The term “market uncertainty” seldom if ever has good connotations if you’re a player in the financial space. Yet, times have never been more uncertain with the rise and rise of technology as a catalyst for disruption.
With respect to the finance world, this new uncertainty around the future of the market comes with a mixed bag of opportunity and risk. This extends to regulators who find themselves on radically new territory in light of the explosive rise of fintech startups, digital currencies, mobile banking products and the blockchain phenomenon.
The South African Revenue Service’s (SARS) multiple shifts in its stance on taxation with respect to cryptocurrencies like Bitcoin and Ethereum is perhaps a prime example of how institutions are grappling to get a footing in this new territory. Hitherto, both SARS and the South African Reserve Bank (SARB) have had a fairly tough time to even articulating their understanding of how these new digital currencies fit into the broader regulatory and taxation narratives.
In truth, with technologies like blockchain challenging the very foundations of the industry no amount of melancholic reminiscence about the good old days of finance will take us back to simpler times. Further, with a market that appears almost ready for anything, it’s game on for industry players both old and new.
Digital Transformation is Blowing An Entire Industries Wide Open
While a relatively “cagey” industry by its very nature, the financial sector’s resistance to the digital phenomenon has been an exercise in futility. The digital force is directly challenging traditional structures, cultures and barriers to industry innovation, and in the process, giving a new breed of financial influencers the green light in the race for dominance.
One company leading the way in the local and international crypto space is the Cape Town-founded Luno. With initial offices opening in 2014, the crypto wallet startup now operates in over 40 countries and has a staggering 2 million users on its platform. Luno allows its users to buy, sell and store all of the major cryptocurrencies on its platform and have to date processed over $64 billion in crypto payments.
About its phenomenal growth, Luno CEO and co-founder, Marcus Swanepoel says, “…we quickly realised two things: one, the banks were going to be moving very slow in this space; and two, there was a lot of misconceptions around what the technology could or could not do.” This foresight in the wake of broader market uncertainty around cryptocurrency gave Luno a headstart worth billions in bottom lines.
A Game That Raises The Stakes For Many Players
South African readiness for digital money is creating fertile ground for advancements within the financial sector as a whole. Research shows that South Africans are of the most enthusiastic countries with respect to cryptocurrencies and that the African continent is considered a leader in the fintech space. In fact, the continent’s fintech sector is set to grow from $200 million in 2017 to more than $2 billion by 2020 as the market shifts towards a more digital stance.
However, fintechs won’t be able to go at it alone without the help of industry veterans and players in adjacent sectors. For fintechs to thrive, alliances with players in the telecoms space, for example, will be crucial to getting their digital-only products and services to a hungry market. The delivery of internet services and mobile technologies act as the foundations upon which fintech products thrive.
Also, fintechs may have the monopoly on tech, but this is almost trumped by large players’ ability to throw large amounts of investment capital at them, after all, it’s money that fuels the world’s bustling startup markets. Danai Musandu, partner at Goodwell Investments places the emerging ecosystem that will come as a result of widespread disruption this way, “The banks have a lot of balance sheets and know-how. Telcos have the data and know exactly what you are doing but they don’t know how to do financial services. Then there are the fintechs; they have the technology but they don’t have the cash to serve mass unbanked populations.”
On the other end of this new spectrum sits Joe Consumer who’s more than ready to throw out the rulebook and play ball. In the end, how well financial concerns balance the tightrope between the uncertainty that comes with rewriting the rules and capitalising on a $2 billion market opportunity will be an interesting spectacle to behold.