Financial Technology, often shortened as “fintech”, is the term used to describe the business of utilising innovative technology in improving and automating the use and delivery of financial services like banking services, insurance services, trading, etc. Simply, it combines anything finance with some form of technology. The world went digital a long time ago. What fintech companies realised was that more and more people are becoming tech savvy and more sophisticated, creating a growing need for a growing population to integrate technology in all aspects of their lives, including their finances.
Why was PayPal such a hit? Because it seemed so easy to use compared to inputting your credit card details on websites whenever you want to make a purchase. That hassle-free life appeals to the modern man and woman and fintech companies realised that a long time ago. Those that got in early and did it well, like PayPal, made it big. Those that are big, like MTN, invest properly and massively into the tech delivery system, then they make it earlier than most would. One could argue that MTN’s Mobile Money can stand shoulder-to-shoulder with any bank any day. When a fintech has 10 million active users, with over 115,000 active agents as well as over 67,000 merchant points across the country, that’s not just like a bank; it’s more efficient too. Banking regulations and the typical oversight from the Central Bank (or the lack of these) are a distinguishing feature of fintechs from financial institutions.
What makes fintechs special.
An important characteristic of fintechs is that they all seem to be designed to be a threat to the established order of conventional business in the sector they are in. But that’s only market evolution taking its course. When the masses and even rivals flock to use fintech, it makes the best fintechs look to go toe-to-toe or even seem to hijack traditional financial service providers, by being flashier, more proficient, and also by providing a faster and better service.
Mobile Money (affectionately now called “Momo”) is the perfect example I give when I try to explain how I feel fintech companies are outmanoeuvring the banks. Why do you go the bank? To deposit money into your account. To withdraw money from your account. To earn interest on your money you have deposited at the bank. To transfer your money to another person or institution elsewhere. Now Momo does all of these. Momo even pays interest on our Momo accounts. The banks got adaptive and told us to pay our water bills and ECG bills and DSTV bills and school fees and whatever else at the banking hall. Convenient, right? All at one place. Thing is, now I can also do all of that from my couch at home through Momo too.
I am merely stating the situation as it is. As it stands now, we all know very well that now even the Mobile Money services offer loans and a very attractive and easily integrable array of other services. Gone are the days when such financial services were exclusive to banks. I say all these only to make apparent the extent of disruption fintech companies can have on any sector in the economy, even the big and powerful banks. Let us stick to the facts. This still remains an opinion piece.
Other kinds of fintech aside Payment Systems.
Money Payment Systems are just one example of fintech. Cryptocurrency and blockchain are typical examples of fintechs doing what fintechs do best: DISRUPTION. And it’s good (or bad) depending on which side of the evolution you currently are, or if you can change fast enough with the times. We all saw the confusion BitCoin provoked with its entry into the mainstream. The only reason why I didn’t lose my marbles was because Warren Buffet was so adamantly against Bitcoin and when the Oracle of Omaha calls something “an asset that creates nothing… has no value at all”, people tend to listen. Still, he and you and I all know crypto is here and it’s here to stay.
There are also Crowdfunding apps like Kickstarter and GoFundMe. Crowdfunding apps are a great illustration of the different kinds of fintechs that dabble in a lot more that the traditional financial services activities.
Now there is “insurtech”, as it’s being called. These are fintechs in the insurance sector. And it’s a fast-growing thing too. No industry is safe from Financial Technology disruption, not even the Insurance Industry. Insurtechs now provide easy car insurance to home insurance to anything insurance. This year, Forbes valued the popular personal finance company Credit Karma at $4 billion. And these fintechs are attracting huge funding too. An insurtech company called Oscar Health Insurance, a health insurance startup that is technology-focussed, raised $165 million in funding last year at a $3.2 billion valuation.
You need the fin in your tech to be a fintech.
All fintech companies are tech companies. But not all tech companies are fintech companies. You need the fin in your tech to be a fintech. Is Uber a fintech company? Ride hailing services are not financial services. So, going by that, Uber is not a fintech. Paying for the rides is a financial act. If I pay with my Visa, the Visa is the fintech that Uber then utilises, but Uber is not the fintech. If Uber handles that financial transaction themselves, then yes Uber becomes a fintech. The last time I took an Uber I paid the driver myself, in cash, not through any app. But last year Uber applied for an e-money licence. If Uber gets this licence then yes, it qualifies as a fintech because then it would be directly handling the financial transaction actions of the business. I hope I explained this clearly enough.
Fintech optimises another tech use.
Another thing about technology is that I find it being easily integrable with other technologies. Tech thrives on tech. Fintechs are using other technologies like machine learning and even artificial intelligence to push the boundaries of its applicability. Also, when one incorporates into their strategy elements like data-driven marketing and the now popular predictive behavioural analytics, it eliminates guesswork and greatly reduces the chances of error in financial decisions.
Automated customer service technology is another popular adaptation by fintechs. By using chatbots and similar AI interfaces, staff costs associated with basic customer service tasks are kept to a minimum.
What’s happening in Ghana.
Some fintechs have been flourishing very well in Ghana. Maybe because the market demand is high? IT Consortium Limited leads the charge here. Their work and accolades speak for itself. I could name many others. Express Pay. ZeePay. PaySail. It’s a good time to be a fintech with proper management.
It was last year that I read Dr. Settor Amediku of Bank of Ghana say the number of fintechs to be licenced will be limited by a new law. Honestly, I didn’t pay much attention to fintechs then. It was the data I got from the little research I did for my April article on Remittances that led me to the stats and figures of MTN’s Mobile Money and the mammoth institution that Mobile Money alone has become. I did not know those figures beforehand. It surprised me. It still does, in a good way. And Momo is a fintech. That’s what’s led me here writing about fintechs exactly two months later.
Dr. Amediku last year again said, “We need to regulate the environment since we at the central bank are concerned about the financial system… we will pay particular attention to minimum corporate governance, anti-money laundering issues, data protection among others.”
And do you blame him for being concerned? Over twenty banks have partnered with fintechs for the provision of banking services. If you fixate on this fact for a little while, you might come to realise that you cannot effectively regulate a bank without regulating the accompanying fintechs. Regulation for an entity, without regulation for the tools of its utility, becomes inadequate and consequentially ineffective. That’s like claiming to referee a boxing match without setting the rules over what constitutes qualifying boxing gloves. That’s inviting chaos. So, I get the logic here.
Fintech’s far-reaching value.
As a lover of all things tech and innovation, I briefly worry about whether we are going to fully embrace fintech the way countries like India and China have. One of the significant edges that fintechs have over traditional financial institutions is the lack of the latter’s regulatory constraints and that freedom drives the innovation initiatives of the former. So, while I see the need to mitigate the risks involved with fintechs playing an integral role in banking, I am hoping that such actions shall only see us optimising it’s applicability and real value. For fintechs can have real value, even to the Central Bank. For example, fintechs that process payments or transfer money can be required by law to flag unusual transactions in the fight against fraud and money laundering.
Fintech is a topic that cuts across a lot of areas. It would make for an interesting conversation. Hit me up on social media to discuss and let’s keep the conversation going!
These are all facts. And this has been an opinion piece.