Somewhere in Africa (not Kenya), a bank board had gathered for a strategy session. There were three external consultants. They wanted to know how they could handle some electronic and digital products to find growth. There were many insights on improving the products and pushing them through multi-channels to customers. Yes, the typical things: distribution, bundling, network effects, partners, growth, etc.
In my talk to the client (still one since 2015), I proposed to the bank to spin out or limit its brand on some of its digital products. Technically, I demonstrated analytically and quantitatively the limitation a bank license imposes on scaling financial products in Africa. In other words, if you have a digital product, you are bounded by your bank license in both distribution and innovation, in Africa because of disparate regulations across the continent.
A fintech can use a press release to announce that its products are available in 50 African countries overnight. But a bank offering similar products cannot do same as it may be required to clear with the regulator before launch. The implication is that banks cannot move at the speed of fintech when they plan to leave their home territories. Simply, most African banks could win local markets but would struggle to scale African-wide.
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My client has a product – yes, a fintech which is autonomous legally from the bank. The product has been a success because even the bank’s competitors are fans of the product. It seems others are realizing that. Kenya’s Equity Group wants to spin out its fintech subsidiary as a totally separate and autonomous entity.
Equity Group Holdings Plc has launched its fintech subsidiary, Finserve, signaling a future defined by disruptive innovation beyond the Group’s current financial services. Finserve will operate as an autonomous commercial enterprise, delivering solutions not just for Equity Group, but to the entire economy.
Finserve has been the technology arm of Equity Group and is credited with revolutionizing banking and other financial services through digitization. It has been behind innovations such as Equitel, the Group’s Mobile Virtual Network Operator (MVNO).
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Speaking during the launch, Finserve Managing Director, Jack Ngare said that fintech will be the driver of financial solutions in the future as it makes financial services delivery better, cost-effective, safer and more secure.
He observed that for the last four years that Finserve has been in existence, the fintech has been dedicated to innovating and delivering technology solutions for Equity Group. “As a subsidiary of Equity Group, our capabilities have been tried and tested through the innovations and digitization we have delivered for the Group. We stand on the shoulders of the leading financial services provider in the region,” he said and added: “Our vision is to power business ecosystems through innovation and collaboration that cut across geographical boundaries and sectors.”
Untethered from the bank, Finserve will find new growth models, not just in Kenya, but across Africa. Expect Finserve in Nigeria in coming months. When it comes, because it is no more a part of Equity Bank, the Central Bank of Nigeria will not ask it to show bank license to operate in Nigeria. Simply, Finserve will get a fintech license and offer services to the Nigerian users, unconstrained by the “burden” of Equity Bank. In its local Kenyan market, Finserve can now serve anyone, including Equity Bank’s competitors, making growth easier.
All Together
Business models are going to be important for companies to win in Africa. I have shared some insights on how banks could win in a piece in Harvard Business Review.
Indeed, the challenges ahead of African banks are enormous. To remain relevant, the banks must internally mutate, disrupting themselves to participate in modern banking. From my practice working with bank clients in the continent, here are a few suggestions to make that happen:
Yes, business model, not just technology, will win this game which continues to escalate. Today, Africa has gotten a dedicated “school” from Alibaba founder, Jack Ma, for training and developing ecommerce business. Very soon, I am sure we would see deeper fintech penetration and companies like Paypal and Square will arrive at scale, offering their own versions of business systems. In other words, expect deeper level of innovation in the fintech space and being unconstrained by bank license is a real competitive advantage in many product lines.
Alibaba Business School has launched its “Global E-commerce Talent” (GET) program for Rwandan educators, and in partnership with Rwanda’s Higher Education Council and the Rwanda Development Board.
Alibaba has brought the GET program to other countries, such as Malaysia and Thailand, but this was the first time it was offered in Africa. The goal of the program is to boost the competencies of Rwandan university teachers and deepen their understanding of the e-commerce industry, so that they can train digital talent and future entrepreneurs in the country to compete in the global economy.
I commend Equity Bank for spinning out its Finserve subsidiary. Largely, successful fintech products from banks in local markets will struggle to scale African-wide. With a bank license at the back, there are things which are not possible.
Yes, a fintech can release its products to 50 countries overnight. But a bank, offering similar products, in one African country, cannot do the same. It has to get clearances from local regulators and permits in new markets. Fintech does not care. That affects speed and scalable advantages. Sure, being part of a bank has advantage. But most times, that advantage is localized. To be full pan-African, you need to be untethered!
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