Fintech in SA has enormous potential, says CEO of the Fintech Association

An interview with Darren Franks, Interim CEO of the Fintech Association of South Africa.

Over the past few months, there have been a couple of interesting developments in the South African fintech ecosystem. Payshap was launched, claiming to revolutionize real-time payments in South Africa. The Financial Sector Conduct Authority (FSCA) also decided to recognize crypto-assets as financial instruments, paving the way for their regulation.

Other developments in the sector include the Reserve Bank ordering banks to be friendlier to crypto-asset providers, as well as mobile network providers such as MTN, doubling down on their fintech value proposition.

Amidst all this activity, TechCabal caught up with Darren Franks, Interim CEO of the newly formed Fintech Association of South Africa, to get a more in-depth idea of ​​not only the mandate of the association, but also the fintech landscape in South Africa.

TechCabal: Share more about the Fintech Association of South Africa and its mandate

Darren Franks: The association serves to engage with regulators and other associations within the South African fintech ecosystem. These include the Payments Association, the Banking Association, the Reserve Bank, the FSCA, and are having a conversation about the state of fintech in South Africa.

We are a non-profit organization and officially opened calls for membership about five weeks ago and so far the response has been very positive. We have a couple of fintech startups on board, as well as banks.

TC: What was the reason for creating the association?

DF: I think there are a couple. One is that fintech is a fairly broad category. You have payments, lending, cryptocurrency and others, and the consensus was that there was not a representation or a central voice for all these entities together. I mean we had the banking association, which obviously represents the banks in South Africa, the payments association, which in turn represents the payments players, and it was really this void of representation that we felt needed to be filled.

When we spoke to the Reserve Bank, one of the biggest challenges they stated was that they get lobbying and they get questions all the time from fintechs either domestically or those coming into South Africa and they just didn’t have the people power to come back to all and answer these questions.

So, from a lobbying and advocacy perspective, that is the value that the association will add, creating a unified voice for the sector.

TC: Compared to the continent’s major hubs, fintech in South Africa has fallen behind over the years, particularly in terms of attracting venture capital. What role will the union play in remedying this situation?

DF: Unfortunately in recent months, the decline has been due to global macroeconomic conditions over which no one in the ecosystem has control. But what we can certainly do as an association and what we have been working hard on is promoting South Africa’s fintech scene internationally. This could be through helping startups secure investors and scale beyond SA’s borders.

I was in London last week, meeting with a number of different associations and stakeholders within the fintech ecosystem, talking about what’s happening in South Africa. Even despite the slowdown, we’re still seeing some South African startups like Lulalend raise some pretty significant rounds, so that’s a welcome development.

All in all, our role is to ensure that viable businesses that show a clear path to profitability can secure decent rounds of financing that will put some wind in their sails.

TC: In terms of what is happening in the fintech scene in South Africa at the moment, what are the prominent developments to watch for?

DF: I think there is a lot going on behind the scenes with things like open banking, real-time payments and regulations around crypto. Over the next few months, I think we will see some consolidation in the market through M&A activity.

Also, I think we will see a lot of activity around challenger banks such as neobanks such as TymeBank and Discovery which have done exceptionally well. With the traditional banks or the incumbent bank, we also see a big move there towards digitizing their process banks, not just from a technology perspective, but really from a mindset perspective. We find that a number of the key banks here in South Africa are developing API platforms to effectively offer banking as a service, which is a welcome development.

TC: What would you say are the main challenges facing fintech in South Africa at the moment?

DF: I think for those who are pushing boundaries in terms of either alternative payment methods, or it comes to different types of KYC or AML requirements, regulation is a bit of a challenge. This doesn’t necessarily prove that regulators are stifling innovation, because no matter what market you’re in, if you’re trying to disrupt, the regulator needs to make sure you’re not doing it at the expense of the consumer.

I think the other area that is a bit of a challenge would be talent. Now, there are a lot of extremely talented people in South Africa, but what we’ve seen in recent years is that big tech companies that set up here tend to soak up a lot of the talent, which means there’s a lot of inflation when it comes to wages in South Africa and it is sometimes very difficult for local fintechs.

The other challenge, which I think is becoming a little less, is around the kind of integration where fintechs can work with banks without both parties seeing each other as competitors. The reason I say we’re starting to see less of this is because I think the adoption and integration of banks into fintech is really starting to become more positive, which is good for the whole sector.

Third, perhaps more of an opportunity than a challenge, is the rise of mobile network operators such as MTN and Vodacom in creating their own flagship fintech products. I think their growth will disrupt some of the more traditional fintech players, but in the same breath I also think smart fintech startups can use this growth to partner with the MNOs and really scale up their product offering at an accelerated pace.