“Banks will never be the same. They need to embrace fintech or they will disappear.”
South Africa’s Reserve Bank Governor Lesetja Kganyago is pretty clear about the nature of the challenge posed by fintech – as well as the opportunities it brings.
As recently-appointed chair of the influential IMF International Monetary and Financial Committee, Kganyago is uniquely poised to appreciate the global scale of the change associated with the growth of fintech. He believes technology can be harnessed to help cut down on the $2 trillion a year lost to bribery and to help build trust as we move from coins and paper to digital transactions.
That’s vitally important for businesses too as they look for a solution to the cyber security fears that threaten their existence at the same time as trying to tap into the benefits of conducting their financial transactions online. It’s especially important for businesses in South Africa’s blossoming fintech scene.
Kganyago’s comments reflect a belief that banks can no longer work against digital disruptors, but need to embrace them and their methods to build a banking sector befitting the digital age.
Closer to home, the Reserve Bank has introduced a dedicated three-man fintech unit which, as Finextra notes, will ‘monitor the impact of new technology developments on deposit taking, payments, lending, insurance, and investments’.
The ‘back to basics’ approach
The unit will report to deputy governor Francoise Groepe, who last summer spoke about his desire for a ‘back to basics’ approach when delivering the keynote speech at the Strate GIBS Fintech Innovation Conference. This meant focussing on the behaviour and the principles rather than introducing rules to govern the technology, which he likened to trying to regulate the internet or smart devices. Put simply, it’s not about the method of delivery, it’s about what’s actually being delivered.
He said: “Regulation must be appropriate, purposeful and smart, and it must aim to ensure a level playing field. Regulations should not be an impediment to progress, competition, or efficiency.”
Groepe also stressed: “Given the pace of change, regulators, like most mortals, may find it hard to remain up to date with these developments; we are faced with the daunting prospect of having to reflect on the most appropriate regulatory responses to technologies that we may not fully comprehend yet.”
This is important for businesses too – regulation needs to strike a balance so that it allows fintech firms to flourish and the positives to be embraced while, at the same time, having security and safety at heart.
Big potential for growth
With that in mind, we shouldn’t expect the fintech unit’s role to be a negative one. Indeed, just as Kganyago has stated, technology is part of the solution as much, if not more, than it is a problem. The plan isn’t to punish disruptive start-ups, more to learn from what they do and encourage them to use their technology to create a cleaner market for customers.
The unit should, if it can, look to foster closer relationships between banks and fintech pioneers, with a global trend to move towards mutually beneficial partnerships.
This could be particularly lucrative in South Africa, where the potential for growth is strong. Indeed, EY found last year that only India and China are expected to increase their adoption of fintech at a faster rate in the coming years. The foundations – a willing public, a growing fintech network – are there and the Reserve Bank’s unit could help to push this in the right direction.
The nation could, after all, do with some positive financial news to leave behind the poor performance of recent times. If the Reserve Bank can help to foster a fintech revolution then we can expect to see positive forex news, GDP growth and healthy employment. In short, this can be really good for business.
A safe regulatory environment is therefore desirable, but it’s far from the only goal. There’s a lot in the in-tray for the Reserve Bank’s unit but this work is all necessary. As Kganyago said, things will never be the same. It’s time to move with the times.