Johan Bosini, Quona Capital Venture Partner (Cape Town) shares his excitement about fintech developments and the associated data revolution in Africa.
Which sources of data and analytics methods hold the most promise in extending financial services to the underserved in Africa?
I think there are two broad opportunities – one is working with companies who have customer behavioural data, and another is creating data by digitising the current value-chain, analysing the associated data and then developing financial services that speak to the identified opportunities in that value chain. Changing the behaviour of consumers can be extremely difficult in any market, so it makes sense to try and understand existing behaviour and, if necessary, change the behaviour of financial intermediaries (or those who interact with the customer most frequently) instead.
Greater insight into different points in the value chain also enables you to identify and potentially circumnavigate inefficiencies.
I’ve been involved with a business that has evolved in this way. I was introduced to Serge Raemaeker, a lecturer at UCT, through Gabriel Roux from Startech. Serge alerted me to the plight of small-scale fishers in South Africa – most of whom have limited or no access to formal financial services. He outlined his plans to empower these fishers through technology, and I knew that I wanted to play a part in this journey.
A suite of apps has been co-developed with the fisher communities so they can log their daily catches. This enables them to sell these fish and collect evidence of the transactional flows in their informal businesses. The project, called Abalobi, is also intended for broader use as a tool to advocate for fairer quota allocation to small-scale fishers through legitimising their role.
Abalobi was not created as a fintech company, but by collecting this data from an existing value-chain, the users of the app become more visible to financial service providers (FSPs), and the viability of serving them as small businesses becomes apparent.
In fact, the fintech frenzy hasn’t been a tech revolution at all, but rather a data revolution. The value of fintech has been the ability to turn messy, unstructured data into usable insights to design relevant products and services.
Do you think that a focus on changing the behaviour of consumers is the most common mistake providers make when targeting the lower end of the market?
I think companies generally design products that will make them money, but they should be designing products that solve a real customer need first. I think too many companies misunderstand price when pitching products to lower-income individuals. Price is one product parameter, but most people need access to fast, simple services first.
One example is Zoona. When they entered the market in Zambia, their product was not the cheapest, but they focused on the customers’ need for fast, transparent services. They did this successfully by focusing on an incentive for the agents through a better commission, as well as a liquidity solution, which acts as a working capital facility. The result is a real customer-centric approach to product and process design. Because of slightly higher prices, agents earn more commission and can give a better service to their customers than the alternative.
It is easy to default academic conversations to comparisons based on the price of similar financial services, but most people in Africa don’t need a price problem solved but rather an access problem. Airtime loans, as an example, typically have “interest rates” of 10% per day, but customers don’t see this as expensive because it is only 10 cents out of each dollar (with most airtime loans being less than $1), and they want to use their phones. The additional 10c fee is low for the opportunity to make that call now, rather than wait until they can find an agent to buy airtime from.
What is the most common oversight you see in terms of product design and the needs and financial behaviour of lower-income people in Africa?
FSPs, I think, have become financial product companies, with services for low-income customers being removed from their thinking. The result is that most consumers have poor access to these products. I believe FSPs should focus more on the channel – especially products that work via mobile, including SMS and USSD to accommodate lower-income customers. Around seven-million smartphones are sold around the world every day, so it’s imperative to focus on mobile engagement to reach the majority.
Furthermore, banks and insurance companies have long legal contracts, most of which are never read or understood. The result is that there is often poor transparency of what a consumer is paying, or agreeing to. Messaging works better when there is a reference to a specific number rather than a percentage – for example, if you borrow $100 today then you need to pay back $102 in a week. If you communicate that as an annual interest rate, the average consumer will have no idea what the actual implications are.
Which African fintechs are doing the most interesting things with data?
The list is long, and I have the enviable job of being able to spend time with smart people who are changing the way Africa engages with financial services. Although not all of them were founded in Africa, there is so much happening in Nigeria right now – Flutterwave and Andela are well-known examples, but it is worth noting interesting local lending companies like Lidya, OneFi, Mines.io and Invoizpaid, which are changing the way people access working capital and unsecured credit in the country.
Quite a lot has also been happening in Ghana on the back of the very impressive MTN mobile-money adoption rates in the country. Digital inclusion often precedes financial inclusion, and this is one such case.
Kenya is a really interesting market, with mobile innovation that astounds most people who visit. Aside from the obvious success of M-Pesa, we have seen businesses like Kopo Kopo, Twiga Foods and Sokowatch all helping businesses trade more effectively, as well as companies like JUMO, Apollo, Branch and Tala working to provide access to real-time credit for consumers and businesses. I think some of these businesses are still too smartphone-reliant though, thus excluding the mass population.
I’m seeing some good agritechs too, including Pula Advisors, which has an innovative approach to agri-insurance. In the health space, I admire AccessAfya, which uses technology to serve patients at clinics in Kenyan slums. The company has trained clinic staff to use technology to deal with around 70% of the presenting issues with no need to see a doctor – at a cost as low as $2 per visit I believe.
The themes that I think are worth pursuing at the moment are anything linked to MSMEs, insurtech and healthtech. These categories are really interesting.
Are FSPs seeing a clear business case for extending services to the low-income individuals?
The innovation in financial services is not coming from traditional players and the banks could increasingly become the investors rather than being the innovative players. They are becoming more “feminine” in their approach though and are looking at ways in which they can collaborate in the ecosystem. People have started asking, “what if everyone wins, what if we work together?” rather than the usual narrative of “I will win, they will lose”. Furthermore, many of the people joining the workforce now want to work in an environment that also allows them to do good, to make a difference.
Working in emerging markets can be hard, and I have got it wrong many times too. Regulators need to understand that and invite more dialogue about creating the enabling environment for entrepreneurs to build African solutions for African problems. Conversely entrepreneurs not only need to learn that an idea is worth nothing without execution and the capital to make it work, but also need to understand the KPIs of regulators and possible partners and find ways to help them achieve their stated intent in their market. If we all work together, I believe we will pave the way to a financially included Africa.
Johan Bosini started his career as an investment banking analyst with Goldman Sachs. He worked in insurance and consumer finance before opting for a more entrepreneurial path and launching a mobile loan product in East Africa. The former managing director of JUMO is now a venture partner at Quona Capital.