I am Betting on Banking, Not Fintech

I am going to do banking, but better. The vast majority of our current crop of African fintechs claim to make banking easier — banking the unbanked/underbanked, etc. But there are limitations to banking when seen only through the fintech lens; and those who have fintech experience, without banking experience, will struggle to genuinely scale and make a real impact or create meaningful value for their customers or for their investors.

The fintech narrative that permeates all tech and finance discussions is really quite superficial and global VCs have been hypnotised by and bought into the narrative, with their chequebooks. And I can see why — in Africa, we have a highly mobilised market that has traditionally been underserved by the larger institutional banks. Banks haven’t been able to serve the un or underbanked; and fintechs have, on the surface, plugged that gap. However, in their rush to sign up new customers and continuously update their pitch decks with their CACs, the fintechs seem to have forgotten the fundamentals of banking; how to create value for customers whilst extracting value to make the bank a revenue-generating entity. Signing up customers is great; monetising customers is greater still, but generating mutually beneficial value for all is truly the greatest.

Fintechs won the UX battle and they won the dialogue with potential customers; they made banking a little more palatable, a little sexier to the masses. And that’s important because banking is mostly unsexy; risk management; data management; cyber crime; corporate and financial governance — all deeply unsexy to the huge majority of people. But do you know what is worse? Having your data stolen because the platform holding your life savings hasn’t invested in protecting itself from cyber attacks. What’s even worse? Having chosen a fintech to hold all your business banking funds and the platform has such poor governance or understanding of treasury management that they cannot release YOUR funds to cover YOUR payroll because it hasn’t understood the difference between investment funds and customers’ funds.

Keeping customers’ money safe is the absolute bare minimum when it comes to banking; as a financial services institution, you are literally storing value; and if you do that properly, you are creating more value. This covenant, this trust, cannot be broken — and it’s not a pure technology play, it’s a banking play. Eat, sleep, dream, breathe banking fundamentals for many years, then use technology to build upon your deep rooted foundations. That’s how it has to be done.

I’m currently reading Chris Skinner’s book, Intelligent Money and he is also fixated on the notion of how we store value, and how we keep it safe. He looks at the crucial frameworks [which are banking-led, not fintech-led], the importance of banking knowledge, and also the ability to manage [and anticipate] risk — all of which must be considered when keeping customers happy. And by happy, I mean, keeping their money safe and not breaking the covenant of trust.

But whilst I’m betting on banking, this doesn’t mean that I’m not an advocate for tech-powered banking; in fact, advocate seems too lightweight a term to describe me. I cannot entertain a world of banking that is not massively enhanced and revolutionised by technology. This doesn’t make me a fintech. Here’s why. Technology allows us to process huge amounts of data, at scale, and fast — this allows us to make much better, more targeted banking decisions on areas such as risk mitigation [loan defaults etc.] and allows more frequent and better decisions [basically, better banking]. Technology also allows us to crack down on cyber security — we can see attacks in real time and trace the money [in most cases] back, reinforcing the need to build trust through security. Technology also allows us to build banks with better operational capital efficiency; onboarding new customers digitally, removing the high cost of physical branches — the reduction of costly overheads can then be passed on to customers who can enjoy a lower cost of banking whilst receiving high quality service. Technology also forces better corporate governance; digital trails [RIP paper trails] provide transparency at every level — from bottom to top — something that fintechs have not always been so hot on.

At Sparkle, we are very clear on who we are — we are a bank-led service provider powered by a fintech structure. We are a banking service that is building a self-sustaining [and subsequently profitable] business. We are not simply building a following that is subsidised by venture capital for a lengthy, undefined period of time. In the same way we are building value and managing risk for our customers, we do exactly the same thing for our investors. And this is why I’m betting on banking and not fintech.