How banks and fintechs can build better partnerships in Africa


Africa’s fintech industry is the most funded tech sector on the continent, with investment data from Partech indicating that 63% (or $3 billion) of total venture capital funding in Africa went to fintech companies in 2021. But there are many reasons why fintech is big in Africa.

At last count, Africa had 350 million unbanked adults. Data from the Global System for Mobile Communications (GSMA) shows that 70% of the $1 trillion global mobile money market is in Africa. Also, considering that by 2050, a quarter of the humans on the platform will live in Africa. This gives an idea of ​​the size of the African financial cake. But more often than not, the fintech sector is seen as disruptive in the traditional banking space. But industry insiders have discovered that is not the case, especially in Africa.

At a series of fintech breakfasts in April 2022, hosted by Ecobank Nigeria in partnership with TechCabal, industry leaders came together to discuss relevant issues. These issues will see them both working together to solve customer issues on the mainland.

How to make it work

In a panel moderated by Danel Adeyemi (Senior Journalist, TechCabal), Tomi Majekodunmi, CEO of Bankly, discussed the different ways banks and fintechs can work together. She revealed that Bankly had tested her idea without any pressure to obtain a license thanks to a partnership with a bank. She further explained that this type of partnership is important because acquiring a license is a long process. She revealed that this type of partnership has helped Bankly, as its partner bank has held its hands to navigate the do’s and don’ts of the financial industry.

She also explained that Bankly has entered into a provider relationship with its partner bank, which allows it to use Bankly to use its API to power wallet creation, transfers and other financial services.

She explained that there is a power dynamic between banks and fintechs, especially early-stage startups, and cautioned fintech founders against signing deals prematurely without completing a 30-day pilot test. “It’s because when we moved to the bank branch, if we hadn’t put 100 terminals on the market and signed a contract with a partner bank, I wouldn’t have been able to get out of something that would have killed the company.”

Speaking on how financial industry players can think about bank-fintech partnership, Mr. Gbenga Ajayi, Partner at QED Investors, a fintech venture capital firm, said it is important to note that fintechs are not entities trying to displace the banks.

He advised banks to care about fintechs because of their unparalleled customer satisfaction, where they use technology and their digital savvy to improve customer satisfaction; their rapid growth and the creation of super fintechs.

He explained that super fintechs are fintechs that start with one product and as soon as they establish a relationship with the customer, they start providing other products and services. “And there is going to be a consolidation in this section. So if you think it’s boring to compete with small fintech companies, imagine when the super ones come along.

Ajayi said fintechs should care about banks because of their regulatory strength; he explained that in addition to having the proper licenses and a direct communication link with the CBN, commercial banks possess stronger muscles to deal with regulators. . He also said that fintechs should partner with banks because they have a lot of unhappy customers, so they can offer to help banks or remove those unhappy customers. “Banks have a lot of (profit-type) money, which allows them to be open to reinvesting their money,” Ajayi said. He described the fintech landscape as a landscape made up of enablers, adjacent competitors and direct competitors. He noted that while facilitators are already working with banks, he advised banks to partner with adjacent competitors before they become direct competitors.

According to Ajayi, bank-fintech partnerships can contribute to product depth: licensing, payment processing; product range: product expansion and new customer segments; and acquisitions. He concluded by saying that fintechs are accelerating from launch to scale, while banks are struggling to catch up, but bank-fintech partnerships combine the best of both worlds.

Daniel Ahouassa, co-founder of Weblogy, an online marketing agency, said that since its inception 25 years ago, it has worked to provide digital services to banks, including the development of a super app in partnership with Ecobank , UBA and Visa. to help banks make smarter decisions, increase efficiency, serve the customer on the digital channel and unlock opportunities. In Ivory Coast, the biggest problem for banks is to take risks, so he thought of reducing the risk that banks take by engaging in a relationship with a customer. Another challenge he identified was governance, so he partnered with other companies to reduce the risk of taking on clients. He also said they are looking for partnerships with other banks trying to expand into French-speaking Africa and help them improve the customer experience.

Contrary to popular belief that banks lag behind in innovation, Isaac Kamuta, Ecobank’s Group Head of Payments, Cash Management and Customer Access, believes that banks are innovative; for launching the first credit cards in the 1950s and pioneering online banking in the 1980s, long before internet banking started gaining traction in the 1990s.

He advised fintechs to choose partners that will help them scale, and when they grow, they should seek interconnection. That is, make sure they don’t need to do integrations in every country they move to, instead they just activate their services in those countries or it will reduce their speed.

He noted that part of the reason fintechs have been able to scale so quickly is that they are not as heavily regulated as banks. He explained that this heavy regulation is why banks have thousands of compliance officers and spend billions on compliance, which ultimately slows them down. But he said fintechs can capitalize on this compliance investment, partnering with banks that will help them stay safe and do things within the law.

Responding to a question from the audience on how rookie founders and start-up fintechs can know the right time to partner with a bank, Majekodunmi said, “Look for the bank that has the strength of whatever you are looking for. It can be technological infrastructure, scaling up, increased regulation or some form of credit; hit them up and get a warm intro and get things done,”

Ajayi, responding to a question from the audience about the role partnerships with banks play when investors consider investing in fintechs, said it depends on what the fintech is trying to build. He noted that it is especially important for fintechs trying to disrupt banks to have a banking relationship that will make them competitive enough to compete with competing banks. Although he said that is not always the case because from his experience he knows of a fintech that has become a unicorn without partnering with any bank. Although he admitted that partnering with banks is accelerating the fintech market.

Kamuta, responding from the audience on what banks are looking for in fintechs they are potentially trying to partner with, said that when Ecobank sits down with fintech start-ups, it ensures that those fintechs are really solving a problem. problem, working with a viable idea, and don’t neglect regulation and compliance.

Ajayi said successful bank-fintech partnerships get sponsorship from C Suite, allowing the bank to adapt accordingly; align the two cultures; and make sure they really have the capacity for the partnership.

“I think a zero-sum mindset is one of the biggest hurdles to bank-fintech partnerships in Nigeria,” Majekodunmi said while explaining that Nigeria’s population keeps growing. She said that since new entrants to the banking industry over the years have not killed the big banks, there is no cause for alarm that fintechs are killing the banks. She went further saying that if banks are nimble and customer-centric, they will survive and get their piece as the pie gets bigger as the number of players grows.

Pan-African Expansion: Opportunities and Challenges

In a session moderated by TechCabal Managing Editor and Acting Editor Korome Koroye, Koroye asked Tayo Oviosu, the founder and CEO of Paga, a leading pan-African mobile money service, why Paga is extended beyond Nigeria, Oviosu explained that Paga’s vision is to make it easier for a billion people to access and use money, which automatically means he will have to get out of Nigeria. Oviosu went on to say that pressure from investors and shareholders and the intention to de-risk some of Nigeria’s macroeconomic elements affected Paga’s decision to expand beyond Nigeria. But he said Paga expanded to Ethiopia first because he built his mobile app in the country, had a 50-man team there and had been operating in the country for 8 years.

But, he explained that expansions weren’t always successful, citing the failure of Paga’s expansion into Mexico. This failed attempt in Mexico taught the Paga team what it takes to launch a business in a new market. Today, Oviosu said that Paga is growing across Africa, but he advised fintechs not to be pressured to leave their first market and when they grow they should not lose sight of it, especially if it is their biggest market. He also advised them not to spread themselves too thin.

Oviosu identified compliance as one of the challenges of expanding, and it had to establish compliance units in each country it expands into.

Responding to a question from the audience, Oviosu said fintech companies can expand to another country regardless of their early stage, particularly if their addressable market is not big enough or if they are not the first to establish themselves in their first country.

He also explained that founders should pay attention to the cultural perspective of the country in which they are developing if they are, for example, open to foreigners doing business in their country.

Oviosu explained that while fintechs may be afraid of regulators, it is important that when entering a new market, after understanding and creating something tangible for the market, they should contact them and liaise with them. .

You can watch the entire conversation here.

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