Love it or hate it, fintech revolution here to stay
The revolution in the financial services industry arising from the use of technology is growing fast.
Financial technology (fintech) which is the design and delivery of financial services involves anything from cashless payment to crowd-funding platforms, robot advisers and virtual currencies.
Fintech is used to help companies manage financial aspects of their businesses, including new software and applications, processes and business models.
Kenya is among the top three African innovators in the financial sector, together with South Africa and Nigeria.
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Kenya also pioneered in mobile banking via M-Pesa.
This has enabled Kenyans access M-Pesa accounts directly on their mobile phones to transfer money, pay bills or take out loans. Over 96 per cent of the households use M-Pesa.
Global investments in the fintech industry have added up to Sh10 trillion ($100 billion in the last 10 years. However, Kenya remains the most attractive market in Africa for workers in the fintech industry.
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Both private and public investors worldwide have started to pay more attention to this development, as is evidenced by a steady increase in investments in the market.
Kenya is a tier one practitioner in the fintech space. New data depicts that local firms pay the highest salaries in comparison to other countries on the continent for this service.
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Fintechs allow thousands of businesses in Kenya, Uganda, and Tanzania to view their transaction history and issue receipts. Most fintech innovations permit for payment of low-value card transactions with ease, speed and convenience. Taking a case study of the US, Fintechs raised Sh1.2 trillion ($12.4 billion) in funding- injecting the much-needed boost in the American economy.
Fintechs are also changing economies worldwide.
Their landscape in Africa has grown at an annual rate of 24 per cent over the last 10 years, fuelled by three main hubs of Kenya South Africa and Nigeria.
Recent developments have shown emerging signs of fintech growth in Ghana, Cameroon, Rwanda and Uganda. Kenya hosts around 20 per cent of the entire Sub Saharan African fintech landscape and has a stronger focus on the payments segment. The Kenyan hub is located in Nairobi, home to more than 50 fintechs in Sub Saharan Africa - the main drivers for financial inclusion.
Financial inclusion means people and businesses have access to useful and affordable financial products and services that meet their needs that are delivered in a responsible and sustainable way.
About 2.5 billion people are unbanked due to barriers such as the cost of services and physical distance to access points.
However, recent data shows the potential of technology and innovation to overcome these barriers. G20 leaders such as the IMF, World Bank and other multilateral institutions have called for an improvement in the quality of economic growth to be more inclusive.
They have recognised the benefits of financial inclusion for stability, integrity and inclusive growth - making it not only a development concern but a cornerstone of economic development framework and model.
The Central Bank of Kenya policy and regulatory framework allows 23 million people (74 per cent of adults in Kenya) to use mobile services through 90,000 agents and the number continues to grow.
The fintech industry is not absent from various challenges.
Cyber-attacks are some of the greatest challenges faced by governments and businesses worldwide and given the sensitive nature of the client data that they hold.
They are a serious concern about fintech firms, with cybercriminals launching more complex and frequent attacks. The number of major data breaches is also set to increase in 2019.
With traditional cyber security methods becoming unsustainable, it may be time to consider deploying dynamic security solutions such as a Moving Target Defence that helps frustrate attacks by constantly shifting the points of attack and robing hackers of the static targets that they are familiar with breaching.
Other challenges include retaining human touch in the banking and fintech industry.
Fintechs operate a model that often leave clients feeling they are dealing with a faceless entity. Keeping your customers’ needs and experience at the heart of fintechs is paramount.
Fintechs should make things easier for the consumer and in a manner friendly to regulators. In fact, technology assists regulatory bodies to work better.
-The writer teaches at the University of Nairobi
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FintechFinancial servicesFinancial technology