Fintech growth is fueled by partnerships
Fintech's growth is fueled by partnerships
Flutterwave, Africa's newest tech unicorn, has the type of start-up story that garners attention and headlines.
Founded in 2016 by two Nigerian entrepreneurs, the company has quickly risen to prominence with a slew of accomplishments. 2021 will be a watershed year for the fintech, with the company securing US$170 million in funding this year and raising its valuation to the billion-dollar mark.
Also, it announced a significant partnership with Ethiopian digital money platform Amole, but not before announcing another significant collaboration with global payment leader PayPal, which will enable PayPal customers worldwide to pay African merchants via Flutterwave's platform.
Flutterwave's success demonstrates not only the enormous potential for fintech in Africa, but also the strength of partnerships.
Going far, together
Africa is widely regarded as a leader in the field of online payments, and the fintech sector shows no signs of slowing down. Disrupt Africa reported a record-breaking year for African tech startups overall in its 'Funding Report 2020,' but fintech was singled out as the dominant sector. Much of this success is due to cross-sector strategic partnerships.
Bank-fintech collaborations abound, as banks seek technological flexibility and fintechs seek capital to expand as they target the continent's unbanked customers, estimated to number over a billion. However, during the COVID-19 pandemic, an increasing number of fintech companies partnered with retailers, eager to identify new ways to reach customers and provide critical support during lockdowns. Numerous telecommunications operators are also collaborating with fintech firms. For example, last year, Cassava Fintech International (CFI) and the Liquid Telecom Group (LTG) launched Sasai Wi-Fi Finder, a low-cost solution for connectivity — which is frequently a major barrier to access in Africa — with the goal of accelerating digital and financial inclusion across the continent.
Partnerships are effective tools for businesses seeking to differentiate themselves in crowded marketplaces. They can provide access to specialized skills, save time and resources, improve product time to market, and shorten the learning curve for businesses.
They increasingly involve a team of collaborators. Ukheshe Technologies, a South African fintech startup, recently partnered with Telkom and financial institutions Mastercard and Nedbank to enable Telkom customers, regardless of whether they have a bank account, to conduct secure e-commerce transactions via WhatsApp.
Typically, fintechs provide the expertise necessary for banks and other partners to incorporate technology innovation into their existing products, channels, or processes, as well as assist them in developing and launching new products and services, as well as expanding their revenue streams through new business models and revenue streams. Corporate partners, on the other hand, provide regulatory credibility and compliance, a working knowledge of sector rules and regulations, and access to a diverse and established client base.
Five common models of partnership
A variety of different partnership models exist, depending on the partners' needs and objectives. The most common are low-commitment classic vendor relationships, in which banks purchase a vendor's products one-time or on a subscription basis, and all-in acquisition/acquihiring relationships, in which banks and other corporates acquire outright ownership of new expertise and technology, with the fintech remaining independent or being integrated into the bank's core business.
Between these two extremes are three additional options: white-labelling, which entails licensing new technology to enable banks to accelerate time to market by leveraging the fintech's B2B model while retaining their own brand; proposition joint ventures (JVs), which combine existing product capabilities with innovative new features from a fintech to create new propositions; and investment joint ventures.
Each approach has distinct advantages and disadvantages. The collaboration's ultimate goal will be to determine which model is most appropriate.
For example, the traditional vendor relationship promises a faster time to market and the use of tried-and-true products, but provides less flexibility in tailoring products to changing country requirements.
While white labeling provides some of that flexibility, tailoring the solution may result in a longer time to market.
Both proposition joint ventures and investment joint ventures provide access to specialized expertise, but they also introduce operational risks and raise potential governance concerns. And while acquisitions/acquihiring provide banks with access to new and specialized talent, capabilities, and mindsets, they also introduce integration challenges and operational risks associated with untested solutions.
No Silver Bullets
Fintechs considering partnership expansion should keep in mind that a partnership may not be the silver bullet they seek. As a McKinsey study notes, partnerships should not be rushed, but rather require a methodical and deliberate approach. Value creation through partnerships is anticipated but not guaranteed, and requires partners to be candid about their contributions. Fintechs should seek out strategic alliances that complement their overall strategy.
Additionally, regional factors may influence the opportunities and challenges associated with such partnerships. Fintechs must bear in mind that many corporate procurement processes are lengthy, and that regulatory and compliance issues can also take time; they must have the resources to get through this waiting period.
However, those who have done their homework and persevere will reap the benefits. The next African unicorn could be just one clever collaboration away.
Courses and Certification
Fintech - Financial Technology Course and Certificate
E-Accounting Course and Certificate
QuickBooks Course and Certificate
SAGE 50 Course and Certificate
