When Europeans and Americans talk about financial services in Africa, the enlightened ones are increasingly coming to realise that they, and the US in particular, are well behind African financial services in many respects. The most often quoted example – it’s only a cliché because it’s true – is M-Pesa and its domination in Kenya.
The way this is often described is as Africa “leap-frogging” a step in the process: going straight to mobile phones without bothering with landlines; straight to cellphone banking without building bank branches. I think this misses the point.
The idea, and the language, of leap-frogging, suggests that there is some preordained financial services development path, and that we have somehow taken a shortcut. The reality, though is that Kenyans don’t have ATMs because they don’t need ATMs. If you have a mobile phone, you don’t need a landline. Why would you go to all the trouble of catching and breaking horses, hiring a groom, building a stable, and feeding the beasts when you can drive? The starting conditions are different, the context is different, and the solution is therefore different.
A few degrees south of Kenya, in South Africa, mobile money has never taken off, to the frustration of those launching and re-launching it. The thing is, South Africa doesn’t need it. In a country where ATMs are common, then all I have to do to send cash over distance is SMS you a PIN to go and collect it from the nearest ATM. The banks have innovated around the use of ATMs, and with cardless withdrawals and a banking infrastructure, mobile money is not a big deal.
This brings me back to my point about starting conditions. In large chunks of Africa, there is no financial services infrastructure. Fintech therefore is financial services in Africa. Where there is no legacy infrastructure there is no reason to build it, and there is no need to work around it.
The other key element is the social factor: how people behave. What I learned from my parents and my society growing up in the UK was to get a bank account with a card, get insurance through a broker, go to a bank for a mortgage, and so on. When you are the first generation that experiences financial services, then your experience is different, and the role that fintechs play is not just providing a service, it is about educating their customers as to how to use it. This makes it harder to get off the ground – imagine you had to pitch the idea of a Nespresso machine if the coffee culture didn’t exist.
The starting conditions are a combination of the current FS infrastructure and the current customer behaviours. The infrastructure in the "developed" world changes very slowly because it broadly works, and the institutions who maintain it are large powerful corporates. The infrastructure in many parts of Africa (not South Africa, but that's another discussion) is very limited, so there is little or no legacy anchor handbrake slowing things down.
Customer behaviour is changing fast everywhere, particularly around communication and how businesses and their customers interact. This is why "low infrastructure" things like the payment process are the first to change in otherwise high infrastructure contexts. (As a consultant, I'm getting a burning urge to draw a 2x2 matrix at this point.) What is universal is that there are many businesses outside FS who are teaching your customers about how they should be communicated with, what a client experience should feel like, and so on. The education that you have to do is therefore limited to the FS specific aspects of your business.
The implications for financial services companies are interesting. For European or American businesses experimenting in Africa or Eastern Europe, as is happening, be careful. Think about those starting conditions and what the relevant similarities and differences are to your home territory. The key word there is relevant.
For everyone, the thing to realise is that you need to look beyond financial services to see where the customer behaviours are. That has been obvious for a while. What is perhaps less apparent is that this is also the case for infrastructure. Where there is no FS infrastructure, what is there that might substitute for parts of it? This might be physical or virtual, and may become apparent from studying customer behaviour.
It is not leapfrog except that the journey is bumpy and sometimes painful. It's more like poker - the pack is shuffled and you need to think ahead before placing your bets. Good luck.
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