Fintech Sector In South Africa – What Are The Opportunities?

There is a thriving fintech industry in South Africa that benefits the continent as a whole, not just the nation. Historically, the nation has served as a vital crossroads for African commerce and investment. Its two global metropolises, Johannesburg and Cape Town set it apart.

Fintech Sector In South Africa - What Are The Opportunities?

According to the Fintech Times' Fintech: Middle East & Africa 2021 Report, South Africa is a key player in the MEA region. The nation was classified as a middle-tier emerging fintech hotspot (tier-2).

Although there have been recent setbacks, South Africa has a well-established ecosystem that comprises the country's financial services sector as well as a significant market. When it comes to South Africa, the biggest city in the country, Johannesburg, is home to some of the continent's most prominent financial organizations, including Standard Bank Group and FirstRand. South African banks make up a significant portion of the continent's ten biggest banks, according to asset size.

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Fintechs have begun working with banks throughout the continent.  Approximately 47 per cent of all while 44 per cent are based in Johannesburg. More than half of all venture capital agreements in South Africa are done in Cape Town. About a quarter of the more than 500 digital startups in Cape Town are in e-commerce or SaaS, and about a fifth are in finance. The city boasts an international talent pool, a developing support structure, and an affordable cost of living.

Fintech Sector In South Africa - What Are The Opportunities?

Fintech And Forex Industry In South Africa – Opportunities

When it comes to foreign exchange, Africa is a hotbed for innovation and activity because of its fragmented markets and lack of legacy trading infrastructure.

Only a few years ago, 90% of South Africa's foreign currency exchanges were conducted over the phone. According to Tim Hutchinson, Standard Bank's director of digital for financial markets, over 75% of deals are done online, while just 25% are done on the phone. Most of Africa's financial service providers are producing or working with homegrown African fintech in order to take advantage of the foreign currency flows that Africa's growing fintech culture is supporting.

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One of Africa's leading financial institutions, Standard Bank has played a key role in the region's fast shift to electronic trading. In addition to that, the number of South African brokers escalates as time goes by because of the increased popularity of service providers’ demand in the FX industry.  “Because we are a market maker, we need to get liquidity from the market. In an ever-changing environment, we also need to quickly create risk-based pricing”. Finally, Hutchinson adds, “We must spread the price. If you are in Africa, creating solutions for consumers to access foreign currency markets across several countries is a must.” Additionally, “we also need to demonstrate to central bankers what we are doing,” Hutchinson says in most markets. Local authorities must be prepared to accept digital trading if all transactions can be tracked and audited electronically.

When it comes to today's transactions, banks aren't only expected to provide systems and networks that enable basic transactions; they're also expected to give “insider knowledge, insight, and direction beyond plain execution,” Hutchinson adds. For example, currency analysis is becoming an increasingly common request from clients. “Standard Bank's distribution skills in this respect are differentiated by its on-the-ground knowledge and local understanding,” he says.

A new requirement for banks is that they help customers navigate the economic, legal, and political environments in which their transactions take place. When building Standard Bank's digital capabilities, one of the questions was how to integrate market information and research with real-time pricing, transaction execution, and post-deal services.

Executing deals is no longer sufficient in today's market. Advising and informing the larger trading community is just as vital, Hutchinson argues.

In Africa, digital commerce is developing in its own unique manner. “We've discovered that importing systems from the industrialized world isn't the only solution. In order to assist our customers to understand their internal demands in terms of governance and operational effectiveness, we collaborate with them,” Hutchinson explains. Our next step is to create and deploy digital solutions that speak directly to the needs of our customers. ”

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Using Standard Bank's Business Online (BOL) platform, customers may examine balances throughout the continent while conducting third-party currency payments and facilitating basic cash management. In addition to that, clients are able to take back control of their finances by gaining access to a wide-ranging digital cash perspective and the capacity to manage cash flow themselves rather than relying on the bank.

Fintech Sector In South Africa - What Are The Opportunities?

Digital adaptability and innovation have been particularly successful in Africa, but the actual implementation of these strategies has been more difficult than the technological ones. This digital evolution needs human and cultural systems and client behaviour changes to give it lifelike getting customer analogue systems to start pricing electronically in order to make trades visible 24 hours a day – is often much more difficult to achieve than the technology upgrade,” says Hutchinson. It's time for a fundamental cultural transformation in the way bank workers, customers, and regulators think about the world around them, as well.

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