The recent growth of financial entities such as fintechs, telecoms and neobanks has put enormous pressure on Africa’s traditional banking system, pushing physical lenders to develop new strategies to face the competition.
Although telecoms and banks cooperate in many areas, the rise of telecom-led mobile money services in Africa has seen bankers across the continent rely on regulators to try to convince them to limit the growth of newcomers.
The next target for banks, as they try to regain market share, is digital lending, said Hervé Manceron, CEO of Skaleet, a Paris-based company that provides basic banking services to financial institutions in Africa, in Europe and Latin America.
“Today, digital lending is a nightmare in Africa because of the cost and associated risks. One thing African banks struggle with is interoperability and the next is the ability to expand digital lending, ”he says.
Skaleet, formerly TagPay, started in 2008 by creating software called Near Sound Data Transfer (NSDT) that allowed financial institutions to remotely authenticate users to process payments.
By signing its first contract with a bank in Namibia in 2009, Skaleet’s initial business model offered mobile money solutions to traditional lenders across the continent.
This has enabled banks to take crucial steps towards digitization to compete with telecoms.
Growing rapidly in Central and West Africa, the technology provider has since signed contracts in 22 African countries and has also expanded to Europe and Latin America.
Shifting from building digital infrastructure and services in-house, Skaleet customers are now able to tap into the cloud to integrate and adopt core banking solutions in less than four months.
Manceron, who has a background as a software engineer, says the company is always looking to develop new technologies to meet the needs of banks in Africa and beyond.
The next step for the software vendor was to move to the digital lending space.
“Our main activity today is to provide technologies to banks to compete with fintechs. The idea is to say that banks have the capacity to compete, they just need to do it: they just need to act, ”he says.
In fact, providing banks with the digital tools they need to meet the demands of the modern world has been a long-standing pursuit of Manceron.
In 2018, CEO and co-founder of Skaleet Yves Eonnet wrote a book called FinTech: banks strike back.
Over the past decade, FinTech companies across Africa have grown from relative obscurity to some of the continent’s largest and fastest growing companies.
Three of Africa’s Unicorns (companies valued at over $ 1 billion) are fintech companies ranging from payment platforms to digital lenders.
In the lending space, fintechs have been able to onboard customers quickly by delivering sleek customer experiences and algorithmic-backed unsecured loans that don’t require collateral or face-to-face conversations.
This has moved companies away from traditional lenders whose services are much more clunky and difficult to access.
“It’s difficult for the banks because the banks haven’t changed much in the last 100 years. The only change was the switch to card payment, but fundamentally nothing in the core business had to change, ”says Manceron.
However, despite the difficulties banks face in attracting customers, they should eventually be able to create more profitable models than fintech lenders, says Manceron.
Most fintechs “burn money” because they base rapid growth on unproven business models that require heavy borrowing.
Banks, on the other hand, are extremely risk averse and will prioritize not losing money.
If banks decide to embrace Skaleet’s digital lending services, they should be able to seriously compete with the fintechs that have recently disrupted the personal lending space in Africa, Manceron said.
The CEO says they recently launched an online lending service in the Democratic Republic of Congo (DRC) with Trust Merchant Bank, one of the country’s largest banks.
He adds that Skaleet will continue to encourage banks across the continent to compete as digital lenders in the years to come.