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Picture: 123RF/pitinan
Picture: 123RF/pitinan

All brands need to realise that they can and must become fintechs, says the grandfather of SA fintech, Christo Davel, chief commercial officer at financial services enabler Direct Transact. “This is a make-or-break year and those brands that don’t want to be left behind must join the fintech innovation.”

Davel, who has launched a number of South African fintech startups, including digital bank 20twenty in 2001, says local brands have been later to the fintech game than many international brands such as Uber, Airbnb, Adidas and Starbucks, who have already embraced their transition into bonafide fintech players.

He says no matter the industry, product or service they offer, all brands should build financial touchpoints and experiences into their customer journey to make modern life easier for their customers.   

Fintech has reached a turning point this year, he maintains. “If you’re a large, successful retailer or brand and you’re not innovating in 2023, you’re in trouble. The world has changed since the pandemic and customer needs have evolved. We’re never going back to the way things were. Those brands that are not embracing e-commerce and s-commerce, hybrid retail, mobile payments, cashless financial services offerings, real-time payments and embedded services such as buy-now-pay-later (BNPL), electronic wallets and embedded insurance, will drop out of the race. Customers will be migrating to the brands that give them easy, smooth, frictionless, delightful experiences.”

A number of global forces conspired to bring the retail fintech innovation game to a head in 2023, he says. And with the heightened challenges facing South African consumers and businesses, competition is stiff. Factors such as rapid post-Covid digitisation, an exponential data and artificial intelligence (AI) boom, inflationary consumer pressures, logistical challenges for importers and exporters, fuel price increases, and hyper-connected ecosystems in response to “permacrisis”, even power outages, are all putting unprecedented pressure on retailers and brands to use fintech innovation to meet the changing needs and frustrations of their customers. 

The key term at the centre of this shift is “embedded finance”, says Davel. “Embedded finance is when financial services are embedded in an existing customer engagement with a trusted brand, with zero friction or additional effort. If it’s done well, it’s invisible and simply part of an existing brand experience. The clever use of AI and data can allow brands to offer smarter, more relevant benefits to their end users. The opportunities for data-driven personalisation of transactions that are embedded in everyday experiences are infinite.”

Pointing to some practical examples, Davel says embedded finance was successfully used to make boarding the Gautrain easier. Commuters no longer need a Gautrain card and can simply tap their phone and mobile wallet at the turnstile to get on the train. Ride-hailing apps also do this effectively by integrating a digital wallet, allowing users to pay for their rides and other services directly within the app without ever having to take money or credit cards out of their pocket. Some clever airline and car rental brands are also using embedded finance to provide seamless payment, insurance or even down payment options into their customers’ mobile brand engagements. 

Embedded finance to see significant growth in next two years

A recent global analysis by Accenture forecasts that embedded banking for the small and medium sized business sector could capture 26% ($32 billion) of global SME banking revenue by 2025, while other digital platforms that offer embedded finance could expand by $92 billion. Deloitte’s 2023 Banking and Capital Markets Forecast also predicts that embedded finance revenues will explode between now and 2025 to reach a total estimated value of $230 billion. 

Davel believes successful embedded finance starts on the customer need side. Those players who are uncovering and improving the real customer friction points in a smooth yet compliant way will win. “Ben Robinson of Aperture captured this well when he said it’s all about financial services being embedded into a channel that a customer already uses, in the existing user journey. The context is understood and, by extension, the need is understood."

Solving the innovator’s dilemma

While a growing number of brands are exploring ways to build financial services into their customer interfaces, many are finding it hard to get that innovation right all by themselves, says Davel.

“The fact is that it is hard for big companies to innovate, especially when there is so much risk and pressure in the market. I’ve seen this over the past 20 or more years in the fintech game. The problem is well-described by author Clayton Christensen in his iconic book The Innovator’s Dilemma. But this should not be holding retailers and brands back. In 2023, if they have not done so already, they will have to find partners in the local fintech ecosystem who can help them embrace a more open, collaborative future. Retailers, for instance, can work with an agile bank and outsourced banking-as-a-service partners to build new products and services that will achieve more customer satisfaction and stickiness.”

The key to innovation is openness, says Davel. “Openness can only work if you bring together innovation, opportunity and collaboration. In SA, you already have retailers like Shoprite partnering with banks and a host of fintech players including Direct Transact, to roll out financial services solutions their customers want. Pick n Pay recently announced that it is accepting Bitcoin. MTN and Vodacom are both exploring fintech innovations. 

“It’s an exciting time for local fintech innovation, and those who will benefit are consumers, both on the high income end, wanting superior mobile payment convenience, and in terms of financial inclusion and remittance and credit convenience for the unbanked. The companies that don’t innovate and evolve this year will lose those customers.”

The big take-out: 2023 will be a key year for fintech innovation in SA as businesses and brands scramble to launch financial offerings and embedded finance to their customers.

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