Fintech: Eyeing untapped business potential

Despite the gains made in adoption of digital and mobile payments over the years, more than 90 per cent of transactions in the country today are still in cash

03 Apr 2018 . 1,905 Views

The knack for identifying opportunities in the market and how to effectively plug them is vital for staying ahead of the competition in the business world.

For Julius Obiero, his keen eye paid off when he begun supplying reusable shopping bags following the government’s ban on plastic bags early last year.

“I realised there was going to be a gap in supply because everyone had gotten used to plastic bags and there was little supply of reusable and environmental-friendly bags,” he explains.

Julius runs a wholesale business in Nairobi from where he supplies shops in several counties including Siaya, Kisumu and Kisii with reusable shopping bags. His daily business often involves managing the cash and supply flows from several clients at the same time, something he says would be impossible without mobile money.

“Most of the times I am on the move and a lot of the business is done on my phone,” he explains. “I get orders on phone and if I am not in Nairobi, as is often the case, I send the order to my distributor with the delivery instructions. I get paid on M-PESA and I pay my distributors the same way.”

Besides enabling him free up some valuable time to attend to other personal matters, running his business largely through his mobile money account has paid off in many ways.

“In the first place you get a record of everything you are doing,” explains Julius. “Every single sale and every payment you receive is recorded and available to you any time you need it.”

Julius relies on the same records to back his loan applications on M-Shwari whenever he needs to make bulk payments because the mobile solution allows him to plug into CBA Bank.

Developments in financial technology solutions have made it possible for many entrepreneurs like Julius to extract more value out of their businesses today than older generations of entrepreneurs ever imagined.

The financial crisis of 2007/2008 spurred fintech experts across the world to explore ways of decentralizing economic capital and make it easier for smaller businesses and economies to operate unhinged from the gravitas of big business.

M-PESA is the crown jewel of this transformative period and over the years has led the industry in value and volume, transforming cash transactions between individuals and businesses.

The next phase of the fintech evolution presents more opportunities for innovative developers and service providers.

Despite the gains made in adoption of digital and mobile payments over the years more than 90 per cent of transactions in the country today are still in cash. While cash transactions are practical and innate to the daily consumer experience, studies have shown that a highly cash-led economy facilitates a shadow economy where economic crimes like corruption, tax evasion and money laundering pervade.

A recent report by Financial Sector Deepening, FSD Africa, the East Africa Venture Capital Association and other partner agencies found that Kenya leads East Africa in deposit penetration and access to banking services largely owing to mobile banking. This has translated to real economic value in terms of increased fintech investment into the region. Kenya is estimated to have taken up 76 per cent of US$121.9 million (Sh12 billion) invested in East African fintech in 2016.

This is much needed investment for people like Charles Ndaga who operates an M-PESA agency business that has become crucial to his income.

“I have 15 outlets and on busy days I can move between Sh100, 000 and Sh120,000,” he explains. With his extra income Charles has been able to take up the education expenses of an orphaned niece. He is planning to open more outlets.

Kenya’s high smart phone penetration, at 40 per cent, is much higher than Tanzania’s 12, Rwanda’s 10 and Ethiopia and Uganda’s 8 per cent and is set to go higher in coming years as more vendors set up shop.

This is expected to drive up demand for fintech apps and opportunities for fast thinking startups and developers to provide new user experiences.

Today, instead of queuing or paying someone, Kenyans are making business permit renewals, land rate payments and passport renewals through the state e-citizen platform that receives payments via M-PESA.

Consultancy firm McKinsey Global estimated in a 2016 report that the Kenyan government made compliance cost savings of approximately US$ 290 million (Sh30billion) over a period of four years through adopting mobile payments over, underlining the benefits and opportunities that yet exist in the dynamic world of fintech and technovation.

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