FinTech to identify the problem if disruption is to be successful

Focusing on technology innovation before correctly identifying the problem to be solved is not the way to successfully disrupt financial services, agreed a panel on disruptive technology at the 23rd SWIFT African Regional Conference in Mauritius today.

Kevin Johnson Head of Innotribe Innovation Programmes at SWIFT, says Innotribe has learned from its work with the FinTech ecosystem.  “Always start with clearly identifying what problem you are trying to address. If you don’t, you end up with a solution which is looking for a problem. By adopting a build, measure, learn approach to product development that Fintechs use, you’re more likely to end up with a product that customers want, as they have been central to development and have provided a ‘feedback loop’,” he said.

Focusing the discussion first on Africa’s experience of disruption, other panellists agreed that while there are some tech success stories across Africa they are still waiting for the innovative technology that will make a profound impact in financial services.

Africa’s most widely known and celebrated technology ‘disruption’ is M-Pesa, the mobile money system launched in 2007 in Kenya by Vodafone for Safaricom.  But for Ike Williams, Chief Information Officer at Heritage Bank in Nigeria, M-Pesa’s success was only possible because conditions at the time created a perfect storm.

Mr Williams argued that it was a unique combination of elements – including a monopoly mobile telephone network and an unregulated sector – which allowed the technology to flourish. “Since M-Pesa’s launch, not much else has happened. In other parts of Africa it has not taken off in the same way.”

Mr Williams believes banking is still ripe for disruption, but that M-Pesa is not the technology that will do it. “For me, where we are going is digital banking, where everything in ‘e’ banking is brought together. Then maybe we can begin to talk about financial inclusion. Even in M-Pesa land cash is king. If we can begin to start de-emphasising cash and the need for cash then financial inclusion can really make it to the rural communities and not be limited to urban areas.”

CEO of Bankserv Africa, Chris Hamilton, agreed that M-Pesa is an example of a technology extending market reach rather than disrupting an incumbent. “It’s a great example of a new network serving previously unserved customers.  Real disruption means taking market share from an existing service. In fact, data shows that once users have experience of their first financial services via M-Pesa, they begin to use other financial services [via banks].”

Moving on to other so-called disruptive technologies, Mr Hamilton asked if Blockchain was a solution looking for a problem, as the problem that Bitcoin was designed to solve was that of avoiding central control, which isn’t a problem that the banking industry faces.

Mr Johnson observed that one of the key challenges for using blockchain right now is that the banking industry requires a strong identity framework and there is currently no way to safeguard your identity using blockchain; this means it is impossible to implement know your customer regulation, for example.

“There is also a question mark around scalability of current blockchain solutions. SWIFT for example manages 23 million messages a day. That’s one million per hour. Current blockchain implementations on the other hand can only process a moderate number of transactions per second. The industry needs solutions that can process several hundreds or even thousands of transactions per second” said Mr Johnson.

Mr Hamilton added that he does not find the term ‘disruptive’ technologies particularly useful. “The industry needs collaboration. Disruption is the language of fear and threat and makes people compete with each other. In payments we need to find where we can collaborate and where we should compete.”

Catherine Mitaine, Director of M&S Capital Partners, agrees that collaboration is important in developing usable technology. “Banks should try to work more with startups – they have a different mindset and work more closely with customers. Both banks and startups would see the benefit.”