FinTechs Struggle to Retain Consumer Trust in Africa

There is no denying that trust plays an important role when it comes to payments transactions.

And according to Isaac Kamuta, it’s one of the key advantages regulated traditional banks have over newer, unregulated firms in the financial services sector.

“Consumers will only keep their money in a place where they’re sure to find it tomorrow if they need it,” Kamuta, who is the global head, payments and cash management at pan-African banking institution Ecobank, told PYMNTS in an interview.

But that trust consumers have is not directly in the banks per se, he noted. Instead, consumers have trust in the fact that banks operate within a regulated field and must adhere to strict regulatory requirements when managing consumers’ funds.

“Consumers know that there’s someone watching over banks, and they will make sure that there’s governance and controls [in place],” he added.

FinTech firms and neobanks, on the other hand, cannot claim the same edge, he pointed out. However, these newer firms have been able to capture a sizable market with solutions that are often faster and more efficient than traditional banking transactions.

In fact, Kamuta painted a scenario whereby a FinTech firm can meet a customer, understand their needs, and that same day begin coding and developing a solution to solve the problem. And within a few days they can begin piloting, testing and deploying the solution.

“That level of speed in responding to customer needs [is something] a traditional bank will struggle with due to the many regulations within our setup,” he acknowledged.

But those hoops are there for good reasons, he added, and are the reason why incumbents still have the upper hand when it comes to consumer trust.

“Most of consumers’ money stays with the bank and they fund their FinTech wallets with just enough money to carry out a transaction,” he said, adding that the amount of money people leave in their wallets is often so inconsequential that even if they ended up losing it, it wouldn’t hurt much.

Ultimately, Kamuta said, “The only time that FinTechs will get more trust is when there’s more regulation [in that space]. That’s when we’ll see the balances begin to build.”

Telcos Rule Mobile Banking Space

Home to the pioneering mobile phone-based money transfer service, Africa has made strong headway in the mobile banking space, bringing millions of people deprived of access to traditional financial services, into the financial fold.

And according to Kamuta, the mobile banking channel will continue to grow as long as access to mobile phones keeps growing, especially in this age where demand for convenience is higher than ever.

He further noted that telecommunication companies (telcos) will “always have that upper hand” in the mobile banking space, given the access they have to huge amounts of consumer data gathered from SIM cards and telco wallets.

Even when it comes to payments, he said that telecom operators will continue to play a critical role in driving digital payment growth if they get the business model right. That means, having a strong agency network, operating in the right regulatory environment and offering an integrated mobile wallet with value added services.

He also pointed out that governments and public administration entities, which he said are the biggest consumers of service services, have significantly contributed to the growth of telco-driven digital payments and services.

“The moment a government says, ‘You can only pay for your birth certificate using a mobile wallet,’ you have no choice but to use it,” he noted, pointing to that notion of “government-induced buying” which has the power to influence the direction an industry takes in its growth path.

But despite the surge in the use of digital payments, Kamuta considers cash’s place secured in the African payments ecosystem — at least for the foreseeable future.

In fact, even in East Africa, and particularly Kenya, where M-Pesa operator Safaricom is based, he said analysis of the daily payment volumes show that cash payments are either leading or on par with mobile payments, depending on the location.

“If that is in East Africa where digital penetration is so strong, then you can argue that cash is going to be around for some time,” he said.


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