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.
Samsung unleashes the beast
Most new smartphone releases of the past few years have been like cat-and-mouse games with consumers and each other. It has been as if morsels of cheese are thrown into the box to make it more interesting: a little extra camera here, a little more battery there, and incremental changes to size, speed (more) and weight (less). Each change moves the needle of innovation ever-so-slightly. Until we find ourselves, a few years later, with a handset that is revolutionary compared to six years ago, but an anti-climax relative to six months before.
And then came Samsung. Probably stung by the “incremental improvement” phrase that has become almost a cliché about new Galaxy devices, the Korean giant chose to unleash a beast last week.
The new Galaxy Note 9 is not only the biggest smartphone Samsung has ever released, but one of the biggest flagship handsets that can still be called a phone. With a 6.4” display, it suddenly competes with mini-tablets and gaming consoles, among other devices that had previously faced little contest from handsets.
It offers almost ever cutting edge introduced to the Galaxy S9 and S9+ smartphones earlier this year, including the market-leading f1.5 aperture lens, and an f2.4. telephoto lens, each weighing in at 12 Megapixels. The front lens is equally impressive, with an f1.7 aperture – first introduced on the Note 8 as the widest yet on a selfie camera.
So far, so S9. However, the Note range has always been set apart by its S Pen stylus, and each edition has added new features. Born as a mere pen that writes on screens, it evolved through the likes of pressure sensitivity, allowing for artistic expression, and cut-and-paste text with translation-on-the-fly.
(Click here or below to read more about the Samsung Galaxy S Pen stylus) Samsung Galaxy S9 Features)
SA ride permit system ‘broken’
Despite the amendments to the National Land Transport Act, ALON LITS, General Manager, Uber in Sub Saharan Africa, believes that many premature given that the necessary, well-functioning systems and processes are not yet in place to make these regulatory changes viable.
The spirit and intention of the amendments to the National Land Transport Act No 5 (NLTA), 2009 put forward by the Ministry of Transport are to be commended. It is especially pleasing that these amendments include ridesharing and e-hailing operators and drivers as legitimate participants in the country’s public transport system, which point to government’s willingness to embrace the changes and innovation taking place in the country’s transport industry.
However, there are aspects of the proposed amendments that are, at best, premature given that the necessary, well-functioning systems and processes are not yet in place to make these regulatory changes viable.
Of particular concern are the significant financial penalties that will need to be paid by ridesharing and e-hailing companies whose independent operators are found to be transporting passengers without a legal permit issued by the relevant local authority. These fines can be as high as R100 000 per driver operating without a permit. Apart from being an excessive penalty it is grossly unfair given that a large number of local authorities don’t yet have functioning permit issuing systems and processes in place.
The truth is that the operating permit issuance system in South Africa is effectively broken. The application and issuance processes for operating licenses are fundamentally flawed and subject to extensive delays, sometimes over a year in length. This situation is exacerbated by the fact that it is very difficult for applicants whose permit applications haven’t yet been approved to get reasons for the extensive delays on the issuing of those permits.
Uber has had extensive first-hand experience with the frustratingly slow process of applying for these permits, with drivers often having to wait months and, in some cases more than a year, for their permits.
Sadly, there appears to be no sense of urgency amongst local authorities to prioritise fixing the flawed permit issuing systems and processes or address the large, and growing, backlogs of permit applications. As such, in order for the proposed stringent permit enforcement rules to be effective and fair to all role players, the long-standing issues around permit issuance first need to be addressed. At the very least, before the proposed legislation amendments are implemented, the National Transport Ministry needs to address the following issues:
- Efficient processes and systems must be put in place in all local authorities to allow drivers to easily apply for the operating permits they require
- Service level agreements need to be put in place with local authorities whereby they are required to assess applications and issue permits within the prescribed 60-day period.
- Local authorities need to be given deadlines by which their current permit application backlogs must be addressed to allow for faster processing of new applications once the amendments are promulgated.
If the Transport Ministry implements the proposed legislation amendments before ensuring that these permit issuance challenges are addressed, many drivers will be faced with the difficult choice of either having to operate illegally whilst awaiting their approved permits and risking significant fines and/or arrest, or stopping operations until they receive their permits, thereby losing what is, for many of them, their only source of income.
As such, if the Ministry of Transport is not able to address these particular challenges, it is only reasonable to ask it to reconsider this amendment and delay its implementation until the necessary infrastructure is in place to ensure it does not impact negatively on the country’s transport industry. The legislators must have been aware of the challenges of passing such a significant law, as the Amendment Bill allows for the Minister to use his discretion to delay implementation of provisions for up to 5 years.
Fair trade and healthy competition are the cornerstones of any effective and growing economy. However, these clauses (Section 66 (7) and Section 66A) of the NLTA amendment, as well as the proposal that regulators be given authority to define the geographic locations or zones in which vehicles may operate, are contrary to the spirit of both. As a good corporate citizen, Uber is committed to supplementing and enhancing South Africa’s national transport system and contributing positively to the industry. If passed into law without the revisions suggested above, these new amendments will limit our business and many others from playing the supportive roles we all can, and should, in growing the SA transport and tourism industries as well as many other key economic sectors.
What’s more, if passed as they currently stand, the amendments will effectively limit South African consumers from having full access to the range of convenient transport options they deserve; which has the potential to harm the reputation and credibility of the entire transport industry.