Financial institutions are paying attention to startups playing in the FinTech space as this is where potential disruption of their business model is going to come from, writes CAROL ATKINSON, Managing Partner of Integration at Exponential Ventures, MMI Holdings.
FinTech or Financial Technology has grown with the advent of new technology applications such as blockchain, artificial intelligence, Internet of Things (IoT), wearables, and others. Application of these software technologies into the financial sector promises to transform the way in which consumers interact with the financial services industry as well as the solutions offered by the industry.
Financial institutions are paying attention to startups playing in this FinTech space as this is where potential disruption of their business model is going to come from. Disruptive innovation is defined by Christensen, Raynor and McDonald, in their paper “What is Disruptive Innovation” for the Harvard Business Review, as “a process where a smaller company with fewer resources is able to successfully challenge established incumbent businesses.” These disruptive companies target market segments that are ignored by incumbents with products that have more suitable functionality at a lower price. In some instances, these new companies then progress to capture the traditional market that incumbents are playing in at a lower cost and with a more suitable solution. When mainstream customers start adopting the new company’s offerings in volume, disruption has occurred.
According to Christensen, Raynor and McDonald, incumbent companies do need to respond to disruption if it’s occurring, but they should not overreact by dismantling a still-profitable business. Instead, they should continue to strengthen relationships with core customers by investing in sustaining innovations whilst creating a new division that can focus on the disruptive innovation and take advantage of that as well. Financial institutions, rather than be disrupted by a new entrant, are future proofing themselves by creating disruptive innovation capabilities within their organisations and supporting external startups in return for equity or partnering with the larger organisation.
According to Accenture research on the evolving space of FinTech, players with a vested interest in the FinTech space have poured an unprecedented amount of money into global FinTech startups. More than $50 billion has been invested in almost 2,500 companies since 2010. And this continues to grow.
Within the South African landscape, the lack of funding has been a barrier to entry for many, often relying on self-funding or being funded by friends and family. This lack of funding is changing in South Africa. There is a focus of activity taking place in this space as corporates start paying more attention.
From ideation stage to playing with the big boys, support structures are being put in place by corporates, universities, non-governmental organisations and other institutions to assist startups reach the next level in their progression. Critical in this process is to fail fast and fail cheaply. Timeframes have shrunk with regards to start-ups progressing to scaled commercial models. The burgeoning incubation and acceleration programmes in South Africa and across the world are based on this understanding. Given that the majority of startups fail for various reasons, investors and funders are creating many opportunities for startups to take their startups from ideation stage to a point where they acquire their first client as quickly as possible. With access to mentors and resources to fully explore their business model, the process is engineered to remove barriers that may hinder the startup achieving its potential. The below diagram is an illustration of the process many of these start-ups go through:
The South African FinTech space is growing rapidly and it is good news not only for the pedestrian economy but also for improved employment levels. Traditional industries that previously fuelled the South African economy are stagnant or in decline. Recent third-quarter numbers released by Stats SA showed a decline in the trade, manufacturing and agriculture industries. The finance, real estate and business services industry are becoming increasingly vital to the SA economy having recorded positive growth every quarter since the fourth quarter of 2010.
As Exponential Ventures we are passionate about the FinTech startup space and look forward to nurturing and seeing these innovative companies like Tax Tim and LifeQ grow to make a meaningful difference in the lives of consumers locally and globally and making a significant contribution to our economy.
Gadget goes to Hollywood
Gadget visited the Netflix studios last week. In the first of a series, ARTHUR GOLDSTUCK talks to CEO Reed Hastings.
Netflix CEO Reed Hastings is no stranger to Africa. He has travelled throughout South Africa, taught maths in Swaziland for two years with the Peace Corps, and visits close family in Maputo. As a result, he is keenly aware of the South African entertainment and connectivity landscape.
In an exclusive interview at the Netflix studios in Hollywood, Los Angeles, last week, he revealed that Netflix had no intentions of challenging MultiChoice’s dominance of live sports broadcasting on the continent.
“Other firms will do sport and news; we are trying to focus on movies and TV shows,” he said. “There are a lot of areas that are video that we are not doing: sports, news, video gaming, user-generated content. We don’t have live sport.
“We’re not replacing MultiChoice at all. Their subscriber growth is steady in South Africa. They serve a need that’s independent of the Internet, via low-price satellite. There is no intention of capturing that audience. If they’re growing, it’s because they serve a need.”
While Reed ruled out any collaboration with MultiChoice on its satellite delivery platform, despite its collaboration with another pay-TV service, Sky TV in the United Kingdom, he did not close the door. He stressed that Netflix saw itself as an Internet-based service, and would pursue the opportunities offered by evolving broadband in Africa.
“If you look in other markets like the USA, how Comcast carries us on set-top boxes with their other services, it could happen with MultiChoice, the same as with all the pay-TV providers.
“We’re really focused on being a service over the Internet and not over satellite. Our service doesn’t work on satellite. Where we work with Sky is on Internet-connected devices. We’re happy to work on Internet-connected devices. We tend to work on smart TVs, but need broadband Internet for that.
“Broadband is getting faster in Nigeria, Tanzania, Kenya and South Africa – we can see the positive trendlines – so it’s more likely we will work with broadband Internet companies.”
Hastings is a firm believer in the idea that one content provider’s success does not depend on pushing another down.
“HBO has grown at the same time as we have, so can see our success doesn’t determine their success. What matters is amazing content with which the world falls in love.”
Click here to read about Netflix’s international expansion, and how the streaming service selects content for its platform.
Take these 5 steps to digital
By MARK WALKER, Associate Vice President for Sub-Saharan Africa at IDC Middle East, Africa and Turkey.
Digital transformation isn’t a buzz word because it sounds nice and looks good on the business CV. It is fundamental to long-term business success. IDC anticipates that 75% of enterprises will be on the path to digital transformation by 2027.
However, digital transformation is not a process that ticks a box and moves to the next item on the agenda – it is defined by the organisation’s shift towards a digitally empowered infrastructure and employee. It is an evolution across system, infrastructure, process, individual and leadership and should follow clear pathways to ensure sustainable success.
The nature of the enterprise has changed completely with the influence of digital, cloud and the Fourth Industrial Revolution (4IR), and success is reliant on strategic change.
There is a lot more ownership and transparency throughout the organisation and there is a responsibility that comes with that – employees want access to information, there has to be speed in knowledge, transactions and engagement,” he adds. “To ensure that the organisation evolves alongside digital and demand, it has to follow five very clear pathways to long-term, achievable success.
The first of these is to evaluate where the enterprise sits right now in terms of its digital journey. This will differ by organisation size and industry, as well as its reliance on technology. A smaller organisation that only needs a basic accounting function or the internet for email will have far different considerations to a small organisation that requires high-end technology to manage hedge funds or drive cloud solutions. The same comparisons apply to the enterprise-level organisation. The mining sector will have a completely different sub-set of technology requirements and infrastructure limitations to the retail or finance sectors.
Ultimately, every organisation, regardless of size or industry, is reliant on technology to grow or deliver customer service, but their digital transformation requirements are different. To ensure that investment into artificial intelligence (AI), machine learning, knowledge engines, automation and connectivity are accurately placed within the business and know exactly where the business is going.
The second step is to examine what the business wants to achieve. Again, the goals of the organisation over the long and short term will be entirely sector dependent, but it is essential that it examine what the competitive environment looks like and what influences customer expectations. This understanding will allow for the business to hone its digital requirements accordingly.
The third step is to match expectations to reality. You need to see how you can move your digital transformation strategy forward and what areas require prioritisation, what funding models will support your digital aspirations, and how this tie into what the market wants. Ultimately, every step of the process has to be prioritised to ensure
The fourth step is to look at the operational side of the process. This is as critical as any other aspect of the transformation strategy as it maps budget to skills to infrastructure in such a way as to ensure that any project delivers return on investment. Budget and funding are always top of mind when it comes to digital transformation – these are understandably key issues for the business. How will it benefit from the investment? How will it influence the customer experience? What impact will this have on the ongoing bottom line? These questions tie neatly into the fifth step in the process – the feedback loop.
This is often the forgotten step, but it is the most important. The feedback loop is critical to ensuring that the digital transformation process is achieving the right results, that the right metrics are in place, and that the needle is moving in the right direction. It is within this feedback loop that the organisation can consistently refine the process to ensure that it moves to each successive step with the right metrics in place.
There is also one final element that every organisation should have in place throughout its digital evolution. An element that many overlook – engagement. There must be a real desire to change, from the top of the organisation right down to the bottom, and an understanding of what it means to undertake this change and why it is essential. This is why this will be a key discussion at the 2019 IDC South Africa CIO Summit taking place in April this year. With this in place, the five steps to digital transformation will make sense and deliver the right results.