What Is FinTech?
There is a new buzzword floating around South African financial service industries – FinTech. But, what is all the hype about? FinTechs are challenger brands that use technologies to either change the way traditional financial services are offered, or to offer completely new products and services. For example, low-cost internet banking services and fast, dynamic digital offerings.
During uncertain times, such as the current situation we face under lockdown to curb the spread of the COVID-19 virus, FinTech companies are looking to become more relevant than ever as South African consumers search for innovative financial management services and new money saving options.
How Far Along Are We In South Africa?
According to Goldman Sachs, the global FinTech market is estimated to be worth $4.7 trillion. With more than 12 000 FinTech companies operating across the world, there is much innovation taking place globally. However, one might think that South Africa is lagging as the media profile of local FinTechs has been low. But, the sector has in fact been very active. While you may not notice the presence of FinTech services in your online interactions with banks or your insurance company, you have most likely employed these services over the last few years.
“There has been a lot of FinTech activity within the industry for a while, and consumers are increasingly being offered a wide range of innovative products – as well as new ways of thinking about the money they spend on insurance,” says Mutoda Mahamba, CEO and founder of Solvency, an innovative new insurance product of GENRIC Insurance Company Limited (FSP 43638), a registered short-term insurer.
Mahamba further explains that often FinTech brands are consumer-facing, but are buried within the financial services value chain. “While consumers may not have noticed their presence, they may already be using and enjoying FinTech services,” he says.
“These brands are just the tip of the consumer iceberg,” he continues. “FinTechs are changing how financial services work everywhere, from EFT payment methods when you’re shopping online to concepts like insurance that rewards good driver-behaviour. As this innovation becomes more visible and familiar, consumers are more likely to actively seek out best-in-class brands and experiences.“
Solvency: Turning The Traditional Insurance Model On Its Head
The Solvency solution offers crucial short-term insurance cover, combined with the ability to save and invest seamlessly. It’s a unique product that helps South Africans deal with two crucial challenges: protecting themselves and their families against key life risks and saving for the future. When faced with the challenges presented by the national lockdown, including mass retrenchment and slashed salaries, these kinds of services become vital in maintaining financial security.
Mahamba founded Solvency after working at a range of prominent South African insurance companies for over a decade. Through his work, he saw the opportunity to create a financial product that empowers consumers financially while also equipping them to manage the risk of negative life events, from burglaries to a car being written-off.
“The response from the market has been strong and positive, even though the Solvency brand is new,” he says. “I think this shows that consumers are actively looking for new ways to manage their hard-earned money and are becoming attracted to what FinTechs are offering.“
What Do They Offer?
Solvency clients can choose how much of their monthly car and household insurance premium (up to an average of 45%) is allocated to an Insurance Savings Account (ISA) in their name. This innovation operates in a similar fashion to a medical aid savings account. The decision on how much to allocate to the ISA is guided by how much excess the client chooses to pay in the event of a claim.
Given that, on average, a short-term insurance consumer claims once every four years, and that the Solvency ISA is expected to earn money-market rates, the client soon achieves a position where the savings portion of their policy offers effective risk cover.
“Consumers often pay premiums for years on end without claiming or receiving anything in return for their purchase,” says Mahamba. “Solvency turns this on its head and converts a grudge purchase into a savings opportunity. As the FinTech sector in South Africa matures, I think we can definitely expect more brands seeking to turn a previously negative customer experience into something that is exciting and financially empowering to emerge.”