Fintech startups across the world began life by unbundling banking services, with startups specialising in single segments. As the space develops and matures, however, this is changing.
Now, we have entered the era of rebundling. Whereas fintechs made waves by deconstructing the bank, going niche rather than adopting a supermarket, one-stop-shop approach, increasingly they are changing tack. In Africa, where traditional banks have failed to bring about financial inclusion, digital banks may yet.
This is confirmed by the findings of Disrupt Africa’s recently-released Finnovating for Africa 2019 report, which finds that an increasing number of African fintech startups are operating across multiple verticals.
The trend towards rebundling the bank is most evident in Nigeria. TeamApt secured a switching license from the Central Bank of Nigeria off the back of raising a US$5.5 million Series A round, OneFi, which itself raised US$5 million in funding, acquired payments solution Amplify as it continues its progress towards becoming a full service digital bank, which also involved rebranding its Paylater product as Carbon. Kudi, meanwhile, is also expanding its offering after securing investment.
As more fintech startups raise funding, and therefore increase their capacity, we can expect to see more of this. According to the African Tech Startups Funding Report 2018 released by Disrupt Africa, a total of 58 fintech startups raised funding over the course of last year, more than any other sector, while the US$132.8 million raised by African fintech startups was almost 40 per cent of the overall total. With funding increasing exponentially, so to will the number of fintechs adding to their offerings and aspiring to be full digital banks.
Michael Jordaan, former chief executive officer (CEO) of South Africa’s First National Bank and now an investor in fintech companies, says this follows a global trend.
“Globally the initial trend was for fintechs to pinpoint particular aspects of a value chain in the financial space and develop a superior solution. Examples would be foreign exchange, remittances, card acquiring, QR payments, wallets, crowdsourcing, and prepaid functionality,” he said.
“As these businesses succeed they start expanding their services, sometimes by adding functionality or by partnering with adjacent providers. Rebundling these fintechs can provide customers with a superior, one-stop solution.”
Ngozi Dozie, co-founder of Carbon, says providing the best service to customers is at the heart of the trend towards rebundling.
“There are a lot of opportunities for fintechs to expand past their core offering, which is one of the reasons we acquired Amplify. Everything needs to be centred around becoming a financial partner with your customers and the more you can do, the more of a presence you can have in their lives,” he said.
First and foremost, rebundling is taking place because of market demand, according to Dozie.
“The current banking infrastructure in Nigeria has left millions of people underserved – digital banks are growing because there is a market that wants to become part of a financial system,” he said. “For us, it’s about recognising how diverse our customers’ needs are and being flexible enough to meet them. There’s an understanding in the market about how fierce the competition is, but it’s about who can empathise most with their customer base.”
Kudi co-founder Yinka Adewale believes expanding their offering is a necessity for fintech startups if they are to fulfil their full potential. Rebundling gives startups greater defensibility and economies of scale.
“If you as a startup can offer most of the services your customers need then your retention is higher,” he said.
Tosin Eniolorunda, CEO of TeamApt, agrees, saying fintechs are increasingly seeking to become digital banks given their need to grow.
“Once a fintech sees traction in a vertical and they get to critical mass, getting to the next level of growth might require them to add additional products, leveraging the customer base and the brand they have built towards cross selling and upselling existing customers,” he said.
This is a well-thumbed playbook, employed by global giants like Microsoft, Apple and Google, and one that means customers will benefit.
“The rebundling often leads to a more frictionless and often cheaper suite of services for the customers over the incumbent companies offerings,” Eniolorunda said.
Rebundling, and the pursuit of digital bank status, comes with its challenges, however. Adewale says overcoming regulatory hurdles can be expensive and time consuming, while building out new products is also costly and can impact upon short-term profitability.
“It is expensive to have a divergent strategy. It is cheaper to build one product category and focus on it,” he said.
Diversifying a product offering can also be risky if not done properly. Eniolorunda says there is always a chance customers will become confused about what different products do if a startup does not transition them properly.
“It can also lead to double play concerns for the earlier partners of the startup. For example logistics companies will not use AWS because Amazon is a competitor. It also stretches executive management as they have more things to worry about in strategy and execution. Cash flow can also be threatened if startup is not heavily funded in the R&D phases of building the new services,” he said.
Dozie agrees it all comes down to delivery.
“If customers feel considered and listened to then there shouldn’t be too many issues, but once this changes, that’s when things begin to go downhill. It’s critical that their experience is as smooth as possible,” he said.
It is smoothness, and the provision of all necessary financial services is one place, that is the name of the game as rebundling gathers pace in the African fintech space. The race to become the continent’s first full-service digital bank has well and truly begun.