The recent growth of financial entities like fintechs, telecos and neobanks has heaped enormous pressure on Africa’s traditional banking system, pushing brick and mortar lenders to develop new strategies to meet the competition.
Though telecos and banks cooperate in many areas, the rise of teleco-led mobile money services in Africa has seen bankers across the continent lean on regulators to try and convince them to limit the growth of the newcomers.
The next target for banks, as they try to reclaim market share, is digital lending, says Hervé Manceron, CEO of Skaleet, a Paris-based company that provides core banking services to financial institutions in Africa, Europe and Latin America.
“Today, digital lending is a nightmare in Africa because of the cost and associated risks. One thing African banks struggle with is interoperability and the next is the capacity to develop digital lending,” he says.
Skaleet, formerly TagPay, started out in 2008 creating software called Near Sound Data Transfer (NSDT) that allowed financial institutions to remotely authenticate users to process payments.
Signing its first contract with a bank in Namibia in 2009, Skaleet’s initial business model was offering mobile money solutions to traditional lenders across the continent.
This allowed banks to make crucial moves towards digitisation to compete with telecos.
Rapidly expanding in Central and West Africa, the technology provider has since signed contracts in 22 African countries and has also expanded into Europe and Latin America.
Moving from building digital infrastructure and services inhouse, Skaleet’s clients are now able to tap into the cloud to integrate and adopt core banking solutions within less than four months.
Manceron, who has a background as a software engineer, says that the firm is always looking at developing new technology to meet the needs of banks in Africa and further afield.
The next stage for the software provider was a move into the digital lending space.
“Our main business today is to provide tech to banks to compete with fintechs. The idea is to say that the banks have the capacity to compete, they just need to do it: they just need to act,” he says.
In fact, providing banks with the digital tools they need to meet the requirements of the modern world has been a long-standing pursuit of Manceron’s.
In 2018, the CEO and fellow Skaleet co-founder Yves Eonnet wrote a book entitled Fintech: The Banks Strike Back.
In the past decade, fintech companies across Africa have risen from relative obscurity to some of the continent’s largest and fastest growing firms.
Three of Africa’s unicorns (companies that are valued at more than $1bn) are financial technology companies ranging from payments platforms to digital lenders.
In the lending space, fintechs have been able to rapidly onboard customers by offering sleek customer experiences and unsecured algorithm-backed loans that do not require collateral or face-to-face conversations.
This has taken business away from traditional lenders whose services are fare more clunky and difficult to access.
“It is difficult for banks because banks have not changed much in the last 100 years. The one change was the move to card payment but fundamentally nothing in the core business has had to change,” Manceron says.
However, despite the difficulties banks have attracting customers they should eventually be able to build models that are more profitable than fintech lenders, Manceron says.
Most fintechs are “burning through cash” as they base rapid growth on unproven business models that require heavy borrowing.
Banks, in contrast, are extremely risk adverse and will prioritise not losing money.
If banks decide to adopt Skaleet’s digital lending services, they should be able to provide serious competition to fintechs that have recently disrupted the personal lending space in Africa, Manceron says.
The CEO says that they have recently launched an online lending service in the Democratic Republic of Congo (DRC) with Trust Merchant Bank, one of the country’s largest banks.
He adds that Skaleet will continue to encourage banks across the continent to compete as digital lenders in the years that come.