Pretoria — Political reconciliation in South Africa may have been easy compared to the challenge of more fully bringing those who suffered systematic discrimination and exclusion fully into the economic marketplace. Disparities in connections, education, geography, and wealth are not easily overcome. The poor typically are creative and entrepreneurial, but lack access to many of the essential tools of economic development.
In developing states financial systems, often government‐controlled and usually elite‐driven, are among the most difficult services for outsiders to access. Banks often reward influence more than enterprise.
The rural poor are at a particular disadvantage since whatever economic infrastructure exists is concentrated in cities. McKinsey reported that worldwide some 2.5 billion people don’t use banks or other formal financial institutions.
Such difficulties are ever evident in Africa, home to some 1.2 billion people. After decades of economic stasis and even retreat, many African nations finally are moving forward.
Perhaps the continent’s greatest hope, beyond the resourcefulness and tenacity of Africa’s diverse peoples, is the commercial advance of technology. For instance, mobile phones have taken communication services out of the hands of wealthy urban dwellers and empowered people who could only dream of getting a traditional landline.
Now MyBucks, a FinTech (or financial technology) firm, is turning the smartphone into a portable bank. It’s an explosive growth area.
Of course, traditional financial enterprises have gone online. But their web activities tend to be an extension of existing practices rather than transformation of standard products. It is “hard for traditional banks to change traditional operations,” MyBucks CEO Dave van Niekerk told me.
Unsurprisingly, reported a recent Economist Intelligence Unit survey of FinTech, “established banks generally still fail to create a good user experience.” Yet consumers want not just a good but a better experience, particularly “service at their fingertips,” explained EIU. Van Niekerk talked of “taking online banking to the next level.”
Although some people call FinTech companies “disrupters,” because they are disturbing the traditional market, van Niekerk prefers a most positive term. He spoke of “game changers” and told me that “we really are more enablers here than disrupters.”
The new processes mean convenience for everyone. By both enhancing competition with existing banks and developing new ways to deliver traditional services, FinTech benefits existing banking consumers everywhere.
Even more important, especially for a continent like Africa, new technologies mean leapfrogging an existing model that has never served millions of people. Traditional banking for “so many people and so many small accounts” simply is not “economically viable,” said van Niekerk.
The potential market is huge, with those 2.5 billion people worldwide largely excluded from traditional financial markets. Also a couple hundred million businesses, perhaps half of small enterprises in the developing world, find growth limited by lack of access to credit and financial markets.
Reaching just a few percent of these people and firms would create a vast new customer base and a profitable one if costs are kept low enough. Moreover, funding businesses would mean growing incomes and commercial activity — followed by increased demand for financial services.
In the developing world, then, new technologies mean helping those previously locked out to access the financial system, perhaps for the first time. Poorer nations can skip steps that had been thought essential in industrialized states. For instance, Tim Nuy, MyBucks Deputy CEO contended that “credit cards are not well‐suited” to many transactions in Africa, but “mobile payments made credit cards irrelevant.”
MyBucks has taken this process a step further. By purchasing financial institutions from and partnering with Opportunity International, an NGO specializing in microfinance, MyBucks is mixing capitalism and philanthropy, seeking to financially empower those who long lacked access to financial services. Van Niekirk said his vision was “In the very near future, the poorest of the poor will use technology to educate themselves and access financial products and services, anywhere and at any time.”
The individual benefits are obvious. But so are the larger economic gains. Giving creative and entrepreneurial people access to credit and finance expands their personal potential.
Doing so across a country fuels society’s development. With Africa finally starting to enjoy sustained economic growth, FinTech acts as a financial accelerant.
The firm recently brought me to their South African headquarters to chat about the company and its operations. MyBucks, established in 2011, is formally based in Luxembourg and listed on the Frankfurt Stock exchange. It has nearly 900 employees and more than 1000 sales representatives. Van Niekerk summarized the company’s operation as “offering financial products, turning them into opportunities, and encouraging financial inclusion.”
Nuy noted that “in mid‐2015 we had an opportunity to buy” Opportunity International’s financial enterprises. OI was created in 1971 to finance business creation in developing nations; it currently serves more than 14 million people in 24 nations. The NGO backs local microfinance organizations, offers savings accounts and micro‐insurance, and provides financial education, as well as non‐financial services and training, all to those in poverty to promote business development.
The partnership has proved mutually beneficial. OI now is better able to serve those in need: In Kenya, Mozambique, and Tanzania, for instance, MyBucks’ technology reduced loan processing times from 14 to 3 days. More money gets into more people’s hands more quickly. MyBucks personnel were enthused about the opportunity to enhance OI’s work
At the same time, OI’s banks and microfinance lenders allowed MyBucks to enter new national markets, which are still dominated by traditional regulatory structures. Instead of starting afresh to win approval, the company was able to more quickly serve the broader consumer market. And by deploying new technology which increased efficiency, reported Louwrens van Schalkwyk, Chief Operating Officer, MyBucks turned around money‐losing banks in a period of months.
The company wouldn’t exist but for new technologies. MyBucks offers as its objective delivering what it officially terms “a basket of financial products that meets the financial needs of our customers throughout all geographies, through technology.” Imagine a farmer in a field conducting business that once required a trip to a bank in the city. MyBucks is working on a plan to give a simple cellphone as part of its financial package.
MyBucks handles both sides of the equation. First, the firm offers a mix of traditional financial services: banking, lending, and insurance. Backing this system are applications and systems aiding personal budgeting, providing credit reports and education, and offering income protection. The system rewards good credit behavior.
Second, MyBucks provides financial services digitally, without maintaining a large physical presence where it operates. Moreover, MyBucks “tweaks” the technology for different markets.
Credit information is gathered electronically. Much of it comes, with the consumer’s consent, from their phone. Under the system, the more information people give the more they are rewarded. “People who are underbanked tend to be unconcerned about privacy. They’re more worried about meeting an urgent need for cash,” reported Penny Crosman in American Banker.
Artificial intelligence allows almost instantaneous assessment of creditworthiness. Algorithms replace lending officers. For the borrower the funding request is made electronically and money is disbursed quickly, typically within 15 minutes, according to MyBucks. The consumer then can manage the money digitally. The entire lending process can be completed with nothing but a phone in a region bereft of traditional financial institutions.
Nuy explained that the technological leapfrog has “taken away any need for infrastructure. It has really helped us.” He added: “Our strategy is to start with lending” because it “is a profit leader and drives customers.” Once someone has sought a loan “we show them that if you bank with us, you can do so more efficiently.” The technology “allows you to get personal banking,” which in the past was rare even for people in industrialized nations.
Again, the system seems tailored for those who have been left largely outside of the traditional financial system. Prospective borrowers can start where they are, building a credit record naturally and incrementally. The same process allows them to quickly and easily apply for and repay a loan.
There are digital safeguards against fraud. The system even predicts the best payment date for installment loans, based on paydays, bank clearance times, and more. Repayment problems can be addressed remotely and digitally.
The default rate for MyBucks is seven percent. Nuy told American Banker: “we can tell the system what our tolerated risk level is, then the system will tell us which clients to approve and which not. And it sets the return rate based on risk to make sure we get to that default level.” The entire process is as individualized as possible.
Customers can access MyBucks products through the web or with mobile devices, which obviously are most convenient for most people. However, the firm recognizes that access to technology is not uniform. To address such differences, MyBucks provides “internet service points,” or kiosks, in what amount to small branches with trained personnel with tablets to assist customers.
The company emphasized its support for corporate social responsibility and community empowerment and has backed sanitation, schools, and water access projects. The partnership with Opportunity International reinforces this commitment.
However, MyBucks’ normal profit‐making activity may be its most powerful impact on the poor. In many places digital and mobile banking may be the only available financial services. In these areas the company’s commercial activities benefit the least advantaged the most. This process is especially important for small businesses. Expanding credit more widely is an economic multiplier.
The result of MyBucks’ operations has been to spread financial services widely. MyBucks has brought many un‐ and under‐served Africans into the larger economy.
For instance, in just a few years MyBucks has been able to make more than 900,000 loans, many of which would have been impossible if people had to rely on traditional banks. Those borrowing tend to have modest incomes and practical needs.
The money usually goes for basic human investments, such as to pay school tuition or fix up a home. Loans also go to small businesses, providing a commercial form of “micro‐finance.” This form of credit, almost instantaneous access to small amounts of money, also makes money available for borrowers to get through personal emergencies not uncommon for those who lack a financial cushion.
Despite MyBucks’ present success, MyBucks must continuously look beyond today’s technological achievements. “We don’t want to just keep up with technology,” van Niekerk told me. “We want to understand what other companies are doing and leapfrog them.”
In most African nations government banking rules lag behind technology and, even worse, reflect political rather than economic imperatives. Indeed, van Niekerk told me, “we often struggle when entering a market. Incumbents try to block us.” Thankfully “in the end sanity usually prevails.” Nevertheless, regulatory concerns are one reason MyBucks purchased Opportunity International’s financial institutions.
MyBucks buttresses technological innovation and consumer satisfaction with viewer friendly advertising. The ads vary by country. In some places demand “will grow organically. In others we need to drive it more,” explained Kirsten Reynolds, Group Marketing Executive. Some of the ads also illustrate the various possibilities with MyBucks, starting with an internet kiosk and concluding with use of a mobile phone.
MyBucks is not yet in Francophone Africa. Nuy told me that “it is a different culture, you need the right local partner to make sure everything works.” Van Niekerk was optimistic: “we will get there eventually.”
Asia and especially China also beckon, though even bigger differences in language and culture must be surmounted there too. Said Van Niekerk: “We need someone who knows the lay of the land.” But it seems like too large a land to leave unserved for too long.
FinTech is enriching the lives of people around the world. For those of us who live in the wealthy West new technologies are providing convenience and savings. But in the developing world the process is transforming lives. The benefits of even limited online and mobile services in Africa are dramatic and obvious, and the potential is nowhere close to being reached.
MyBucks is an important part of this dramatic economic and social change. If it merely was another internet‐oriented start‐up the company’s activities would be beneficial but not particularly noteworthy. However, it is demonstrating entrepreneurial capitalism’s positive economic and social impact on developing nations and disadvantaged peoples.
The problem of international poverty remains enormous. And aid through the independent sector can help. But the ultimate solution for those currently left behind economically requires expanding the reach of markets to the least among us. MyBucks helps do so, and thereby is doing good while doing well.