CAPE TOWN - South Africa’s fast growing fintech sector struggles in the risk-averse funding environment and operates in a complex regulatory space where there is also a shortage of entrepreneurial skills, according to findings published yesterday in a Financial Sector Conduct Authority (FSCA) research report.
In the FSCA Intergovernmental Working Group (IFWG) research report it said they were also finding it difficult to find scale against the large companies that dominate the financial services sector.
The report said South African regulators had been slow to formulate and communicate a clear stance on the fintech industry. The aim of the research was to get a clearer understanding of the fintech market.
Fintech is technology-enabled financial innovation that can lead to new business models, applications, processes and products, and is transforming the financial services sector globally.
As a result of the research project, the IFWG said it planned to launch an online portal this year consisting of a fintech innovation hub and a fintech database.
The report focused on more than 200 South African-based small, start-up, agile and independent fintech businesses, founded within the past 11 years.
The largest and most mature of these in terms of financial services sector segments, was payments, with 68 entities actively operating in this segment.
Most payment fintechs were third-party payment providers or payment services providers that offer retailers the ability to accept electronic payments via a number of payment rails (credit card, direct debit, bank transfer, and real-time bank transfer).
The second largest segment is B2B Tech support, with 48 operational entities. These companies use technology, either developed in-house or through partnerships or equity stakes in start-up businesses, to increase speed, improve efficiency, and make financial services more accessible
The crypto payments sub-segment, however, was immature, the report noted. Platforms such as Luno and VALR provide crypto wallets, but these fintechs were mainly crypto currency trading platforms.
The lending segment is made up of 28 fintechs, with 18 providing online lending services. Nine platforms provide funding to small medium enterprises and nine platforms provide personal loans.
The Savings & Deposit segment comprised 14 fintechs, including four digital banks and digital community savings platforms, the report said.
New digital banks were expected to disrupt the market and were recording increasing consumer numbers. TymeBank was reportedly signing 5 000 new customers a week.
Hello Paisa, which already provides payments solutions and has also launched a digital bank, was expected to leverage the 1.2 million users.
The report said there were 22 insurtech firms, with most being digital distributors (12) and peer-to-peer insurance fintechs (six). Digital distribution refers to offering traditional insurance products through digital channels.
There weare 16 fintechs under the Investment segment, seven being robo-advisory, five personal finance management and four small business finance management.
Crowd investing was in the early stages, with only one true equity crowdfunding platform. Although South Africa had a number of crowdfunding platforms, almost all of these support reward-based crowdfunding, the report said.