African fintech start-ups are disrupting the payments sector with their innovative solutions.
This is according to Dominique Collett, a senior investment executive at Rand Merchant Investments and head of AlphaCode, a Rand Merchant Investments club for fintech start-up entrepreneurs.
She points out that in 2016, $5.5 billion of venture capital investment went into payments start-ups. This represented 22% of global fintech investment activity.
Tremendous innovations
Collett says payments still dominate the fintech landscape in SA. "At AlphaCode, we are seeing a tremendous amount of innovation in payments as South African consumers seek new ways to transact.
"Due to SA's sophisticated banking infrastructure, we possess strong skills in this sector and many AlphaCode entrepreneurs are finding better and more efficient ways to transact."
Collett points out that due to migrant labour, there is a desperate need to be able to send money home in a cost-effective way.
However, she says the standard ways of sending money across borders are massively inefficient and expensive.
Mama Money spotted this gap, and leverages technology to reduce the costs of sending money cross-border by almost 50%, compared to existing money transfer solutions.
"This addresses a customer need and a social imperative to deliver services at a price that users can afford. It's been so successful that it's expanded from initially sending money to Zimbabwe two years ago, to services into Nigeria, Ghana, Tanzania, Malawi, India and Kenya."
Another fintech start-up is Zoona, which operates in Zambia and Malawi, offering domestic money transfer services to customers without the need for a bank account.
A key element of its model is the rollout of agent kiosks, which are like mini bank branches, says Collett.
She adds this has been critical in a country with limited existing bank infrastructure. It has also empowered thousands of Zambians and Malawians to start their own businesses as Zoona agents.
"Zoona, in this way, increases financial inclusion by allowing citizens to transact, delivering a great customer experience at a lower cost."
To date, Zoona has serviced over 1.5 million consumers and facilitated over $1 billion in money transfers.
SME transactions
Collett says there is a great need to facilitate payments for SMEs in Africa. For instance, small businesses have struggled to get card machines from the banks.
She explains this has resulted in many SMEs operating in cash, which introduces significant risk to them. Even if a business qualifies, the costs associated with these card machines are often prohibitively expensive for an SME.
"Yoco and iKhokha have addressed this need by offering cost-friendly mobile card machines that simply plug into or connect with a mobile phone. They have also simplified the pricing associated with card machines by not locking SMEs into expensive monthly contracts and allowing them to buy the device as a once-off purchase.
"They also offer much more competitive pricing on card swipes - 2.5% to 3% compared to traditional bank rates of 5% to 6%."
Collett explains that the ability of SMEs to now move more of their transactions from cash to card swipes is important for SA, as it means the country gets greater visibility and data regarding small business.
This enables further inclusion of SMEs in the financial sector by facilitating, for example, credit scoring and credit extension on the back of this data, she notes.
Consumer convenience
The other fintech start-ups are also pushing their innovations to increase convenience for consumers.
Collett notes SA has incredibly strong banks but they are a bit behind on customer experience. In an on-demand economy, people want to do things quickly and easily using their phones, she points out.
"Zapper and SnapScan have solved a problem for businesses and consumers by allowing customers to make payments via their phones as quickly as swiping a card. Restaurants and food markets have been early adopters of this technology as it improves the customer experience"
She adds that Walletdoc allows consumers to pay bills from their cellphones, thereby reducing the hassle factor.
"You can upload your City of Joburg bill, for instance, and pay instantly without having to log into your bank or go into a Pick n Pay. In addition, the app ensures you get loyalty points from your bank for these payments. Again, this is the type of convenience consumers demand in today's fast-paced world."
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