South Africa’s FinTech scene is growing rapidly,  with a number of exciting local FinTech players attracting attention and  venture capital investment. They’re carving out high-tech niches in all  sorts of arenas: mobile money, social lending,  bitcoin wallets, mobile  card acquiring, identity management, insuretech, mobile authentication,  financial chatbots and more.

For  traditional banks, the coming few years look very threatening indeed.  Aside from FinTech startups snapping at their heels, there are a number of other  forces at play:

  • Platforms  such as WhatsApp, Facebook and Google continue to spread their wings  into new areas (and financial services is an attractive target).
  • A  cluster of new banks are gearing up to launch - including the likes of  Discovery Bank, Azar Bank, TYME Digital and Zero Bank.
  • At  the same time, Afrika’s major mobile network operators are signalling a  strong intent to capitalise on high smartphone penetration and cheaper  data rates to create compelling mobile money solutions.

Forced to fight a war on many fronts, just what can South Africa’s major banks do, to fend off challengers and rea-assert their dominance?

About  a decade ago, we saw the banks generally pursuing a multi-channel  strategy - trying to develop new digital touchpoints and unify  experiences across a growing number of channels.

By about 2013 there was a realization that a bank needs to be  digitally-focused, above all else, and that this would be the foundation  for innovation and differentiation in the market. Since then, we’ve  seen the major banks all undertaking  core transformation programmes in  different ways and at different paces.

Determining a bank's core strengths

These transformation programmes should enable new  partnerships within ever-shifting digital ecosystems. By making it easy  for banks to integrate with other players in the value chain, they’re  better positioned to embrace new FinTech partnerships  and leverage a  host of new capabilities.

Major  banks are very strong in the core product development, payment rails,  established processes and strong governance, and regulatory and  licensing requirements. But when it comes to fast-paced technologies -  the likes of data analysis,  artificial intelligence and customer  sentiment analysis - they’re being roundly outpaced by the more  IT-focused FinTech leaders.

The  key is to define a strategy where the bank decides which in areas it  will ‘go it alone’, and where are the opportunities to partner and  benefit from what FinTechs have already started.

Perhaps  the most obvious area for partnership, is in the data science space.  The UK’s Open Banking project provides a great example of regulators  stimulating healthier competition, by forcing incumbent banks to give  customers a secure way  to take control of their financial data and  share it with FinTech startups.

By  parsing data to FinTech startups in a responsible and secure manner, the two  parties could come together to extract far greater value from the  datasets (given FinTech players’ capabilities in advanced data science).  Ultimately, this provides  both the bank and the FinTech partner with a  better understanding of the customer.

New thinking is necessary

Another  wonderful opportunity exists in the risk analysis space, where banks  can make use of innovative social and analytics technologies that have  originated in the FinTech startup realm - analyzing customers from different  dimensions to score  their creditworthiness.

In  fact, this kind of FinTech partnership could be extended a step  further. In the spirit of today’s themes of the social economy and the  sharing economy, banks and FinTech startups can explore entirely new lending  models, with crowdsourcing  approaches that allow customers to lend  money to each other.

In  this way, banks can evolve from simple transactional relationships, to  the kind of platform business model that scales limitlessly and opens up  far more opportunities to engage with customers.

Ultimately,  with the right technology architecture in place, banks will find a  myriad of interesting partnership opportunities - with FinTech startups as well  as other unconventional players. For instance, why can’t banks start delivering new cards via Uber drivers?

All  across the Afrikan continent, we hear about the need for financial  inclusion and increased access to financial services, or the importance  of micro-financing to get nascent businesses off the ground and  stimulate further economic success.  The reality is that traditional  banks simply can’t achieve these lofty goals on their own. With the rise  of new digital economies, the time is now to partner with FinTech startups.

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