African banks are increasingly keen on working with fintech startups, even if we are unlikely to see many acquisitions, and there are multiple benefits to startups from partnering with traditional financial institutions.
There is also increasing activity in other spaces, with mobile network operators and other incumbents more and more open to partnering with innovative tech startups.
Yet it takes on average around 22 meetings and 26 months for a startup to secure a deal or partnership with a bank or other large corporate, if it happens at all.
Are banks and other corporates finding ways of making it easier for startup partnerships to be established? Camilla Swart, ecosystem manager at the Barclays Rise innovation hub in Cape Town, believes they are “getting better and better at it as time goes on”, though there is always room to be faster at integration.
“Procedures around contract closings and security approvals need to take days or even hours, not weeks, to keep partnerships on track,” she said.
Swart said fintech was first met with apprehension from the banking sector.
“The fear of newcomers, fresh-thinking and disruption would create fear in any sector to start off with. But that’s changing now and banks are less fearful, are optimistic and embracing the change and impact that comes with innovation,” she said.
Banks like Barclays are constantly learning how to be more responsive to startup needs.
“In my view the big lesson has been relevance, which determines successful integration. It sounds obvious, but you can be very tempted to join forces with the newest, shiniest, exciting fintech in the market, but unless it solves an immediate and specific business challenge it doesn’t stick,” Swart said.
Stuart van der Veen, disruption lead in the corporate and investment banking team at South Africa’s Nedbank, agrees that in the past banks have tried to force fintechs through stringent internal and cumbersome governance processes.
“These kinds of lengthy processes can be frustrating and detrimental to fintechs that have limited resources and time, and that are looking to achieve critical mass. Where banks are willing to match their internal processes with the speed of a fintech, with suitable risk-based governance approaches, partnerships can be easily established,” he said.
“An additional consideration is the extent to which the bank imposes constraints upon the fintech and its operations. The key to a successful partnership is when the agreement helps both teams meet their objectives without hampering the growth of the fintech.”
Such agreements are becoming more common as examples have shown how partnerships can deliver customer and shareholder value, according to Stanley Gabriel, head of innovation at Old Mutual Personal Finance.
“We’ve seen how some startups have gone to market and been able to have an impact in the industry,” he said. “We’ve witnessed the move to open APIs, allowing for easier IT integration and partnership possibilities at scale. Businesses are revisiting how they approach these partnerships and creating fast tracks for partnerships.”
There is a feeling on the startup side that partnerships are getting easier to establish, too.
“It is definitely changing,” says Rahul Jain, co-founder of South African fintech startup Peach Payments. “I think in 2017 we saw a lot of change in attitude from the banks and now see a lot more openness to working with fintechs and partnering with them.”
Schalk Nolte, chief executive officer (CEO) of another South African fintech company, Entersekt, which has secured funding from Nedbank, agrees partnerships now involve a simpler process.
“Most fintechs nowadays are geared towards brining a service to the banking customers instead of taking on banks directly. I think both parties have realised that they both stand to benefit. Nearly all banks now have VC arms, or lab environments where fintechs can get exposure to key people or get their products fast tracked into the bank,” he said.
Others, however, complain that the pace of change is still too slow. Viola Llewellyn, co-founder and chairman of lending marketplace Ovamba, says banks still have a very narrow understanding of fintech, and see everything through the lens of payment products and mobile wallets.
“They are still quite guarded in their lack of understanding, especially if they feel that a fintech solution is too close to their concept of banking or creates further questions where there is no internal expert to understand or manage concept trial or rollout,” she said.
Keith Jones, co-founder of the Johannesburg-based Sw7 incubator, goes further, saying though noise from banks and other corporates regarding partnerships has increased, there has been no real evidence of increased transactional volumes.
“The stated intent is high, but procurement processes, company politics and appetite for risk remain unchanged,” he said.
“They want to meet and chat, and they are certainly more open to discussing options. But the engagement processes have not changed, and the commercial intent is the same as it has ever been.”