At Henley Business School’s BankSETA IEDP graduation, Tim Masela, Head, National Payments Systems at the SA Reserve Bank (SARB), said that banks have developed core competencies in the provision of services that are unlikely to be fully provided by smaller fintech companies in the short to medium term.
Addressing Henley Africa’s BankSETA IEDP executive immersion graduates, who visited banks and fintech companies in Tanzania and London as part of the programme, he said it may be too early to see service provision as separate offerings provided by individual fintech entities on their own and on a large scale.
This would include payments, credit lending, insurance and investments. “What is however uncertain and remains an unanswered question is how new providers will evolve current financial service offerings and possible relationships with incumbents, such as banks, to potentially offer new complex, higher risk services over time,” he said.
Linda Buckley, director of executive education at Henley Africa, said it was enlightening for the Reserve Bank to present its views and plans to the new graduates regarding what are seen as fast-moving changes in the banking industry.
In Tanzania, students visited Kinu Tech Hub. The company nurtures young digital entrepreneurs and provides a platform for collaboration, support and growth. In London students visited various banking start-ups including Barclays RISE, World Remit, Sussex Place Ventures and Metro Bank.
Dr Ismail Ahmed, who founded WorldRemit in 2010, an online money transfer business that is disrupting an established industry, explained that the service is now available to senders in 50 countries, offering transfers to more than 120 destinations across Europe, Asia, Africa, Australia and the Americas.
Jon Foster-Pedley, dean of Henley Africa, said that product innovations and industry developments that previously came from large corporations and institutions are now being created by entrepreneurial individuals who are working with increased speed to disrupt business models of the past.
Mr Masela explained that there has been a flood of new innovations impacting most aspects of financial services such as currency, payments and remittances, lending, insurance, investment management and advisory services. The bulk of innovations have occurred in the currency, payments and remittance, and lending domains.
“Something is different about this new wave of innovation,” he said. “There are three factors that spell out why this surge of innovation is not business as usual: namely, shifting regulation and sentiment; rapidly evolving technologies; and unfulfilled customer demands or needs.”
“With the advent of the Fourth Industrial Revolution, the merging of physical and digital world is upon us. Technologies such as biometrics, big data analytics, block chain or distributed ledgers, smart contracts, cloud computing, machine learning and artificial intelligence have now created enormous opportunities.”
“Just as the internet democratised data and information, these technologies have the potential to democratise finance through digitisation. The combination of these technologies together with access devices in the palms of consumers such as cell phones and other mobile devices, connected to the internet, enables this reality.”
Mr Masela said that unlike in the past, the speed, scope and scale of fintech innovations is like nothing seen before. “Innovation impacts all aspects of financial services. Major offerings have been most evident in the payments and lending domains. Online peer-to-peer lending and equity crowdfunding and other domains like insurance and investments are predicted to also be impacted.”
Mr Masela emphasised that although this may not signal the end of banks or banking, underestimating the transformative aspect of these innovations may leave regulators behind and result in an ineffective regulatory landscape. To keep pace with the innovation, regulators may opt for new regulatory approaches that entail working more closely with the market while avoiding regulatory capture.
He explained that SARB has formally established a multi-disciplinary work group that is focused on regulatory aspects of virtual currencies and technologies such as blockchain and distributed ledger.
“Our intention is to firstly establish a comprehensive understanding of the technologies and use cases applicable to South Africa by also engaging with and learning from our financial industry. The work group will also, under the guidance of a Steering Committee, formulate possible policy stances and regulation that seeks to balance the need for more innovative solutions that address current inefficiencies, emerging needs and lowers the cost of access and use of the financial system as well as the need for safety, proper governance and sufficient consumer and investor protection.”
“Although emerging technologies will change the offerings in the financial industry, caution is urged in their adoption in order to balance benefits and risks,” he concluded.