I’m betting on banking, not fintech

This text was contributed to TechCabal by Uzoma Dozie.

I’m going to do banking, however higher. The overwhelming majority of our present crop of African fintechs declare to make banking simpler—banking the unbanked/underbanked, and many others. However there are limitations to banking when seen solely via the fintech lens; and people who have fintech expertise, with out banking expertise, will wrestle to genuinely scale and make an actual impression or create significant worth for his or her prospects or their buyers.

The fintech narrative that permeates all tech and finance discussions is sort of superficial and international VCs have been hypnotised by and purchased into the narrative, with their chequebooks; and I can see why. Africa has a extremely mobilised market that has historically been underserved by the bigger institutional banks. Banks haven’t been in a position to serve the un- or underbanked; and fintechs have, on the floor, plugged that hole. 

Nonetheless, of their rush to enroll new prospects and repeatedly replace their pitch decks with their CACs, the fintechs appear to have forgotten the basics of banking; easy methods to create worth for purchasers while extracting worth to make the financial institution a revenue-generating entity. Signing up prospects is nice; monetising prospects is bigger nonetheless, however producing mutually useful worth for all is actually the best.

Fintechs received the UX battle and so they received the dialogue with potential prospects; they made banking slightly extra palatable, slightly sexier to the plenty. And that’s essential as a result of banking is generally unsexy—threat administration, information administration, cybercrime, company and monetary governance—all deeply unsexy to many individuals. 

However have you learnt what’s worse? Having your information stolen as a result of the platform holding your life financial savings hasn’t invested in defending itself from cyber assaults. 

What’s even worse? Having chosen a fintech to carry all your enterprise banking funds, and the platform has such poor governance or understanding of treasury administration that they can not launch YOUR funds to cowl YOUR payroll as a result of it hasn’t understood the distinction between funding funds and prospects’ funds.

Holding prospects’ cash secure is the naked minimal in the case of banking. As a monetary providers establishment you might be storing worth, and should you try this correctly, you might be creating extra worth. This covenant, this belief, can’t be damaged—this isn’t a expertise play, it’s a banking play. Eat, sleep, dream, and breathe banking fundamentals for a few years, then use expertise to construct upon your deep-rooted foundations. That’s the way it needs to be carried out.

I’m at present studying Chris Skinner’s guide, Intelligent Money, and he’s additionally fixated on how we retailer worth and preserve it secure. He seems to be on the essential frameworks [which are banking-led, not fintech-led], the significance of banking information, and in addition the flexibility to handle [and anticipate] threat — all of which have to be thought-about when holding prospects completely happy. And by completely happy, I imply, holding their cash secure and never breaking the covenant of belief.

However while I’m betting on banking, this doesn’t imply that I’m not an advocate for tech-powered banking. In truth, advocate appears too light-weight a time period to explain me. I can’t entertain a world of banking that isn’t massively enhanced and revolutionised by expertise. This doesn’t make me a fintech. Right here’s why. Expertise permits us to course of large quantities of knowledge, at scale, and quick. This permits us to make a lot better, extra focused banking selections on areas corresponding to threat mitigation [loan defaults etc.] and permits extra frequent and higher selections [basically, better banking]. 

Expertise additionally permits us to crack down on cyber safety, giving us the benefit to see assaults in real-time and hint the cash [in most cases] again, reinforcing the necessity to construct belief via safety. It additionally permits us to construct banks with higher operational capital effectivity; onboarding new prospects digitally, and eradicating the excessive value of bodily branches. The discount of pricey overheads can then be handed on to prospects who can take pleasure in a decrease value of banking while receiving high-quality providers. Expertise additionally forces higher company governance; digital trails [RIP paper trails] present transparency at each degree — from backside to prime—one thing fintechs haven’t all the time been so scorching on.

At Sparkle, we’re very clear on who we’re—a bank-led service supplier powered by a fintech construction. We’re a banking service constructing a self-sustaining [and subsequently profitable] enterprise. We’re not merely constructing a following that’s subsidised by enterprise capital for a prolonged, undefined interval. In the identical method, we’re constructing worth and managing threat for our prospects, we do the identical factor for our buyers. And that is why I’m betting on banking and never fintech.

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Uzoma Dozie is a banker, tech investor, and monetary inclusion advocate. He’s the CEO and Founding father of Sparkle. Earlier than launching Sparkle, he was the GMD and Financial institution CEO of Diamond Financial institution the place he efficiently applied a merger with Entry Financial institution Plc.