In a financial world that is increasingly open and subject to technological advancements, modern-day lending has been taken a notch higher with the creation of digital platforms that have made loan acquisition convenient in terms of speed. Mobile money services such as M-Pesa allow customers to deposit, borrow and transfer money. Digital lenders such as Tala and Okash have not been left behind, as they have set up shops in Kenya, offering quick loans usually processed within 24hrs or even less through mobile phone applications. They understand that time is money for individuals and small businesses and that with quick decision making and a slick customer experience they can win the business. With the Covid pandemic cutting down the availability of cash for individuals and capital for small businesses, borrowers are willing to risk higher debt for a quick turnaround to offset cash flow deficits.

The infiltration of the market by digital lenders has swarmed borrowers with higher interest rates, leading to mounting defaults and an increased number of defaulters listed with the Credit Reference Bureau (CRB).  Many consumers do not understand loan computation, only realizing the financial burden when the loan is due. In extreme circumstances, digital lenders have gone ahead to publicly shame debtors by calling friends, colleagues, and family, creating additional pressure to repay loans. Digital lenders have taken advantage of the absence of proper regulation to run businesses as they deem fit to the detriment of consumers.

Whilst it’s impossible to go back to the old bank-driven system which is time-consuming and excludes a given portion of the population, it is unfair for the citizenry to continuously pay for the financial experimentation of tech startups. There’s a need for a sound regulatory system that makes digital credit responsible. Enactment of laws that require digital lenders to submit product pricing to the Central Bank for approval before launching to lower interest rates and a further capping of non-performing loans to avoid an increase in the amount payable due to late payment would go a long way into creating relief for consumers. Additionally, having all digital lenders under one regulator who exercises oversight on the sector, licenses players will bring about order in a rather chaotic industry.

Why Facebook? A brand new reason to be online in business.

In my career as a business plan consultant, I have asked my customers how they acquire new customers and how efficiently they get to communicate to and with them. Feedback from a sample of them has been the same, “Facebook”. So I have gone ahead to ask myself, Why Facebook? When I first opened a Facebook account, all I wanted to achieve was to be at par with my classmates in form three who were already in Facebook and telling lots of stories that they collected and shared on the platform. Indeed, since inception in 2004, Facebook has grown to become the world’s second most visited site with billions of visitors every week. It is no longer a static site as its algorithms and features keep changing. Facebook has evolved from just a social network to an ideal business platform through its unique infrastructure for information exchange, communication and connecting to
maintain and form relationships. Consultants, Corporations and SMEs have a cost effective alternative to connect with their potential customers through Facebook. With the continued advancement of WhatsApp Business, Facebook Messenger and integration of Instagram with Facebook, Facebook has proven to be ideal for business ahead of its competitor Google which owns G-Mail, G-Suit, YouTube and Chrome among other tools for business. In summary, follow the numbers. Facebook has these numbers regardless of size and specialization of the entrepreneur. “Twothirds of Facebook users say they visit a local business Facebook Page at least once a week.” (Kawaf, & Istanbulluoglu, 2019).

Columned by Rick Okinda.

BigTech & Money

The financial industry, once dominated by commercial and investment banks, has undergone tremendous changes, especially in emerging economies as tech companies scramble for a pie of this lucrative venture. Millions of users across Africa and Asia are more likely to pay for services using their phones as opposed to banks. Things have never been easier for these consumers who can now save, borrow, buy insurance, and even invest using tech platforms such as M-pesa, Alipay and WeChat. All these financial tools were thought to be a preserve of the rich and developed world, what made it easier for the underserved communities to easily access these essential financial services? An answer can be found in the short stories herein.

A story is told of a man who wanted to build the largest e-commerce marketplace in the world. This man wanted to ensure that payments were secure and that everybody could conveniently pay upon receipt of their goods. No bank wanted to partner with him, facing such rejection, he set up a financial division which acted as an escrow for holding customer’s funds. The funds could only be released upon delivery of goods. The move built trust in the most populous country in the world and as their business grew, so did the funds in escrow. This forced them to rename their financial division Ant Group which in 2019, facilitated more than $15 trillion worth in transactions, an amount similar to EU’s GDP and way more than what was transacted by MasterCard and Visa combined. With such huge data and financial muscle, the group is eyeing a $32bn dual listing in Mainland China’s Shanghai exchange and the Hong Kong Stock Exchange.

Another story is told of a 20 year old tech company in East Africa which wanted to change its community through mobile money. The firm understood how cumbersome it was opening a bank account which not only required a minimum bank deposit but also knew how expensive it was transaction wise. Their mobile money wallet was launched and its uptake in the first year shocked many. Coupled with violence after a highly contested plebiscite, movement restrictions were imposed and the only way one could send money was through their phones. Over the years, the mobile money segment has increased its offerings from facilitating transactions to savings, loans, and investing. This has been the backbone of the country’s economy forcing all banks to partner with them for survival. As of 2020, the firm’s market share of cashless transactions stood at 85% and it is the most profitable company in East & Central Africa.

Other than filling a vacuum created by the bureaucratic banking system, big tech has also been consolidating its offerings and finance is the last pillar in this system. For example, Facebook has been connecting people over the years and it wants people to send money in the simplest way possible, just like sending a text message. This frontier will help them build on their data about an individual’s consumption behaviour starting from what they buy, at what price and location, not forgetting the time/day they are likely to spend. All tech companies are competing in this frontier with each targeting its largest user markets. For Instance, Facebook is looking to expand its financial services in India and Brazil. Apple is expanding AppleCard in America and Europe while Tencent’s WeChat Money is rapidly expanding in Asia. With such developments, consumers have witnessed a sharp decline in transaction costs with companies such as Ant, through its Alipay, not charging for transactions in Alibaba’s portfolio.

Technology will continue playing a bigger role in the financial sector and with this, there comes more concerns on dominance, data privacy and efficiency. These issues have raised conflicts with commercial banks lobbying for more regulation owing to the fact that their market has been taken over by these firms. A good example is Brazil’s regulator suspending the use of WhatsApp Pay and Chinese regulators delaying Ant’s IPO as they draft new laws regarding online financial services. Kenya has also implemented tougher rules on online lenders to curb predatory lending.

In addition to this, regulators are more concerned about data privacy and competition. This has seen a rise in antitrust proceedings being filed against these tech giants. This is with the aim of ‘leveling the playing field’ which was once abused by banks through predatory lending leading to the greatest financial crash in modern history.

Bigtech in most cases, came to fill certain gaps in the financial sector. These efforts should be uploaded especially in emerging markets where it has promoted financial. Going forward, tougher rules regarding data privacy should be legislated to prevent misuse of personal information. Also, regulators especially central banks should encourage innovations which promote inclusivity as they try to lower transaction costs, which is a business barrier in developing economies.

Opportunities in the digital economy

The ongoing industrial revolution swings on the hinges of tech-powered innovation. The rise of big tech companies in California’s Silicon Valley has greatly impacted how business is done and will be done going forward. Google, Microsoft, Facebook, Cisco, Adobe, Oracle, Intel, Apple and Hewlett Packard are some of the companies whose contribution in the fast growing digital economy is largely significant. These companies, among other non-silicon valley big tech players have set up regional headquarters in Kenya purposely to fill the market gap.

In his state of the nation address, delivered on the 12th of November, President Uhuru Kenyatta reported that an average of 300 companies are registered in Kenya every day. Looking at this figures in the light of job losses during the covid-19 pandemic, it is clear that many employees are now considering to venture into ‘side-hustles’ and those who have lost their jobs to the pandemic are starting their new companies. If we try to connect dots, we will realize that the cost of starting a company and running one has reduced thanks to the digital migration to e-commerce.

Inasmuch as millions of websites and social media accounts for business have already been established, it is critical for the investor to learn that the digital economy is still largely unexplored. There are market gaps all over from production, to storage, distribution and selling in every industry. There is also a large space for intellectual enterprise for consultants who wish to meet their customers on their handsets and personal computers.