Start-ups that combine finance and technology in Kenya are increasingly getting recognition, while at the same time facing scepticism as customers demand more real-time services. From mobile insurance provider Grassroots Bima, who was named among the top 100 Fintechs in the world in 2017 by KPMG and H2 Ventures, to BitPesa who use blockchain technology to enable multi-currency money transfer through the internet across countries; these start-ups are disrupting traditional finance in ways not thought possible before.
Here is why you should embrace financial technology firms revolutionizing finance to enjoy the benefits.
- Alternative Credit Scoring
One of the reasons behind the Ksh.6 billion initiation of the Uwezo Fund kitty was to provide collateral-free loans to youth and women (the majority of the country), at the time, need for alternative financing had arisen due to the restrictive requirements traditional financial institutions had in place before offering loans. They included bank statements going back several months, vehicle log books and title deeds (which was next to impossible considering that not that many women hold title deeds in Africa).
Some banks have since changed that stance, but to feel this gap, Fintechs especially those focusing on loan disbursement like Branch, Tala and Timiza use data collected from users’ mobile phones to build a credit score instead of assessing assets like land and vehicles. Would you have imagined that a day would come when someone would look at your messages, transactions messages, location, your contacts etc. and find that enough to determine whether you are suitable for a loan? Well, that’s what Fintech is doing, using alternative credit scoring to include more people financially.
Data form InterMedia’s Financial Inclusion Insights (FII) 2016 Kenya Annual Report and Survey Data report shows that almost 70 % of Kenyan adults are financially included (defining the included as those holding a registered account with a formal financial institution). Mobile money accounted for 97 % of these registered accounts-sometimes in addition to a bank and or microfinance account. Part of the reason for high mobile money adoption is convenience.
With Fintechs, a majority of which provide services via mobile, one doesn’t have to go beyond their daily habits to access what they want; whether it’s insurance, saving, trading in the stock exchange, sending or receiving money. The convenience of accessing services by a touch of a button, which facilitates the bypassing brokers and enables you to side-step long lines at banks is one of the reasons you should embrace Fintech.
- They Force Traditional Institutions to Innovate
A 2017 report; Fintech Ecosystem report, done by the research wing of Business Intelligence (BI) found that existing financial service providers the world over, were reacting more proactively by updating their systems, methods of service delivery and business operations in reaction to disruption by Fintechs. This translates to better services for customers from banks and traditional insurers. Locally, we have seen Barclays Bank launch the Timiza App to allow lending via mobile, CBA launch the CBA Loop that handles all your banking also via a mobile app. Equity bank, on the other hand, has restructured the traditional banking model and is placing more emphasis on agency banking to decrease the cost of operations and increase penetration.
The Banking Amendment Act 2016 requires that all financial institutions disclose the terms and fees of loans offered to customers. What inspired the law was that banks were charging customers undisclosed charges in addition to loan interest-information pertaining to the charges was not easy to come by. As a result Fintech firms have taken a different route, all the terms and fees are disclosed via the apps and one can easily ask questions via a chat service in apps like Branch and Tala in case of difficulty in understanding anything in the process.
Additionally, thanks to the adoption of technologies like Blockchain in finance-recently piloted by Twiga Foods and IBM– where all transactions throughout the service delivery process are visible to all permitted parties. From the lender to the applicant and no one party can change the transactions details without the rest knowing about it. This ensures that costs are lower because there is less need for hands-on loan management, and services offered are more transparent, with information easily accessible thanks to the new technology.
All in all, when exploring services offered by Fintech start-ups make sure you have understood the terms of engagement first, read the terms and conditions carefully, they are usually provided. If it is a loan service, find out how long the payback periods are, the interest rates charged, how long it will take between application and when you receive the money. If it is insurance, know the frequency which you will have to pay premiums. When you read through the comments section of Fintech apps on the Google Play Store you will often find people expressing their disappointment with the amount of time it takes for new users to get loan approvals. However, once you know what you are getting into it is easier to avoid disappointment.
Find out more about Fintech here Disruption In The Financial Sector: How Ready Are You For Fintech?