Chernay Johnson is an engagement manager in the client insights division of insight2impact, a global resource center in South Africa established by Finmark Trust and The Centre for Financial Regulation and Inclusion (Cenfri) a non-profit think tank that supports financial sector development and financial inclusion in Africa. Johnson, who has a Bachelor of Business Science, Economics and Business Strategy from the University of Cape Town and a Master of Economic Science from the University of the Witwatersrand, has participated in the World Economic Forum’s Digital Platforms & Ecosystems initiative.
She recently spoke to The Innovator about the opportunities for financial service providers to generate new business while advancing inclusive digital economies in Africa.
Q. How big is the market for financial services in Africa and what sort of growth is projected?
CJ: Sub-Saharan Africa is home to a population of 350 million unbanked individuals. Many are operating in informal markets. There is a big opportunity for Fintech and other tech players to revolutionize the ways the unbanked can access financial services more easily and cost-effectively. One business model which has emerged as a powerful financial services distribution channel for African workers and micro-enterprises is digital platforms, i.e. virtual marketplaces that match suppliers of goods and services to consumers. Our research shows that there has been robust growth in the number of digital platforms which are operational in Africa in recent years, and these platforms offer innovative payment mechanisms amongst other value-added financial services to market segments which previously had limited access. The number of platforms in operation grew 37% year-on-year in 2019, with South Africa, Nigeria and Kenya being the largest markets. The sectors with the most operational platforms are transport, retail, and personal services. The market is highly fragmented with a high degree of churn, and though more than 80% of the platforms we’ve identified are homegrown, consumer usage of foreign platforms is still three times that of homegrown African platforms. In light of the COVID-19 crisis we expect a consolidation of the digital platforms market in 2020, as larger platforms will have more resources available to weather the tough economic climate than smaller players.
Q: Is there an opportunity for financial services companies to partner with local digital platforms?
CJ: We think the competitive market landscape offers a great opportunity for partnerships to distribute value-added services to the consumers who use digital platforms. A number of existing partnerships between digital platforms and financial service providers have already been established. These partnerships provide a range of financial services to platform users and include credit, insurance and savings, among others. Incentives for financial service providers to partner with platforms include reach, payment, data and brand.
Q: Can you give an example of such partnerships?
CJ: Distribution of insurance by digital platforms to African gig workers is a good example of how digital platforms are serving customers in the digital economy through value-added financial services. For example, the South African platform SweepSouth partnered with Fintech Simply in 2017, to offer life and disability insurance to the household cleaners who participate on the platform in South Africa. The insurance is offered as an embedded product with no additional cost to its platform participants.
Q: What is holding back the market from reaching its full potential? How might partnerships between foreign and local digital platforms help overcome these issues?
CJ: We think that legacy systems in Africa’s financial sector has resulted in limited product offerings and distribution capacity for consumers. But, as digital platform networks grow, they offer a unique route to users that traditional financial service providers may not be able to access otherwise. By drawing on their distribution network, payments infrastructure and user trust, platforms can partner with financial service providers to offer financial services that are accessible and affordable. Through partnerships with platforms financial service providers can reach a greater audience by leveraging the scale achieved by platforms, distribute financial services cost effectively by utilizing the digital infrastructure that platforms have established and the wide variety of payment mechanisms they offer, better understand potential customers by leaning on the network data that platforms own, and build trust with customers by associating with platform brands that are already strong. The COVID-19 environment poses a major challenge to the outlook for further growth in consumer demand for financial services in Africa, but as traditional financial services players look to digitize [their operations] platform business models offer an innovative way to implement digital distribution models at scale.
Q: Where do you see the biggest opportunities for partnerships in Africa’s financial services market going forward?
CJ: We’ve seen the greatest opportunities for partnerships on the distribution of insurance and digital wallets, as these types of financial services offer the greatest value in terms of addressing the needs of users of digital platforms. Digital wallets allow for a cost-effective and secure means of settling online transactions, while insurance applications give platform workers and consumers peace of mind with regards to managing risk events which could arise.
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