Fintech in South Africa is a true goldmine of the Financial sector in the 21st century. It’s not just a walking bank but it’s also your go-to for all financial matters. Recently, fintech startups are on the high side as humans are finding new stress-free ways to do things.
The Rise of Fintech in South AfricaFintech Startups in South AfricaCommon Problems Faced by Fintech Companies in South AfricaRegulation of Fintech in South AfricaKey Regulatory Bodies That Control Fintech Products and ServicesActivities that Trigger Licensing RequirementsThe Future of Fintech in South AfricaConclusion
So, in this article, we will be talking about the fintech industry, the common challenges fintech companies face, and what the future holds for fintech in South Africa.
The Rise of Fintech in South Africa
The rise of fintech in South Africa is creating a number of new dynamics, and it should be intriguing to see how things play out.
In the banking sector, challenger banks have been launching with zero fees – a dramatic step in a market where fees had been universal even for basic banking. Whether traditional banks will begin to lower or remove their fees remains to be seen.
The fintech sector of South Africa is playing a strong role not only for the country but the African continent as a whole. The country is a major trade and investment commercial hub for the African continent to do business globally. The fact that it has two global cities, Johannesburg and Cape Town, makes the country unique.
The Fintech Times’s Fintech: the Middle East & Africa 2021 Report highlighted the importance of South Africa in the wider Middle East & Africa (MEA) landscape.
Fintech Startups in South Africa
South Africa has a relatively high fintech penetration rate in Africa. As of June 2022, the country had about 980 registered fintech startups. This is probably due to the fact that a large percentage of the country’s population has access to the internet, and an equally high percentage of people own bank accounts.
However, players in the fintech industry are mainly focused on five key banking functions: payments, deposits and lending, capital raising, investment management, and market provisioning.
In the peer-to-peer lending space, South Africa is one of the leading African markets for both consumer and business loans. Notable players in this space includeRainFin, an online lending marketplace for corporate institutions, and PeerFin, a peer-to-peer lending platform.
In 2015, South African online alternative finance platformsraisedUS$15 million. Most of the amount (US$13.8 million) came from peer-to-peer consumer and business lending while the remaining US$1.2 million was spread across microfinance, donation-based, and reward-based crowdfunding.
South Africa has also seen the establishment of digital and challenger banks looking to serve the digitally-savvy populations in recent years. These includeDiscovery Bank,TymeDigital, and Bank Zero by Commonwealth Bank South Africa. TymeDigital started out as a domestic digital remittance service provider but evolved into a challenger bank.
In the area of investing, asset, and wealth management, activity has been minimal.
Many financial services providers have invested in developing investment advice platforms driven by AI. Itransact, an authorized financial services provider,launchedits computerized investment platformItransactGOin May 2017. A robo-advisor platformAdvicement,went livein June 2017, and Absa, one of the largest banks in South Africa,unveiledits robo-advisory serviceVirtual Investorin August 2017.
Another area that’s been growing rapidly in fintech in South Africa is a blockchain with significant industry-based activity around DLT, cryptocurrencies and other related technologies.
Various startups have been established in recent years, includingLuno, a cryptocurrency exchange platform and digital wallet,Ice3x, another exchange platform, and BitFund, a cryptocurrency investment platform.
Other startups likeCustos Media Technologies,Bankymoon, andGeoPayare using blockchain and cryptocurrencies to address specific issues.
Custos Media Technologies was founded in 2014 with the sole purpose of fighting online media piracy using blockchain. Bankymoon is a blockchain consultancy firm and blockchain-based solutions provider, and GeoPay is a platform that offers blockchain-based international money transfer services.
Presently, cryptocurrencies are not regulated but South African regulators have had a positive attitude towards these sorts of technologies.
In July 2017, SARB began to work with Bankymoon to test out a number of new cryptocurrency regulations in the country. And earlier this month, the South African Revenue Service (SARS)releaseda statement on the tax treatment of cryptocurrency gains.
Common Problems Faced by Fintech Companies in South Africa
Despite the promising rise of fintech in South Africa, companies constantly face a member of difficulties. These difficulties and challenges affect their total revenue and growth one way or the other.
One of these problems is the shortage of talent. It’s a common saying that a great team makes a successful startup. However, finding the right people to make up their team can be difficult for a startup. Most times, the best people are already employed in larger institutions and are unwilling to risk joining a startup.
The unavailability of a big market in the continent as a whole poses another challenge to startups, especially those looking to expand their services outside the shores of South Africa.
You would think it ends here until you realize lack of funding can also hinder the growth of a fintech startup.
Regulations also contribute to the growth of fintech in South Africa. They determine how big and how fast a company grows and ensures fraud is kept to a minimum. In situations where the regulation of fintech is poor, startups and companies start to suffer.
Regulation of Fintech in South Africa
Key Regulatory Bodies That Control Fintech Products and Services
- Financial Sector Conduct Authority (FSCA): The FSCA is the market conduct regulator overseeing financial services providers, insurers, funds and find managers, asset management, stock exchanges and stock brokers, retirement funds, central securities depositories, and central securities depository participants, among others.
- South African Reserve Bank (SARB): The SARB is the main regulator for banking and payment services in South Africa. It is primarily responsible for the maintenance of price stability in the interest of sustainable economic growth in the country. It ensures the safety of the national payment system, which is the backbone of South Africa’s modern financial system. Recently, its mandate has been extended to cover the regulation of prudential requirements for all financial services.
- Prudential Authority (PA): The PA is responsible for regulating and supervising, financial institutions that provide financial products and securities services as well as market infrastructures (MIs) in South Africa. The PA was established by the Financial Sector Regulator Act 2017. They consist of the following four departments:
- Financial Conglomerate Supervision Division
- Banking, Insurance and FMI Supervision Division
- Risk Support Department
- Policy, Statistics and Industry Support Department
- Financial Intelligence Centre (FIC): The FIC is responsible for protecting South Africa’s financial system by regulating money laundering. It also counters the financing of terrorism and financing of proliferation of weapons of mass destruction.
Activities that Trigger Licensing Requirements
According to the Financial Advisory and Intermediary Services Act 2002 (FAIS), any person who seeks to proactively market or provide financial services to clients or investors, whether from within South Africa or on a cross-border basis from offshore, as a regular feature of such person’s business, must be appropriately authorized under FAIS.
The term ‘financial services’, for the purposes of FAIS, comprises ‘advice’ and ‘intermediary services’.
However, ‘financial products’ is broadly defined to include, shares, derivatives, money-market instruments, bonds, participatory interests in collective investment schemes, and deposits, among others.
Services that are currently subject to licensing as intermediary services under FAIS include arranging investment deals; making arrangements with a view to investment transactions; and dealing in investments as agents.
Acting as an agent or intermediary to forex investments by local clients or investors is also licensable under FAIS. Currently, dealing in investments or financial products as principal is not licensable under FAIS.
Services that are subject to licensing as advice under FAIS include advising on investments and forex trades.
The Future of Fintech in South Africa
South Africa’s fintech adoption rate is expected to experience a major leap over the next few years. EY’s annual FinTech Adoption Index Report 2017 predicted 71 per cent growth, with the country ranking third in future growth behind only China and India.
There is a greater number of technology hubs in South Africa than in any other country on the continent, and the country enjoys a more significant amount of both national and international investment in the fintech sector.
As Microsoft CEO Satya Nadella rightly put it: “Longevity in business lies in the ability of the business to reinvent itself or invent the future”.
As it applies to the corporate world or business so it is to every economy.Because the growth of every economy and the strength of their currencies are hinged on their innovated and invented values.
The market’s largest segment will be Digital Payments with a total transaction value of US$14,340.00m in 2022.
The average transaction value per user in the Alternative Financing segment is projected to amount to US$83.51k in 2022.
The Alternative Financing segment is expected to show a revenue growth of 91.6% in 2023.
In the Digital Payments segment, the number of users is expected to amount to 37.42m users by 2027.
Total Transaction Value in the Digital Payments segment is projected to US$14,340.00m in 2022.
Due to the major differences in the KPIs of FinTech products, e.g. different nature of loan origination volume in Alternative Lending in comparison to Assets under Management in Robo-Advisors, no total transaction value for all segments can be calculated.
Conclusion
Fintech in South Africa is a very promising industry. Despite the challenges and difficulties startups face, they still manage to thrive in the ecosystem.
FAQs
Fintech is transforming business models and increasing innovation in financial services. Innovations include crypto assets, online peer-to-peer platforms, insurtech, alternative digital payment platforms and even central bank-issued digital currencies.
What are 4 categories of Fintech? ›
In this primer, we will highlight four fintech areas — digital lending, payments, blockchain and digital wealth management — that are of particular interest due to their rapid pace of growth, technological disruption, and regulatory and other risks.
How do you explain Fintech? ›
A Simple Definition of FinTech
The term “fintech company” describes any business that uses technology to modify, enhance, or automate financial services for businesses or consumers.
What is Fintech explain in short with few examples that you use in day to day life? ›
In simple terms, Fintech involves a variety of financial services/activities such as money transfer, check depositing by mobile phones, applying for a credit card without visiting a bank physically, hoisting funds for a business/ start-ups, managing own investment even without getting a person's assistance.
How many Fintechs are in South Africa? ›
In 2021, 154 fintech startups were located in South Africa. The country counted the highest number of such companies in the Africa region. Nigeria followed closely with 144 fintechs, while other 93 had headquarters in Kenya.
How many FinTech companies are in South Africa? ›
93 South Africa Based Fintech Companies | The Most Innovative Fintech Companies.
What are the main areas of fintech? ›
The Indian Fintech industry ecosystem sees a wide range of subsegments, including Payments, Lending, Wealth Technology (WealthTech), Personal Finance Management, Insurance Technology (InsurTech), Regulation Technology (RegTech), etc. The Fintech sector in India has seen a funding of $8.53 Bn (in 278 deals) in FY22.
Is fintech a sector or industry? ›
Fintech now includes different sectors and industries such as education, retail banking, fundraising and nonprofit, and investment management, to name a few. Fintech also includes the development and use of cryptocurrencies, such as Bitcoin.
What is an example of FinTech? ›
Examples of FinTech. Some well-known companies such as Personal Capital, Lending Club, Kabbage and Wealthfront are examples of FinTech companies that have emerged in the past decade, providing new twists on financial concepts and allowing consumers to have more influence on their financial outcomes.
Why FinTech is the future? ›
The more they employ technology to their advantage, the stronger the brand will become, allowing them to weather any storms. Fintech is a growing industry with seemingly limitless opportunities to improve our financial systems.
FinTech firms often take an inclusive approach to finance, allowing customers convenient access to a diverse variety of financial services and products. Furthermore, these services and goods are accessible via mobile devices and do not have a time-consuming sign-up process.
Why do you want to work in FinTech interview answer? ›
Here's our example answer to this question:
“A career in FinTech is hugely rewarding, one of the reasons it's so rewarding is how fast the industry is growing. This means graduates have the chance to gain lots of responsibility and autonomy early on in their career and make a real impact to the industry.
What are the types of FinTech? ›
Let's look at 10 innovative FinTech business models that are leading the path of disruption.
- Alternative credit scoring. ...
- Alternative insurance underwriting. ...
- Transaction delivery. ...
- Peer-to-peer lending. ...
- Small ticket loans. ...
- Payment gateways. ...
- Digital wallets. ...
- Asset Management.
Over the projected period, the global Fintech-as-a-service market is expected to rise significantly. The increase in bank investments in innovative technology to improve their services and customer experience might be linked to market expansion.
Is fintech regulated in South Africa? ›
According to Gillmer, over the past few years, SA has seen the introduction of new frameworks and amended laws, which have resulted in more stringent regulation of fintech services, including the Financial Intelligence Centre Act, Pension Funds Act, Protection of Personal Information Act and Insurance Act.
How does fintech affect financial system? ›
Many banks through FinTech are boosting their online banking services and other mobile financial services applications increasing economic growth and development. Generally, FinTech impacts efficiency by decreasing cost and improving the quality of payment and settlement services thus improving economic development.
What is fintech in banking? ›
The Financial Stability Board (FSB) defines FinTech as “technology-enabled innovation in financial services that could result in new business models, applications, processes or products with an associated material effect on the provision of financial services”.
Who makes money in South Africa? ›
South African Reserve Bank
According to 2021 data by Disrupt Africa, there are 573 fintech startups in Africa across the different verticals of the industry- Paytech (payments and transfers), Lendtech (Jumo), Banktech (digital and neo banks), Insurtech, Blockchain and Cryptocurrency.
What is the biggest challenge in fintech? ›
Industry Regulations
Regulatory compliance is also one of the most vital challenges in the FinTech industry. This is because of the immense increase in regulatory fees that relate to earnings and credit losses after the 2008 financial crisis.
A fintech is a business that offers any financial service—such as financial accounts, cards, or loans—and makes them accessible to their customers via software.
What industries is fintech used in? ›
The Fintech industry encompasses a wide range of products, services, and ideas. This includes online banking, budgeting apps, Robo-advising services, crowdfunding platforms, cryptocurrency and blockchain, amongst many others. Previously, banks dominated the financial service market and they were a necessity.
What problems is fintech solving? ›
FinTech comes up as the answer to improving digital banking services, stronger security and regulation systems, better facilities for open banking, and more.
How fintech can help small business? ›
5 Ways Fintech Is Helping Small Businesses
- E-Commerce. ...
- Simpler Financial Processing. ...
- Smooth Account Management. ...
- Better Customer Engagement and Privacy. ...
- Small Business Loans.
The advantages of Fintech are its flexibility, fast and cheap transaction is achieved by high-end technology. Virtual Operations and flexibility and not being regulated as a deposit institution or cash from venture capital allow FinTechs to attract customers with less pricing.
Who is the founder of fintech? ›
KP Atluri - Founder CEO - FinTech Group | LinkedIn.
Who are the key players in the fintech industry? ›
The Indian Fintech industry has shown huge growth over the past few years. India is gradually becoming a hub for many Fintech startups, the prominent names in the list are Paytm, Pine labs, PayU, and Faircent. SoftBank has been actively investing in many potential fintech startups.
What are the latest growing areas in fintech? ›
This article is featured in Pulse of Fintech H2'21.
- Growing number of banks will offer embedded solutions. ...
- There will be increasing regulatory scrutiny of embedded finance offerings. ...
- Fintechs will focus on branding themselves as data organizations. ...
- ESG-focused fintechs will have a big growth trajectory.
Transacting at ease – The bank consumers will be at an advantage to transact using the latest technology and save on transaction time, efforts, and money. Banks and fintechs will also benefit in terms of high transaction volumes with a low operating cost within a short duration of time.
What is the difference between fintech and banks? ›
Traditional banks usually have strict collateral requirements for customers applying for a loan. But fintech doesn't typically have such strict requirements, which can make it easier for customers to obtain funding and financial services through these smaller, web-based platforms.
Fintech can influence the financial market in several main areas: 1. By increasing competition, empowering consumers, democratizing access to financial services, especially in developing countries and, as a consequence, stimulating further innovation.
How fintech is changing the world? ›
But with an emphasis on flexibility, speed, inclusiveness, and transparency, FinTech allows consumers to open bank accounts, take out loans, transfer money, or buy life insurance on a smartphone, bypassing the hefty fees and regulatory restrictions of traditional banks.
What are the major factors shaping the future of fintech? ›
"Unprecedented growth in data access with growing smartphone penetration (1130 million smartphones by 2025 vs 600 million in 2020), rising internet penetration (900 million internet users in 2025) and declining cost of data" is also listed as a factor that will continue to propel the fintech growth story.
How fintech is shaping the future of financial services? ›
Providing value-added services: FinTech is developing value-added solutions and features that can easily be integrated with bank platforms through Application program interfaces. It allows the banks to make efforts for integrating and for streamlining the operational capabilities of the banks.
What is the number 1 fintech company? ›
In 2021, the largest two were the payment companies Visa and Mastercard, both headquartered in the United States, with a market capitalization of almost 478 billion and 368 billion U.S. dollars, respectively.
Is PayPal a fintech company? ›
PayPal Holdings (PYPL 6.26%) has, over the years, grown to become the iconic fintech company. Founded in 1998, PayPal now serves more than 429 million consumers and merchants.
How many fintech companies are there? ›
There are currently over 26,000 fintech startups worldwide.
What motivates you to join Fintech? ›
Fintech offers job seekers the chance to work in a highly collaborative and innovative environment. The Fintech industry offers not only an outlet for those seeking a creative challenge but also provides the opportunity for tremendous career growth and professional progression.
What should I say in an interview introduction? ›
Greet your interviewers and tell your name to start the formal introduction. It is always a good idea to prepare for this most expected question beforehand. Do not hesitate to include some informal, personal information, such as your hobbies, or what you do on weekends.
Why do you want to join a Fintech company? ›
The fintech companies and startups these days are creating sustainable revenue streams and it's good to be a part of this journey. It also gives you an opportunity to work directly with the leaders. The open, accessible, and highly communicative environment is quite empowering as an employee.
Fintech is transforming business models and increasing innovation in financial services. Innovations include crypto assets, online peer-to-peer platforms, insurtech, alternative digital payment platforms and even central bank-issued digital currencies.
What are 4 categories of fintech? ›
In this primer, we will highlight four fintech areas — digital lending, payments, blockchain and digital wealth management — that are of particular interest due to their rapid pace of growth, technological disruption, and regulatory and other risks.
What is fintech in simple words? ›
FinTech, or financial technology, is a term used to describe any new technology that aims to improve and automate the use and delivery of financial services.
Is fintech a threat to banking? ›
The banking industry is experiencing a threat from the ever-growing fintech industry. Whether it's payment services or lending, fintech is increasing its exposure into the banking sector.
Is fintech a good industry? ›
A 2020 report from Research and Markets found that the global fintech market is expected to grow at a compound annual growth rate (CAGR) of around 20 percent between 2020 to 2025, reaching a whopping $305 billion in value by the end of that period.
What is the business case for fintech? ›
The idea of fintech is to combine a finance-related concept with technology to educate and/or enable users to access various financial opportunities that can add value to their lives. Myriads of fintech business plans allow their users to carry out monetary transactions across bank accounts quickly.
What are examples of fintech? ›
Examples of FinTech
- Digital Lending and Credit. FinTech giant Kabbage directly funds small business loans and is powered by transactional data to help make incredibly quick lending decisions. ...
- Mobile Banking. ...
- Mobile Payments. ...
- Cryptocurrency & Blockchain. ...
- Insurance. ...
- Trading. ...
- Banking as a Service (BaaS) ...
- Global FinTech Solutions.
According to Gillmer, over the past few years, SA has seen the introduction of new frameworks and amended laws, which have resulted in more stringent regulation of fintech services, including the Financial Intelligence Centre Act, Pension Funds Act, Protection of Personal Information Act and Insurance Act.
What is MTN fintech? ›
MTN Mobile Money (MoMo)
MTN MoMo is a fintech platform providing consumers and businesses with a host of innovative digital financial services. Among other things, it enables users to access payments, e-commerce, insurance, lending and remittance services.
Is fintech a sector or industry? ›
Fintech now includes different sectors and industries such as education, retail banking, fundraising and nonprofit, and investment management, to name a few. Fintech also includes the development and use of cryptocurrencies, such as Bitcoin.
FinTech firms often take an inclusive approach to finance, allowing customers convenient access to a diverse variety of financial services and products. Furthermore, these services and goods are accessible via mobile devices and do not have a time-consuming sign-up process.
How does FinTech affect financial system? ›
Many banks through FinTech are boosting their online banking services and other mobile financial services applications increasing economic growth and development. Generally, FinTech impacts efficiency by decreasing cost and improving the quality of payment and settlement services thus improving economic development.
What is FinTech in banking? ›
The Financial Stability Board (FSB) defines FinTech as “technology-enabled innovation in financial services that could result in new business models, applications, processes or products with an associated material effect on the provision of financial services”.
Who makes money in South Africa? ›
South African Reserve Bank
Industry Regulations
Regulatory compliance is also one of the most vital challenges in the FinTech industry. This is because of the immense increase in regulatory fees that relate to earnings and credit losses after the 2008 financial crisis.
Will FinTech replace banks? ›
Over the projected period, the global Fintech-as-a-service market is expected to rise significantly. The increase in bank investments in innovative technology to improve their services and customer experience might be linked to market expansion.
What do you need for FinTech? ›
Not only are the leading edge technology skills utilized, but also more traditional skills are now utilized as organizations scale and grow.
- 1) Security. ...
- 2) Blockchain. ...
- 3) Public cloud technologies. ...
- 4) AI, Machine Learning and Data Science. ...
- 5) DevSecOps.
MTN's groundbreaking Mobile Money (MoMo) service lets you store, send, and receive money using your phone. You don't need a bank account or fancy smartphone to use it - it works on the most basic of feature phones too!
Is MTN MoMo fintech? ›
The parent company of MTN Nigeria, MTN Group Limited, in Johannesburg, has a fintech division valued at $5 billion, or about twice as much as Airtel Africa, which was valued at $2.65 billion a year ago.
What is the strategy of MTN? ›
Our strategic intent
Our strategy is anchored in building the largest and most valuable platform business with a clear focus on Africa. This rests on a scale connectivity and infrastructure business – mobile and fixed access networks in the consumer, enterprise and wholesale segments.
