How can local banks harness fintech innovation in a global crisis?
![Leon Mwandiringa, Software Engineer at Basalt Technology.](https://biz-file.com/c/2008/570805.jpg)
Given the nature of the restrictions and loss of income that businesses have faced, local banks are looking to new ways of working – as well as new ways of servicing customers – in order to keep the economy (and communities) afloat. Fortunately, thanks to recent innovations within fintech (and the many learnings that fintech companies have gained), savvy financial services providers can quickly embrace new technology to provide highly accessible and convenient solutions for businesses and consumers under duress.
A closer look...
To begin with, financial service providers have had to find leaner, more agile ways of working since the outbreak of Covid-19 – and take their cue from fintech startups that have been relying on remote working models for some time. Businesses, including South African banks, have been required to empower employees with efficient, remote working tools and platforms – and to encourage ongoing collaboration using secure infrastructure.
For example, for a bank working with Microsoft’s suite of tools, there are steps to take which can ensure cyber risks are mitigated while still allowing for remote working and online collaboration between teams. One step would be to find a fintech or technology partner to assist in supporting the bank’s backend system to allow for quicker remote access and following that, a tech partner could replace existing infrastructure entirely with a remote VPN service (as many existing VPNs are currently very limited in their capabilities).
Remote onboarding and digital compliance/FICA
With South Africa having been under strict lockdown regulations, consumers struggled to get to banks to obtain new cards or gain access to key services. This created a bottleneck as customers were not able to be onboarded and stay FICA compliant.
Yet, with recent advances in biometric technology and secure online face recognition, for example, banks now have an opportunity to partner with fintechs to offer quick and secure remote onboarding – so that new customers can access critical services from home. As most South Africans have at least one smartphone, enabling new and secure digital banking services such as remote onboarding has and can be transformative during the lockdown – and will ensure longevity for banks as well as an improvement in processes for the future.
Alternative credit scoring
As the pandemic and its devastating economic fallout plays out, many South Africans are seeking access to credit. Yet because many people fall within the ‘thin profile’ category of credit risk assessment, they will be unable to access the credit they so desperately need. (‘Thin profile’ refers to a lack of traditional data on generally lower income customers - and banks have historically relied on this data to assess credit risk and make decisions).
However, new technology and automated interfaces are now enabling financial services providers to access alternative data (such as mobile phone accounts, retail credit accounts, etc.) from new sources, which can be used to build new credit risk models for customers that have previously been excluded.
In some circles, this is referred to as ‘alternative scoring’, and gives banks a new way to assess risk and provide credit. Arguably, there needs to be a move towards embracing alternative scoring and harnessing fintech platforms that can gather and analyse alternative data at scale.
Notably, with regards to one banking client’s current lender initiative, we are looking at alternative scoring as this project requires the bank to lend to non-customer transitional clients. This is very new for a bank, as they are used to having relationships and knowing the client’s transactions in order to credit risk score and lend. The use of alternative data sources is key to this kind of pioneering initiative.
Embrace the EU’s PSD2 & Open Banking
Globally, the regulatory environment within financial services is changing fast – which is presenting many new opportunities for rapid innovation within banks. Importantly, the EU is introducing its Payment Services Directive 2 (PSD2) - a new regulation that will apply across the EU and will arguably result in a huge increase in the number of APIs for banking products.
South Africa is likely to follow suit and apply the same (or similar) directives within the local ecosystem – making it critical for financial services providers to position themselves correctly. Regulations such as PSD2 are part of a larger shift towards Open Banking, which is an initiative that allows third-party financial services companies (and fintechs) to access users’ banking data through the use of APIs. The primary goal of open banking is to put power and decisions back into the hands of customers, thus enabling them to securely use third-party financial products and services that rely on banking data or functionality.
Today, South African financial service providers should begin to leverage local innovations and seek partnerships to offer new functionalities to customers – thereby adding value and sustainability into the overall banking ecosystem. For example, banks can access existing APIs to provide engaging budget integrations – helping customers to see where their money is going and perhaps even provide nudges toward savings and investment schemes. Increasingly, innovative apps can promote things like behavioural economics and allow banks to forge closer and more personalised relationships with customers.
While the fast developing fintech landscape is providing local banks with unparalleled opportunities for rapid innovations, financial services providers themselves have to embody new, leaner ways of working – and move quickly in order to better serve customers when the pressure is on, as highlighted by the Covid-19 landscape.