By Mikhail Marchenko
Digitalization and technological achievements, which have been observed in the African region for the past decade, have sped up the inevitable processes in fintech, changing its landscape completely.
The new challenges and opportunities presented by online businesses are related to Covid-19 and the wide range of technological breakthroughs in Kenya and beyond. But, it is necessary for someone who plans to plunge into fintech business this year to reflect on key trends and factors, and the role Kenya is going to play in the process.
Digital lending started in 2012 and sparked interest in 2015 when numerous players emerged in the market. In the last two years, there has been a surge in the number of Kenyan fintechs largely due to smartphone penetration, increase in the number of applications and borrowers as well as the spread of smartphones, which have become the main payment platform (even) among the elder people and availability of 3g/4g technology network across the country.
Further, the rise of mobile financial services has been promoted by the advent of mobile money that enables users to access cash through their mobile devices. In Kenya, mobile credit has achieved tremendous success thanks to a ‘mature market’ for mobile financial services – all these factors have led to not only positive results, but also very strong competition in the market.
The microfinance sector deals with an important problem of financial inclusion that has become a genuine concern in recent years. And, the loans are given not because a borrower simply has a smartphone, but because he or she has some credit history. How can people start building credit profiles?
With the penetration of new vendors to Kenya, which do not use any personal data of a customer, online businesses can mitigate operational risks really well, using advanced technological credit scoring solutions, based on the digital footprint of the device (mobile phone in particular) and add more value to the data that none of their competitors even thought to use and increase the acceptance rate significantly as well as to exclude reputational losses related to severe data breaches and help the customer to start creating its credit history. At the same time, fintech players have a heavy competitive advantage and are able to create more tailored solutions, based on customer needs and user experience.
One of the newest and fastest-growing types of online fraud in Kenya is the use of special software, also known as randomizers. The purpose of such software is to thwart existing digital device fingerprinting technologies and pass off the same device from which the fraudster applies for a loan online as a new one every time.
Fraudsters ride on sophisticated tools, which do not let players in the fintech space know if they are dealing with a new potential customer or not. It is important to have randomization detection technologies and methods for building an effective device ID in order to use it for the risk assessment of each client.
New regulatory requirements
Credit bureaus in Kenya are highly regulated and we can clearly see that the legislation is continuing to tighten. The importance of privacy and data protection is growing immensely all over the globe and Africa is no exception. As a way to compete successfully with traditional financial institutions, it is necessary to consider all changes in legal regulation, particularly regarding the requirements for the processing of personal data.
Digital Credit Providers (DCPs) are regulated by the Central Bank of Kenya (CBK) in order to save the masses from discriminatory practices in the credit market. DCPs are now required to apply for licenses from the CBK unlike previously when they only had to register the business name via e-citizen to set up operations in the country.
One thing the last few years showed in the context of the fintech industry in Kenya is; new challenges increased the speed of change in a number of areas and set a new bar for business efficiency as a result of investment decline. The speed of new technologies implementation is becoming one of the main factors of market success. The organizational set-up of fintech companies and their data-providing and processing policy have to meet these requirements. Those players who will pay special attention to alternative data solutions will eventually win the market.
Writer is co-founder of JuicyScore.