What does it take to build great Banking as a service startup in Africa?
Highlights of the challenges and how to build a great Banking as a Service startup in Africa
Banking as a Service(Baas) is the provision of banking products and services through third parties. In other simple words, it is when non-banking institutions gain access to offer banking services like wallets, credits, and more without banking licenses and other necessities. An example of using Banking as a Service (BaaS) is when Uber recognizes the opportunity to offer banking accounts for drivers within their Uber driver app. Since Uber is not regulated as a bank to offer banking services, it will have to partner with a bank or a Banking as a Service provider to integrate the banking service into their app. This partnership allows Uber to provide additional financial services to their customers without needing to navigate the complexities of banking regulations.
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Why is Banking as a Service important?
There are many advantages, but a few include:
It helps non-banking institutions or third parties launch their own banking services faster and even cheaper.
It helps banking institutions scale their customer base and revenue.
It boosts innovation in the digital banking space.
In Africa the list of Banking as a Service startups includes Tembo Plus, Anchor, Bloc , Credable, Miden and Maplerad.
What is the challenge of building a great Banking as a Service startup in Africa? Reliability;
For most African startups to offer digital banking services, they will always need to partner with traditional banking institutions to leverage their license and digital banking infrastructure. The challenge is that most African traditional banks are still not prioritizing digital banking compared to their offline or physical banking services.
This means that at many times, the traditional digital banking infrastructure could go down for hours (which means the startup’s digital banking platform will also be down for hours because both use the same infrastructure), and still, the traditional banks wouldn’t react urgently because that is not their first priority (their first priority is offline customers who will always go to physical branches or agents to transact). For startups whose major and only priority is digital banking customers, they will always struggle. It is like you have built your major business on someone’s side hustle.
I personally have spoken to two different players who built their digital banking companies in East Africa in partnership with different traditional banks, and the repeated concern was the lack of reliability and urgency of these banks when the infrastructure goes down.
In the African fintech landscape, in most scenarios, whenever you partner with another company to use their infrastructure, there will always be a reliability issue. I remember how Benjamin Fernandes, founder of Nala, used to highlight how the lack of reliability on cross-border payments cost them. He said, “These reliability issues cost us money, damage our reputation, and massively affect our users’ experience - something needed to change”.
What does it take to build great Banking as a service startup in Africa?
The most assured way to build a great Banking as a Service startup in Africa is to work with bank partners who treat their digital banking infrastructure similarly and urgently to how they treat their offline customers. There are very few, but they are the only deal. It is hard to scale any financial services when the infrastructure is unreliable.
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