Democratizing Financial Services: Reflections from Africa Fintech Summit 2019
Twice a year, the Africa Fintech Summit brings the issues, entrepreneurs and opportunities revolutionizing finance and financial inclusion in Africa to the world’s stage. FINCA Ventures attended the Africa Fintech Summit 2019 in Washington, DC and participated in a panel discussion and start-up competition.
Fintech is changing the face and the future of banking. Lean, agile and innovative fintech start-ups are revolutionizing every touchpoint in financial services. This, of course, has sweeping implications for financial inclusion and the microfinance institutions (MFIs) and banks reaching end users. For this reason, I was thrilled to participate in this month’s Africa Fintech Summit in Washington, DC. I was fortunate to represent FINCA International as a panelist discussing fintech’s role in democratizing financial services for the underserved, and FINCA Ventures as a judge in a new ventures competition.
Opportunities in Agency Banking
It was notable that my two co-panelists run agency banking networks in Nigeria: Crowdforce and Xpress Payment Solutions. Agent platforms leverage small-scale businesses and retailers, or established networks such as post offices, to perform basic financial transactions, including withdrawals, deposits and payments. The democratization of financial services using fintech is about creating new forms of banking infrastructure — in this case, empowering local marketplace actors who are known in their communities with point-of-sale (POS) devices to fulfill customer needs conveniently and affordably.
For instance, Crowdforce has empowered over 90,000 agents who collect payments, perform KYC checks and disburse and collect cash in underserved markets in Nigeria where mobile money and mobile banking penetration is low. Xpress, for their part, has utilized a network of field agents to provide a platform for electronic bill payments and funds disbursement, among other services. All of this points to the growing trend of banking agents transforming from cash-in, cash-out businesses to platforms that push the barriers on accessibility and value creation in financial services.
FINCA is no stranger to the benefits and challenges of branchless banking, having first deployed a network of banking agents in the DR Congo in 2012. Along the way, we’ve seen how agency banking can become an avenue for women’s empowerment. Looking ahead, we’re interested to see how fintech can empower small business owners to solve liquidity challenges and help banking agents better understand collectability and cash flows of their businesses.
Unbundling of Financial Services
Interestingly, in the case of both Crowdforce and Xpress Payment Solutions, neither company’s agency banking network is linked to an established bank. This pointed to another trend that deeply resonated at the conference: technology is enabling the unbundling of financial services, and the pace is only accelerating. In an analogy that was the talk of the summit, Clinton Townsend from Visa compared traditional banks to Craigslist. To paraphrase, he noted that, Craigslist offered a way for people to find housing, among many other services. Airbnb, then, carved out that slice of Craigslist and helped build a new market for housing in an innovative and dedicated fashion. In the same way, specialized fintech start-ups are creating targeted solutions for various banking-related activities and, in doing so, they are growing markets for these solutions.
The entrepreneurs and investors in the room saw tremendous opportunity in how specialization of banking services could create exciting new business opportunities. Such innovation would require MFIs and banks to adapt, to create their own specialization, and to find new ways to work with fintechs that are driving specialization. The same folks in the room also acknowledged that, with a proven product or service, fintechs will need to partner with financial service providers, or may go on to build their own financial institutions, re-bundling services in the process.
Specialization will no doubt enhance the financial services available to customers and improve accessibility — just look at Crowdforce’s 90,000 agents in Nigeria! At the same time, I believe we will also see new kinds of banks emerge. But through it all, there remains a tremendous opportunity for new fintech entrants to partner with MFIs and banks, like FINCA Impact Finance, and grow existing trust networks to more effectively reach the underserved. In doing so, these new fintech start-ups can demonstrate the value and product-market fit to investors. This is precisely why we launched FINCA Forward, to explore how improved collaboration between fintech enterprises and MFIs can rapidly evolve financial services to serve customers more affordably and reach the still 1.7 billion unbanked adults globally.