How Fintechs Can Understand Customers for Financial Inclusion

Global Kinetic is a premium software development business that delivers high-quality solutions to enterprises with complex software problems. Founded in South Africa in 2005, Global Kinetic serves companies in multiple global industries, pioneering clever, simple solutions on time and on budget. To help banks accelerate their digital banking and Banking-as-a-Service initiatives, the company developed FutureBank – an API platform that provides quick, easy and secure integration between core banking systems, fintechs and third-party integrations.

This interview has been edited for length and clarity

BI Africa: How is FutureBank, with the help of AI, transforming the financial services market in Sub-Saharan Africa?

Sergio: FutureBank is making it easier for financial services companies to embed innovative AI technologies in their traditional legacy financial services ecosystems. We do this by providing the connectivity and integration necessary to leverage those capabilities. It’s one thing to have all this great AI technology from around the world that you can leverage (e.g., you can plug into Google, Microsoft Azure, or the AWS AI toolkits), but you still need to do the technical integrations.

Integrating these AI tools also provides decision-makers in financial services with the information they need to make better decisions based on what the data tells them.

BI Africa: Tell us your view on Open Banking take-up rates by banks in Sub-Saharan Africa in 2022.

Sergio: Take up of open banking by African banks is very low because only a few big bank players dominate the marketplace. Unless regulators mandate big banks to implement open banking, they’ll be less inclined to go this route.

Tens or hundreds of banking competitors in Africa, compared with the several thousand competitors that banks in markets like the US or Europe have, means there isn’t a strong enough incentive for African banks to invest in changing the status quo. Open banking is actually a big risk as they could quickly lose market share if a big rival can innovate first.

When open banking does happen in Africa, the bigger banks will probably be on the back foot, with the smaller banks being able to benefit. African fintechs to watch out for would be businesses like PayStack – and potentially Jack Dorsey’s Square, which joined a funding round in Yellow Card, the largest bitcoin investment in Africa, last year.

BI Africa: What is the attitude of banks currently toward Open Banking? Where must they invest?

Sergio: Banks should be investing in the areas of technology that could drive the most return for them – i.e. bolstering their core value proposition and pursuing partnerships with fintechs for banking-as-a-service and non-financial brands for embedded finance.

The banks’ most valuable asset is their banking licences, which allow them to take deposits and offer credit. So they should invest in making that as accessible as possible from a technology perspective. It should be easy for fintechs to engage with them to attract the fintech market and get more accounts opened through open banking than they would via their normal traditional channels like branches, the internet, and loan origination.

Banks shouldn’t try to invest in the diversification of their products to do things they could be outcompeted on, like onboarding KYC/ AML technology, transaction monitoring, payment processing, card management etc. There are fintechs out there that already do this way better than banks. If banks diversify into those spaces, they could come up against some really tough, nimble, and young, dynamic opposition who will outperform them.

BI Africa: What challenges do banks, fintech and MNOs face when verifying their customers?

Sergio: Lack of infrastructure is a big challenge in Africa, with organisations not having the tools and technology to verify customers.

In countries with many migrant workers, who want to open up accounts so they can bank, the technology infrastructure is often also unavailable in-country or in the originating country to verify the customer when it’s a foreign national.

BI Africa: What areas do banks need to improve when advising their customers about using apps, options with their accounts, onboarding and the benefits and value?

Sergio: When they want to do something innovative, banks naturally approach it from the inside out – surfacing their internal complexities to the outside world. So, customers have to learn about bank acronyms and terminologies. Even when you look at an API that a bank puts out, it’s got all this language specific to that bank, which is not a customer-centric approach.

Banks should think about their next product innovation from the outside in, whether it’s an API in open banking or a new app that they’re launching. Think about it from the perspective of the customer, partner, or developer outside, and work your way into the organisation so that the internal complexity of the solution you’re building doesn’t impact the innovation.

In Africa, there’s also a lack of empathy for the unbanked young potential customer – not thinking about where they engage with financial services and how to reduce friction in basic things like transport amenities, social grants, wages, and the first basic purchases that you would do as a young professional, student loans, all of those things. The whole age group of 18 to 25 is not deeply considered in the African banking space.

BI Africa: How do you see technologies, namely Artificial Intelligence and Machine Learning, with regard to Open Banking across Africa? What does the future look like?

Sergio: There’s a lot of opportunity for AI and ML. For example, we recently worked with a startup called WhereIsMyTransport, which created a transport solution that relies on telemetry instead of Google Maps.

In Africa, there are often no real street signs or maps in very rural environments. Instead of a Google car that drives around once every two years in a well-documented neighbourhood, WhereIsMyTransport has got drivers moving through the weirdest places, documenting and reporting telemetry to the cloud. The cloud is then learning from that data. Using AI and ML, it’s learning what the routes and the stops are. And then it’s creating the actual route from thousands of drivers.

That’s an example of something, not in the FinTech space, but in the developing world where ML and AI are used because the patterns are not the same and structures are much more informal. But We can argue that in banking and financial services, you have the same challenges where people don’t have a physical address, and they don’t earn money in the same way with a monthly payslip, and there’s a lot more informal work.

How can you use AI/ML to understand how people spend and earn money across a more developing world and then infer patterns of behaviour, solutions, or design for that data?

It can help a lot if you can get the data in.

MNOs have a huge opportunity here because they know more about the customers than anybody else. The one thing that people have in developing worlds is mobile phones. You can see where they connect, how often they connect, and how much they spend. You have a lot of those data points. So they’re sitting on a massive asset that they can use AI/ML against to understand what the future could look like.

There’s an opportunity based on what we’ve seen in other sectors.

BI Africa: From your standpoint, what are some exciting trends in the fintech space, and where is the innovation within the financial services value chain truly happening?

Sergio: It’s in connecting the developing world with the first world.

For example, there’s regulation around carbon tax in Europe. And some African farmers wish they had the money to plant. They’ve got the land, but how do they best utilise it, and how do they get capital for agriculture?

On the other side of the world, perhaps somewhere in the US, you might have a factory burning fossil fuels to support a massive multinational company. They should be fined if they don’t follow sustainable practices because they’re not green.

We could use financial services to bridge the developing world, which is still unexploited, and the first world, which is so tied down they can’t get out of their practices. One option would be to say to the African farmer, we’ll give you all the money you need, but you have to plant this specific type of environmentally conscious grain. And you have to do it in this environmentally conscious way. We will subsidise, say, 50% of your farming operation. That 50% is then paid by the first world company that’s burning all the fossil fuels and has to pay the carbon tax.

There’s so much demand for financial services in agriculture. Farmers have to spend millions of dollars to plant their crops every year, and they need to borrow that money and, at the end of the year, pay that agricultural loan back on their margins. Is all this lending sustainable? With modern financial services, you can connect different parts of the world.

BI Africa: Fintech startups and scale-ups don’t operate in a vacuum and often partner with each other and/or the traditional banks and other financial services companies. What is your view on this, and how do you think this interdependence will evolve in the future?

Sergio: There will be a more robust demand for partnerships because the nature of innovation is to specialise. Businesses are specialising more and more in certain areas. You see that in banking with companies specialising around cards, credit, and KYC, but in all parts of the economy, there’s specialisation happening. And as specialisation happens more and more, companies aren’t going to be able to get everything they need from one company. The only way that you can solve that is through partnerships.

Startups and scale-ups are massively dependent on partnerships because the tendency in the world today is that you can only be a startup if you’re offering something very specialised and niche. You’re not going to be a startup that does something like make cars (unless you’re Elon Musk) – but you can be a startup that makes brake pads. That’s the world today and why you’ll need partnerships.

BI Africa: If you had to give a piece of advice to a bank, what would it be?

Sergio: Banks are the worst at customer empathy. The biggest advice I could give to a bank is the outside-in approach. Putting the customer or partner first and then go from there. Banks tend not to do that. They go from the inside out, getting stuck on the complexities of you can’t do this or that because of regulation. Just think about it from the other perspective, how do you make the customer’s life easier? It’s about empathy.

Focus on empathy for customers and partners and realise that you don’t have to be a bank to offer banking these days. Anybody can now be a bank. And that is scary for banks. Realise that you need to empathise with customers and partners. Otherwise, banks will lose market share to brands and other companies that can offer what they offer through partnerships on their own.