“The typical legacy bank isn’t a technology company. They are purchasing a core banking system from a vendor that sells to banks around the world.”
That statement by Tiernan Kennedy, CEO at Umba, a digital bank for emerging markets, is his description of the legacy banking system in emerging markets and its inability to meet the needs of today’s digital consumer, who in some cases must pay extra to even get access to a mobile banking app.
In one of Africa’s biggest economies, Nigeria, for example, customers of incumbent banks have different logins for their mobile app and internet banking because those services are often managed by separate vendors, creating a disparate, multiplatform experience for users.
To help those underserved by legacy banks and give them complete control of their finances in a seamless way, Kennedy pitched the Lagos-based Umba and its all-in-one digital app as a solution to the problem.
“[We’re] building the core banking system from the ground up, all in-house technology, while focused on the customer and what they want to do,” he said, adding that having their own system gives them the flexibility to operate in a way that is foreign to legacy banks.
And in about 15 months of operation, the challenger bank has grown significantly in its home turf of Nigeria to double its revenue every three months, offering a broad range of features including free bank accounts, interbank and peer-to-peer money transfers as well as bill payments and credit products.
Read more: African Digital Bank Umba Grabs $15M for Accessible Banking
To continue its growth and launch in new markets including Kenya, Ghana and Egypt, the Africa-focused bank recently closed a $15 million Series A fundraising round, which is also earmarked for expanding its product offerings to include virtual debit cards, savings accounts and stock trading.
Unique Regional Challenges
Given the surge in online fraud in the wake of the pandemic, creating stronger know-your-customer (KYC) and anti-money-laundering (AML) procedures as well as boosting credit scoring engines is almost a given for any banking institution looking to minimize fraud.
For Umba, in addition to its own proprietary technology, this has meant connecting to government databases in multiple markets, a process which he said can be challenging when a company expands from major African markets like South Africa, Nigeria or Kenya to smaller, less mature markets in the region.
Leveraging collaborations with partners who are pushing the agenda at the government level would be key to building systems to better track and authenticate the identity of individuals, he noted.
In addition to dealing with regulators that are struggling to catch up to the rapid pace of innovation taking place in the region, the lack of infrastructure reliability can pose a significant threat to business growth and development.
“It doesn’t really matter if your system is perfectly reliable. We do interbank transfers across Nigeria, and if one bank goes down, our customer gets a failed payment,” he said.
Like Europe, there’s also the issue of operating across fragmented African markets, which adds another layer of complexity to business operations. This, he said, results in the need to develop a multi-credit model experience while taking into account the different currencies, languages and payment systems used across the continent.
Open Banking, Crypto, X-border Remittances
When it comes to trends shaping the digital banking space in developing regions, Kennedy said open banking is one to watch, as countries like Nigeria work on legislation to democratize data and allow customers to easily share their account information with non-bank third parties using application programming interfaces (APIs).
And as emerging markets like Africa remain among the most expensive places in the world to send money cross-border, putting systems in place to drive down the high cost of cross-border payments would be key moving forward.
Read more: The Digital Currency Shift: The Cross-Border Remittances Report
To that, he argued that expanding into multiple markets as a regulated entity can open corridors and enable customers of a business to transact seamlessly with each other, which is where cryptocurrency for cross-border remittances can also become a viable alternative.
“Whether it’s your phone number or wallet ID, if you have an address and it’s internationally accessible, [which means] people don’t have to [worry] about the country they’re in when they want to transfer value to you,” he said. “And that’s where it’s going, and we’ll be doing the same thing.”
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