Until a few years ago, getting a loan from a bank was quite a daunting task. The banking and finance industries traditionally interact with customers face-to-face in physical branches. Performing basic transactions often involved going to a bank and filling out countless forms, a tedious process where a successful transaction was not guaranteed.
New fintech solutions have disrupted the banking sector. Start-ups and small businesses have decoupled some of the basic banking services and consumers can now access fast loans, bank accounts, savings and investment products, or payments from a range of suppliers without setting foot in a bank. This is a boom for an increasingly tech-savvy audience, both banked and unbanked.
Embedded finance, or the integration of traditional retail financial services into the platforms consumers use every day, has gained momentum during the pandemic. These companies meet consumers where they are, whether it’s a convenience store, a pharmacy or even a restaurant. By offering solutions such as digital credit and savings products at popular merchants, consumers can unlock a range of financial services that were previously inaccessible. Start-up entrepreneurs and start-up investors have stepped up their efforts in this area and – judging by recent fundraising from companies like Wasoko, Marketforce 360 and Kibanda Top-Up – investors have taken notice. .
The rapid global development and acceptance of integrated finance is being felt significantly on the African continent where, until a few years ago, financial inclusiveness was a distant reality and traditional financial institutions could not reach the areas remote. However, digitalization has empowered the people of Africa and enabled the region to become financially independent and self-sufficient. A significant portion of the population now has access to a variety of financial products not only through their bank but also through other apps.
Fintech startups are starting to consolidate banking services and this competition is driving up the banks. The banking industry needs to refine its own services to keep up with the rapid pace of fintech. Thanks to this development, the dominant technology platforms are now focusing more on the sub-sector and are struggling to maintain their position as dominant distributors. Previously, financial services were accessed through their bank or an agent, but today this is increasingly happening via mobile devices with the advent of mobile banking and internet banking apps.
Within our own portfolio at Flourish Ventures, we are seeing the growth of startups with very unique models aimed at reaching the most underserved customers where they are. Many are actually introducing bank accounts as a way to access customers across multiple segments. Startups will start with loans and then move on to bank accounts, a debit card and additional services. This is the next generation of what the continent’s fintech giants will look like. They will no longer be specialists in performing a particularly good service, but they will in fact be able to aggregate more products and provide a multitude of services to the customer.
Embedded finance now looks poised to transform industries and this demonstrates an opportunity for fintechs, banks and lenders to create more tools and resources for those who may not have access to traditional banking and financial services. .
We expect many more use cases to come. It’s a great opportunity for start-ups, SMBs and large enterprises to create more customer value while capturing new revenue streams. It’s also a good reason for incumbents to partner with fintech startups to accelerate initiatives that offer more support to the underserved and underbanked. Banks and financial firms can save money, resources and time by leveraging non-financial firms and their infrastructure to offer their financial tools.
*Carr is the director of Flourish Ventures.