King makes the point that a large percentage of bank branches already operate at low profitability, but are sometimes are required by law to keep some branches open. COVID-19 has removed this requirement, opening the way for a flood of new banks that don’t depend on physical infrastructure. South Africa last year saw the arrival of its first digital-only bank, TymeBank. In future, most new banks are likely to be purely digital.
Such entities are known as “challenger banks”, and they have one compelling differentiation: a better user experience. And now, it gets truly interesting, as the use of new technologies move from a nice-to-have to a have-to-have.
“When we see the emergence of new technologies like artificial intelligence, smart glasses potentially in the middle of the decade, and other progressive applications of fintech technology, we’re going to see more and more reliance on mobile engagement.”
It is one category of technology where the African continent is ahead of the world, and it provides a deeper lesson.
“We see a pattern of innovation in Africa, that has really led the world in many respects. For example, M-Pesa, which is considered one of the top mobile money programs in the world still today, with about 98 or 99% of the Kenyan adult population now having a mobile money account, compared with 24% before. But in reality, M-Pesa came about in some respects because of the political violence that occurred in2007 around the elections. So we have a pattern of innovation coming out of crises around the world. And that’s a key driver.”
A further lesson, says King, has been helped along by an ex-South African: Elon Musk.
“The most innovative technologies we see throughout history all share a single trait. Take the creation of the SpaceX rocket program, which did not take ab existing business and try to adapt to new technologies, which we call design by analogy. The most disruptive innovations throughout history, like the Telegraph line, the automobile and SpaceX rockets, are based on an engineering technique called first principles design.
“That is where you analyse the problem based on a set of new technologies that have become available and, rather than adapting our business to new technologies, we see new businesses starting from scratch. We’re starting to see the emergence of first principles design coming into the banking sector as well.”
Read more on the next page about how the traditional banking industry missed the boat with the arrival of smartphones.