The twin forces of finance and technology are helping to reshape the very face of consumer spending in South Africa.
The energy behind this growth in FinTech (finance technology) represents a significant challenge to and a break away from more traditional sources of finance for individual consumers – not least because of the time and effort conventionally required before securing the needed funds from established financial institutions such as banks.
Leading alternatives – providing fast and simple access to consumer credit in South Africa – are currently springing up and seem to be led by financial services providers such as payday loans site Wonga.The concept of the payday loan could not be more simple – just as the term suggests, it involves borrowing a cash sum to be repaid on the customer’s next pay date (or soon thereafter). The size of the loan is naturally restricted to the amount the individual may be in a position to borrow against his or her next pay cheque and by the relatively short repayment terms.
New customers of Wonga, for example, are restricted to borrowing up to R2,500 in the first instance, for up to a maximum of 47 days – and the cost of the loan in terms of interest and setup fees payable is naturally calculated on the basis of the amount borrowed and the repayment period agreed.
The FinTech revolution
What makes this form of lending a part of the ongoing FinTech revolution is the way in which today’s opportunities for online business make things fast and simple for any customer with access to the internet, whether by computer, tablet or mobile phone.Armed with any one of these devices, a customer needs only to visit the lender’s website, choose the amount to be borrowed, the repayment date and agree to the cost of the loan (which is spelt out to the last detail). After a rapid consideration of the applicant’s circumstances and credit history, the lender reaches a decision whether to advance the loan, with the cash being transferred directly into the customer’s bank account in just minutes.
Clearly, this may be seen as the result of today’s finance and technology working together in concert.
A further driving force in what is effectively minor revolution in the provision of personal financial services is the sheer familiarity enjoyed by the younger generation in all things technological. Head of Product at Wonga, Craig Whittaker, describes them as the “tech-savvy” Generation Y (youngsters born between 1980 and 2000, so also known as “millennials”).This in turn has encouraged companies to explore different ways of marketing their products to this a generation of new customers, who demand access to user-friendly and simple to navigate ecommerce platforms.
For all customers, of course, the protection of privacy and security of personal data remain high priorities, demanding that FinTech companies continually update and innovate in areas such as the encryption and authentication of data that needs to be shared.
In the final analysis, it seems clear that there is no turning back from what has already seen a sea-change in the way in which financial services are provided in South Africa.