The world has become globalised and economies are becoming digital creating a lot of disruptions in the way business is run. Digitalization has especially transformed the globe in a number of ways:

• Once tangible flows of physical goods have been transformed into intangible flows of data and information, changing the way people transact business today.

• Earlier, these flows were mainly between development and advanced economies of the world like the Northern America, Western Europe, Australia, Japan and some few APAC countries. Today there is greater participation by almost all emerging economies of the world.

• Yesteryears, industrial and business operations were highly capital and labour intensive, including a lot of movement for both. Today and going beyond we are seeing a lot of knowledge intensive flows. Business operations are more driven by information flow with a lot of data analytics.

• Years back transportation infrastructure was critical for flows, although even today it still is for especially the flow of goods and people. However, we are seeing a lot of digital infrastructure which has become equally important and actually becoming more important by the day.

• In the 20th century, multinational companies drove all flows across the globe. Today we see so many small enterprises and individual roles growing. Small startups are joining big-stage operations globally due to the growing importance of the digital infrastructure.

• During yesteryears flows were mainly monetized transactions. But today we are seeing and experiencing a lot of free content and services being exchanged.

• Ideas were always slowly diffused across the borders taking days, weeks, or even months. Today we are experiencing instant information globally.

• Innovative ideas were from advanced economies to emerging economies. Today these innovations are flowing in both directions, with actually so many from the emerging economies disrupting traditional methods of doing business by the global big players, forcing them to becoming more responsive to consumer demands in their innovations.
We will continue to see, experience and welcome many of these digital disruptions until when we shall fully have integrated societies across the globe.
Digital economies have several characteristics:
• They are fully digitized, monitored and tracked. All business transactions, government operations, finance and commerce and security are connected and integrated on a single digital platform with a single universal view.

• They are connected and networked to provide a single platform that enable fast decision making.

• They are highly personalized that they can respond to individual requirements.

• They are direct, meaning no requirement for intermediaries or brokerage services.

• They are easily shared resources, data and information, for example immigrant information can easily be shared with financial institutions and retail stores.

The sharing economy enables more efficient use of physical and human assets, activating ‘dead’ and ‘idle’ capital and/or assets such as financial services (Bitcoin, Clockchain), hospitality and dining (Airbnb, CouchSurfing, Feastly), automotive and transportation (Uber, Lyft, Hitch, Sidecar), retail and consumer goods (Tradesy, SnapGoods, NeighborGoods), media and entertainment (Netflix, Spotify, Earbit, Amazon Family Library).

All these digital disruptions could result into a 30% decline in core revenues for the physical markets for music, video, newspapers and travel. These forces already began to impact the financial services industry.

Talking about FinTech, there is a rapidly changing landscape (or call it ‘digiscape). FinTech is what happens when you merge or integrate fiancé and technology to offer a digitized financial services platform. There are currently such technologies for banking and corporate finance, capital markets, financial data analytics, payments, insurance, funds transfer and personal financial management.

A fully developed ecosystem is however required for FinTech to fully serve the various purposes for which it is being developed. This ecosystem should include the involvement of all possible players like payments and funds transfer service providers (Xoom, Visa, ApplePay, SamsungPay, TransferWise, WorldRemit, MPesa, Airtel Money, Tigo Money, Orange Money, M-Sente), retail banking players (most banks), lending and financing institutions, financial management service providers, insurance service providers, money markets and exchanges, government and regulatory authorities.

FinTech is not new but rapidly evolving from the traditional technologies that were mainly used by banks and other financial sector players to highly personalized financial technologies that we see being deployed today. The rise of and expansion of global financial corporations and the growing regulatory burden on traditional financial undertakings, which has led to a surge in alternative finance offerings is provoking a lot of innovations in financial technologies.

There are misconduct scandals, which eroded trust and confidence in the traditional financial services providers has contributed to technological innovators and inventors to think harder and come up with technologies to cub financial crimes and tackle scandals.

There is increasing global spread of ICT usage that has also been coupled with a general falling costs of ICT usage. This has meant that there is increased uptake of financial technologies at a more personal level.

With the increased shift and changes in the global economic geography from advanced economies to emerging economies, financial technology innovators are coming up with such solutions that respond to the economic topography, infrastructure set-up and cultures, which can easily be taken up, but also can easily be integrated with the existing environments within the advanced economies.

FinTech is also rapidly rising due to the changing demographics. Today we have so many tech-oriented millennials who demand too much in technological efficiency and convenience.

With globalization and a lot of cross-border service offerings growing rapidly, FinTech comes in handy in complementing and completing such transactions.

Mobile technology is growing very fast with higher penetration rates, a lot of innovation and offering more reliability, efficiency and convenience. For example today, global smart phone subscriptions and penetration rates are at 50% and this figure is anticipated to rise to 70% by 2020.

Mobile connectivity cost is reducing globally with increasing subscriptions. The cost of data per Megabyte today is less than a dollar, costing just a few cents and yet data transmitted per month in Exabytes is 6.5 and anticipated to reach 25 Exabytes by year 2020.

Mobile penetration in some regions of the world is over 80%, like in North America and Europe. In Africa and Middle East it is still at 25% but increasing rapidly. Cross border digital flows are also surging.

Generally, the FinTech adoption rates are increasing globally due to the fact that they are easy to set up, are low on cost, they offer diversity and high quality online services. On average the adoption rate stands at 15.5% according to EY FinTech Adoption Index.

The Digital Disruption Citi Research identifies FinTech’s competitive edge as low margins, do not require a lot of asset investment, they are scalable, offer a lot of innovations and easy compliance. Because of this, there is increased private investment in FinTech globally, currently standing at about $20Bn. Most of these funds are invested in SME and personal FinTech solutions at 73% going by business segmentation, with other segments like wealth and asset management at 10%, insurance at 10%, investment banking at 4% and large corporate at 3%. Going by business type, lending is the largest taker with 46%, payments with 23%, savings and wealth with 10%, insurance with 10%, money transfers with 3%, digital currencies with 3%, institutional tools with 3% and equity crowd funding with 2%.

FinTech industry trends have shown an increasing growth with mobile payments rising from $7Bn in 2011 to $47Bn in 2015; crowd funding has also risen from $1.5Bn in 2011 to $34.4Bn in 2015. These cover the broad industry segments that include payments, deposits and lending, fundraising and investing, and cryptocurrency and Blockchain. Currently USA is dominating the industry but Europe and Asia are rapidly catching up, all in billions of dollars. Africa is only $24.2Mn, however with 101% annual growth.

At first banks wanted to fight FinTech but later embraced it and today they are actually investing in it. For example 43% of banks have implemented startup programs that include FinTech companies; 20% of banks have partnered with FinTech companies; another 20% of banks have set up venture funds to finance FinTech companies; 10% of banks have acquired FinTech companies and 7% of banks have launched their own FinTech subsidiaries.

However, there are challenges to FinTech innovations, some of which can be highlighted below:

• Regulation challenges – regulation is necessary to create trust among users but it should be in such a way as not to stifle innovation. When you look around, there are so many players/stakeholders in the industry and one can wonder who will be the regulator, but there requires to be a single agreeable regulator for the industry.

• The other regulation challenge is the fact that FinTech offers cross-border functionality and different economical jurisdictions have different regulatory frameworks. Therefore questions rise on how synchronization of these different regulatory frameworks will be achieved.

• Another challenge is to do with privacy. How do we ensure data integrity with so many criminal hackers not sleeping. Online financial transactions require a lot of personal data being given; how do we ensure that this data will not be compromised?

• Security to prevent breaches and hacking activities is a very big concern by all stakeholders, individual and institutional. How do we ensure seamless online transactional environment without the risk of these breaches and hacking activities?

• The other challenge is the fact that FinTech has evolved into so many new technologies that have not been tested and used across business cycles. This affects uptake in some economic environments. Few entities wish to volunteer to be guinea pigs to provide test environments because some of these technologies may require live productions environment to be tested, which carries a fair share of risks.

On a positive note, however, there is regulation support in some countries, taking supportive and proactive initiatives towards FinTech – USA, UK, Singapore, Australia, Ghana, Tanzania, Uganda. These initiatives are coming in form of the following:

• They support responsible innovation
• They foster an internal culture receptive to responsible innovation
• The leverage agency experience and expertise
• They encourage responsible innovation that provides fair access to financial services and fair treatment of consumers
• They advocate for safe and sound operations through effective risk management
• They encourage banks to integrate responsible innovations into their strategic planning
• They promote on-going dialogue through formal outreach programs
• They collaborate with other regulators from other countries.

There is a need for harnessing FinTech for financial access and inclusion in Africa. Merely setting up internet and mobile banking services is not enough. Financial institutions need to leverage FinTech to raise efficiency. For example due to geographical fragmentations, there are many countries with different currencies and different regulatory bodies. Cross-border financial technologies can help overcome such issues.

There are so many young and un-banked people on the continent and FinTech should aim at providing or enabling financial access and inclusion for these people. There are also high mobile penetration rates almost tending towards 60% but so far dealing with cash is still preferable.

A big number of the population is starting to use the internet and more than 60% of that group uses social media on a daily basis. There needs to be deliberate FinTech strategies to target all these people that will enable them access finance.

FinTech should and can be the answer to financial access and inclusion in Africa where it only stands at 34% in Sub-Saharan Africa, all combined for mobile money and other financial institutions account holders. This is still a very low number. It can especially enable women’s economic empowerment by facilitating account ownership, asset acquisition and accumulation and increased economic participation. It is important to note that only about 20% of women in Sub-Saharan Africa hold an account. Still to note is that only about 25% of young people between the ages of 15 – 24 years have an account, yet they form the biggest percentage of the population at over 70%.

FinTech and Crowd Funding should replace family and friends as preferred lenders in Africa. Currently family and friends lending stands at 50%. It should also aim at disrupting payments in Africa. Currently payments by mobile phones stand at less than 10%, the same with credit cards and debit cards, meaning payments by cash still take the biggest percentage and this should be progressively replaced.

FinTech will offer intermediary services/links and lower cost of sending remittances across the board, and also act as a digital point of entry into the formal financial services sector by especially the un-banked.

It is also very important to know and understand that for FinTech to be fully effective in providing financial inclusion and access, there needs to be a well and fully developed ecosystem that should include:

• Capital provided by angle investors, venture capitalists and IPO investors
• Talent provided by the academia, entrepreneurs, technology firms and traditional financial institutions
• There should be demand for the innovations by consumers, traditional financial institutions, corporate organization, utility companies, retailers and government
• Policy provided by government and regulators.

All these should be supported and linked by companies that act as FinTech hubs to facilitate flows.

Countries should therefore focus on integrating FinTech into their digital development strategies, including education at all levels. They should set up task forces to drive high impact policy initiatives.

They should support FinTech investments through public-private-partnerships (PPP) funding. They should also develop enabling and supportive RegTech initiatives including regulatory ‘sandboxes’.

They should cooperate with advanced FinTech hubs by building FinTech bridges to fast-track their initiatives.

i) Citi Research
ii) EY
iii) McKinsey
iv) World Bank
v) OCC
vi) Financial Inclusion Report
vii) Mobile Money SOTIR 2015
viii) Mobile Payments SOTIR 2016 Sample
ix) Banking in Africa 2015


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