My Thoughts on 21st Century Financial Services

I have been learning about the history of banking and my place in this old industry of financial management in an economy. As the Co-founder and Product Lead at Shukran, we have the bold vision of banking the unbanked 21st century style. This brings up the question of what has been done before, ideally in the 20th century and what can be done differently in the 21st century to gives us an edge.

There is a big shift in the zeitgeist for digital banks or neobanks, which are digital extension of existing banks, that focus on user experience and technology as a means to provide financial services. There are pioneers such as Nubank, Chime and Monzo Bank, which have done well for themselves and they continue to grow significantly as the demand of digital financial services grows. Banks have been getting into this space, with the likes of Standard Chartered in Kenya pushing for online over physical banking, as they close their branches and allow for online bank account registration. Not to mention the elephant in the room, mobile money, pioneered by M-PESA, a financial service built on the mobile telecommunications network. There is clearly a push that financial services will be digital. The days of going to branches to cash in checks and withdraw cash are over, especially for consumers.

In this world, where is the place for startups to jump in building financial services that solve problems that would otherwise have been unfathomable. One of the problems that I am tackling is facilitating digital tipping in the tourism industry as a gateway to provide financial services to low-income service workers. Sounds like a great idea and we have some good traction. However, what other services are out there that can be built? Here are some things to consider when building a financial services company or fintech.

1. Build a niche group of people

Traditional banks are blanket solutions to the financial needs of a population. Because large banks deal with many diverse customers with different incomes streams, financial goals and culture norms, it becomes difficult to have a 360-view of any particular customers. The incumbent banks will always fall short in terms of customer expectations because one man's medicine is another man's poison. In fact, it is common knowledge that getting credit from a large bank is a waste of time, their risk appetite will always reject low-income earners with unstable and undocumented income streams. There only cater to the formal workers in corporate jobs that earn a stable paycheck, or the large business that get millions in cashflow every month into their bank account. If you don't meet this criteria, there is no need to try because the hassle is too high.

By focusing on a specific kind of users, who can tailor your financial services to mitigate the risks associated with that segment and maximise the value to those customers at a 360-level. This is what we are doing at Shukran, with service workers. However, this model can work for all segments with similar characteristics and behaviours. In fact, this has always been happening with small community banks, credit unions or cooperatives, local banks and so on.

There is a major hypothesis by Richard Werner that the success of large economies like the USA, China and Japan were a result of having many local and regional banks that would lend credit to their communities based on the productive usage of the credit to increase returns and build wealth. It sounds obvious because local banks understand what financial services that their local communities need and will tailor them to fit those needs while still ensuring that the make a profit. This is very different from having large national banks or even one bank that will be wary to lend to local communities because it simply doesn't understand those communities enough to lend to them.

Unfortunately, it is sad to witness how difficult it can be to build a financial services company in Africa. Not only do you have to deal with fraud, high customer acquisition and trust issues, but also an incompetent government that seeks to use financial means to line the pockets of capitalist bankers, crooked politicians and lazy bureaucrats. What a shame.

We need more small banks that are aligned with their local communities. This is the surest way to build wealth.