SME adoption of commercial fintech is driving market growth

August 7, 2018

SME adoption of Fintech is driving market growth

An increasing number of SMEs are adopting innovative financial technology solutions in order to tap into an increasingly mobile-savvy consumer base.

This is according to a new study by our member Asoko Insight. The study written by Levi Obingo a research analyst with Asoko, takes a deep dive into Kenya’s fintech landscape, analyzing the top players by subscription growth including SME ecosystem, transaction values, transfer volumes and more across the industry’s top platforms.

Kenya Bureau of Statistics (KBS) data show that in 2016, 40% of all SME owners had commercial applications for their mobile phones, and that while only 29% of SMEs were registered paybill/till users, 49.3% had mobile money and mPOS infrastructure in place. ecosystem

The study goes further to show that nine of the top ten largest fintech firms by client numbers offer either payments or lending services, with at least five offering payments platforms for SMEs.

The study quotes data from the Communications Authority of Kenya (CA), which highlights strong growth in mobile commerce compared to person to person (P2P) payments, with the former recording of 85.5% growth in transactions in 2017, against 8.4% for the latter.

The CA has also indicated, without disclosing exact figures, that a majority of m-commerce transactions are being driven by fast, low-value unsecured loans.

The study goes further to show that the capping of interest rates at 4 percentage points above the policy rate, in compliance with the Banking Act (2016), which has now increased the flow of customers to fintech lenders.

As banks increased their threshold for lending, a significant proportion of individuals and SMEs have been excluded from borrowing as their risk is outpriced.

Similarly, the report also shows that with many large banks suspending the issuance of unsecured personal loans, customers have sought out alternative creditors. Other principal drivers are the low barriers to access, convenience and speed of loan dispersal.

Among Kenya’s largest fintech lenders are Tala (formerly Mkopo Rahisi) and Branch, which have dispersed in excess of $244,714,360 and $99,074,640 respectively since incorporating in 2011 and 2015. This in turn has seen most leading banks move or are moving towards offering mobile loans such as KCB, which launched mobile lending in 2015, and Barclays, which launched its Timiza service in March this year.

However, this development remains one to watch as the Central Bank of Kenya is currently leading lobbyists for a repeal of the capping law.

Kenya is the most lucrative market for fintech executives

A study by the Digital Frontiers Institute has ranked Kenya ahead of Nigeria, Tanzania and South Africa as the most lucrative African market for top fintech executives, with monthly salaries ranging from $12,000 to $20,000 at the higher end of the market.

More than half of the respondents in the study attributed the high wages to intense competition for talent among fintech companies, suggesting that the relevant talent pool is both limited and attracts a significant premium. Cross-country data for other benefits offered to executives – such as equity/options – is either unreliable or unavailable.

Management of infrastructural and security risks are growing in importance

However, with all this growth in the fintech industry, the study goes further to show that the robustness of cyber security and operational infrastructure is increasingly in the spotlight for many large companies following a series of system failures in 2017.

CBA’s M-Shwari, Kenya’s largest mobile banking system by number of accounts, had a system malfunction during the 2017 Christmas break, preventing 17,700 customers from accessing funds and caused delays for 72 hours.

Co-operative Bank’s mobile banking service, Mco-op Cash, recorded downtime during the same period, affecting 3.21 million mobile banking customers. Similar failures affected 28 million Safaricom service subscribers in April 2017, and 100,000 users of Airtel’s M-fanisi earlier this year.

In the absence of a ratified legal framework for data protection, cyber security threats also pose a significant challenge to firms adopting fintech solutions going forward.

A 2018 PwC report on Global Economic Crimes found that up to 41% of Kenyan businesses lacked an operational cyber-security programme, presenting opportunities for would-be cyber criminals.