{"id":30164,"date":"2019-11-13T15:11:24","date_gmt":"2019-11-13T15:11:24","guid":{"rendered":"https:\/\/www.intelligentcio.com\/africa\/?p=30164"},"modified":"2019-11-15T10:27:31","modified_gmt":"2019-11-15T10:27:31","slug":"driving-the-fintech-and-regulation-success-story","status":"publish","type":"post","link":"https:\/\/www.intelligentcio.com\/africa\/2019\/11\/13\/driving-the-fintech-and-regulation-success-story\/","title":{"rendered":"Driving the FinTech and Regulation success story"},"content":{"rendered":"\n

Lee Naik, Chief Executive Officer, TransUnion Africa, says that FinTechs could shape tomorrow’s finance regulations.<\/strong><\/p>\n\n\n\n

Tell me if you\u2019ve heard this one before.\nSomewhere in Africa, some savvy entrepreneurs come up with a potentially\ndisruptive solution to a longstanding infrastructural challenge. They found\ntheir own FinTech, win an innovation prize or two, and manage to raise enough\nventure capital to grow into a viable company. However, they are hampered by a\nstringent regulatory environment that just doesn\u2019t understand their business.<\/p>\n\n\n\n

The story of the plucky start-up going up\nagainst red tape and backwards-thinking bureaucrats is a pretty compelling one,\nespecially if you\u2019re the plucky start-up. And there\u2019s certainly an element of\ntruth to it – in most places, existing regulations are written in a way that\u2019s\ncurrently oriented towards traditional credit and finance.<\/p>\n\n\n\n

But it\u2019s only half the story. No one likes to\nhear about the other half, where our FinTech is about to fold.<\/p>\n\n\n\n

For all the growth we\u2019re seeing in the African FinTech\nmarket, it\u2019s a stark reality that most of these companies will not survive past\nthe first few years. You\u2019ve heard the stats before – an estimated nine out of\n10 start-ups fail. Even if you do manage to get past the funding stage and\nestablish yourself as a high growth business, there\u2019s no guarantee that you\nhave a sustainable profit model on your hands.<\/p>\n\n\n\n

There\u2019s a happy ending to this story – maybe\neven involving rainbows and (tech) unicorns. But you won\u2019t get these by casting\nregulation as the bad guy.<\/p>\n\n\n\n

Risky business<\/strong><\/p>\n\n\n\n

The tricky thing about digital leapfrogging is\nthat you don\u2019t always know what\u2019s swimming in the water below you. FinTech\ncompanies doing business in the developing world face greater uncertainties\nthan those in the US or Europe, especially if their goal is to improve\nfinancial inclusion.<\/p>\n\n\n\n

These FinTechs work in lower income spaces,\nwhere indebtedness and delinquency levels are prevalent. They must somehow\nbuild a profitable growth-focused business while operating in a high-risk\nmarket.<\/p>\n\n\n\n

Look at how risky micro-transactions can get\nversus traditional lending. Many consumers use micro-lenders to fund low ticket\nitems but turn to traditional lenders when they need to fund larger purchases –\nsay a house or car. And if that consumer finds themselves in financial\ndistress, they naturally focus on paying back the big-ticket debt rather than\nthe smaller loans.<\/p>\n\n\n\n

Without the safety net of regulatory oversight,\nit\u2019s extremely difficult for companies to price for this risk within their\nbusiness model. One report shows that nearly half of all mobile loan borrowers\nin Kenya and Tanzania have missed their mobile payments at some point. No\nsurprise then that FinTechs tend to have a short shelf life. Many simply can\u2019t\nsustain themselves for more than a few months because of losses or fraud.<\/p>\n\n\n\n

This isn\u2019t just a problem that\u2019s limited to\nsmall-time players. Even well-funded FinTechs sometimes fall prey to myopic\nthinking around regulation. Sure, they know there\u2019s high risk involved in what\nthey\u2019re doing, but they think they\u2019ve cracked the code through some very clever\nalgorithms.<\/p>\n\n\n\n

What often happens is that these guys get so caught\nup in the moment of celebrating initial success that they ignore the larger\nenvironment around them. Add in the fact that many FinTechs are foreign-owned\nand don\u2019t have a full understanding of the formal lending environments they\u2019re\nentering, and you have a recipe for a blindside.<\/p>\n\n\n\n

Don\u2019t\ncount out tradition<\/strong><\/p>\n\n\n\n

Let\u2019s venture\noutside of the FinTech bubble for a second. In India, the number of people who\nare part of the formal financial sector has more than doubled since 2011,\noutpacing the growth of digital payments. Even in nations where financial\ninclusion is a challenge, a lot of customer information still sits in\ntraditional financial spaces.<\/p>\n\n\n\n

Regulatory bodies and traditional credit bureaus\nhave access to much of this data and can give insights into the formal debt\nenvironment. Shut them out and you\u2019re cutting yourself off from a major source\nof key data about your consumers.<\/p>\n\n\n\n

No man is an island and no FinTech, no matter\nhow innovative, is either. Yes, you can understand every grain of sand and\nseashell on a deserted beach, but what about the ocean around you. The most\ncomplete picture of your customers will come from leveraging both alternative\ndata sets evolving and expanding upon available data sets.<\/p>\n\n\n\n

Every market is different. What works in Kenya\nwon\u2019t work in Rwanda or South Africa or India. It\u2019s important to approach each\nmarket holistically, investing in the right partnerships and collaborations to\nbuild a full understanding of your customers.<\/p>\n\n\n\n

Sure, you may have perfected your pitch and put\ntogether a brilliant data science team. Sure, you may have solid funding behind\nyou. But are you working with regulators to understand how to create success\nfor your business or your industry? Are you leveraging existing players who\nhave been in the market for years for advice and insights you might otherwise\nnot have access to?<\/p>\n\n\n\n

So, what if different regulations aren\u2019t quite\nthere yet when it comes to FinTech? There\u2019s a real opportunity to engage with\nregulatory bodies and help shape new frameworks. Time to toss out the story of\nan underdog start-up doing it all on its own and start working together to create\na healthy, sustainable and inclusive financial ecosystem.<\/p>\n","protected":false},"excerpt":{"rendered":"

Lee Naik, Chief Executive Officer, TransUnion Africa, says that FinTechs could shape tomorrow’s finance regulations. Tell me if you\u2019ve heard this one before. Somewhere in Africa, some savvy entrepreneurs come up with a potentially disruptive solution to a longstanding infrastructural challenge. They found their own FinTech, win an innovation prize or two, and manage to […]<\/p>\n","protected":false},"author":25,"featured_media":30167,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4950,565,328,6,10675,13,262],"tags":[11709,7454,297,7907,715,11574],"class_list":["post-30164","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","category-banking-finance","category-features","category-insights","category-thought-leadership","category-top-stories","category-used","tag-african-fintech","tag-fintechs","tag-kenya","tag-lee-naik","tag-tanzania","tag-transunion-africa"],"acf":[],"publishpress_future_workflow_manual_trigger":{"enabledWorkflows":[]},"_links":{"self":[{"href":"https:\/\/www.intelligentcio.com\/africa\/wp-json\/wp\/v2\/posts\/30164","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.intelligentcio.com\/africa\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.intelligentcio.com\/africa\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.intelligentcio.com\/africa\/wp-json\/wp\/v2\/users\/25"}],"replies":[{"embeddable":true,"href":"https:\/\/www.intelligentcio.com\/africa\/wp-json\/wp\/v2\/comments?post=30164"}],"version-history":[{"count":2,"href":"https:\/\/www.intelligentcio.com\/africa\/wp-json\/wp\/v2\/posts\/30164\/revisions"}],"predecessor-version":[{"id":30169,"href":"https:\/\/www.intelligentcio.com\/africa\/wp-json\/wp\/v2\/posts\/30164\/revisions\/30169"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.intelligentcio.com\/africa\/wp-json\/wp\/v2\/media\/30167"}],"wp:attachment":[{"href":"https:\/\/www.intelligentcio.com\/africa\/wp-json\/wp\/v2\/media?parent=30164"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.intelligentcio.com\/africa\/wp-json\/wp\/v2\/categories?post=30164"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.intelligentcio.com\/africa\/wp-json\/wp\/v2\/tags?post=30164"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}