subjected to the same regulatory scrutiny. In some cases, these risks end up creating regulatory arbitrage.

The positive effects of fintechs in the financial services industry revealed by this study include the ability of fintechs to solve customers’ problems by:

• lowering the cost of financial services and products;
• improving efficiency;
• improving customer experience by introducing personalised products and services;
• increasing financial inclusion by extending financial services to the previously overlooked or underserved customers;
• increasing options for customers so that if they are not happy with their financial institution they can switch to another instantly bringing convenience by removing the question of space and time so that customers can access financial services on their mobile devices such as phones and computers anytime and anywhere;
• making the industry more competitive;
• introducing new growth opportunities for the industry players (extending financial services to previously unserved areas);
• reducing operational costs for the financial institutions; and
• making the industry more innovative.

I know which one I would vote for!