In the tech realm, venture capital and platform-as-a-service (PaaS)-backed challenger banks have gained placeholder titles in many conversations, challenging those who have been slow to adopt and who are afraid to innovate.
Financially, however, the heralded marriage of technology and finance sparks both excitement and vitriol. Banks have the advantage of tenure, fintechs turning everything upside down, thanks to their intuitive, easy-to-access and easy-to-use services.
Welcome the good and the bad to this union.
The proper use and adoption of technology has given more people easy access to financial services, stimulated the research and development appetite of commercial banks, prompting them to deploy products that match. to the changing digital needs of consumers and has changed the way we manage money.
Bad – fintech platforms are seen as a common enemy, with entities overflowing with investor funds to risk, without the accompaniment of regulatory oversight and legacy systems, giving them a free hand to challenge traditional models of credit underwriting.
To say that the Covid-19 pandemic has revived financial services, accelerating years of digital growth in just a few months, is not enough. It has also raised consumer expectations that financial services can only get better. Welcome to gambling during and after Covid-19 times.
In this new future, banks and their customers have become more digital, which has led to the adoption of new methods of money management. In keeping with established public health protocols, banks have prioritized digital channels, encouraged contactless payments, added digital onboarding processes, and automating customer data is now essential.
In the midst of the pandemic, my head of banking relations reached out, seeking to understand how they could mitigate the ups and downs of my business. The fact that I had completed service on my loan a year earlier with no outstanding credit facilities, “We’re looking to keep you going in these tough times,” she joked.
As a financial intermediary with small and micro enterprises, I was not looking for any form of credit at the time, and maybe not for the short term. Rather, I was looking for a catalyst to boost the collections owed to the company by our clients, while ensuring the continuity of their activities.
We are working to review repayments and institute moratoria to protect them from penalties and even higher interest rates in a shrinking economy. With long-standing relationships with some of the clients involved, spanning nearly a decade, with stellar credit histories, it was unthinkable that we would lose each other.
While the call was heartwarming, it was not gratifying and was out of touch with my situation. This is probably the same challenge that many Kenyans face today. Although banked, we are still far from financial inclusion with the reality that microcredit and financial intermediation each have their place in gambling. However, none have comprehensively addressed their segment, due to the siled nature of our operations and intentions.
It made me think that on the edge of this pandemic-driven revolution lies a financial advantage, an opportunity for banks to recreate financial services in collaboration with technological innovators. You see, fintechs are armed with a loyal customer base, thanks to the incorporation of alternative loan data, but still lack an ecosystem large enough to attract profitable customers from longer term loans or financing. working capital, which are essential for growing businesses.
In this case, why not allow financial intermediaries to focus on collecting and decoding customer data, collecting alternative data and building a more complete credit portfolio? Would that match our banks’ excess cash flow to the demand for credit where it’s needed most?
If we were to borrow from the regulatory status of the commercial bank, capitalizing on what it has built over the years, fintechs with their algorithms, impeccable customer touchpoints and solid consumer data would significantly boost analytics. , leading to a more complete credit portfolio. Investing in data for all means a dedicated effort to close the information gaps that have hampered competition in the broader financial services industry. All we have is the replication of services in several banks under different brands.
For a highly competitive industry like banking, consumers are looking for favorable interest rates, which can only happen if banks address gaps and restrictive growth for more insightful financial valuation and lending. Remember, as the incumbent examines the existential risks of not wanting to change, the challenger seeks credibility.
The most explosive evolution in financial services to date will be an ecosystem that brings new lending models and stimulates financial literacy. One who views the bank as a commodity that consumers buy from, based on the credit information the bank brings to the table.
Kimeu is CEO of Stawika Capital, a corporate financial intermediary.