Matthew Birtch (Gibs): what African FinTech entrepreneurs can learn from China
FinTech will fail without broadband access, says management consultant and Gibs academic Matthew Birtch. In an exclusive interview with FinTech Africa, he speaks about the role of formal education in developing the FinTech space and what local entrepreneurs can learn from China. "A big advantage of the Chinese FinTech market is that there is room for experimentation."
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Tell us about your background.
"I come from a management consulting and private equity background. I went from improving operations and strategy to actually investing in the companies and trying to get traction from growth prospects."
"Financial services and technology businesses are lean and compact high-growth companies, can be started at very low cost, have massive impact in terms of scale and users, so I was naturally drawn to them. I noticed during my consulting work that many large companies have massive staff complements, which is an indication of an outdated business model. Contemporary thinking dictates that the workforce should equate to an eighth of a company's customers, subscribers or users. I gravitated towards the FinTech space because technology is everywhere and I already had a financial services knowledge base from my time in the sector."
"I am also a faculty member at Gibs, teaching two MBA classes, and I also do a fair amount of executive education, teaching strategy and finance at the C-suite level."
You're familiar with the Chinese market. What can local FinTech entrepreneurs learn from their Chinese counterparts?
"China is driving huge swathes of East Asia through the innovativeness of their products. A lot of Westerners think that innovation comes exclusively out of the USA and pockets of the West, but this is not the case. A big advantage of the Chinese FinTech market is that there is room for experimentation, because even if your initiative was a flop, you've still got 100 million views or 50 million people who've tried your product because the volumes are so big. In Western markets, if you fail, you can lose a lot of money, but in China you can still break even. A company like Youku.com, which offers a Netflix-Hulu-YouTube experience, can get 400 million views when it launches a flop of a programme. The Chinese are very pragmatic and want things done yesterday. They will jump on things very quickly, as we have seen in the online payments space, which has gone absolutely ballistic in China."
Are there any Chinese businesses that stand out for you?
"Besides the usual big players, there are a few smaller guys doing some interesting things with the peer-to-peer lending model, but in terms of your unicorns, you've got the likes of WeChat and Alipay, both of whom dominate the market. Another is Baidu, the largest search engine in China, which also has eWallet functionality. The competition between these businesses is intense, but you have other smaller entities in tier-two cities that are really working wonders with the peer-to-peer model."
How has tertiary education evolved to meet the changing demands of students?
"What's interesting from a broad tertiary education perspective is that graduates are no longer seeking jobs on Wall Street and with the banks. These large businesses are no longer the employers of choice. There are a number of reasons for this. It is exciting to do things in the FinTech space and there is anger, particularly among the youth, at the big institutions because of what happened during the global financial crisis and the fact that their parents suffered financially. Technology prices have come down drastically, the world is more connected and youngsters coming out of university do not want to go to work for a big corporate and have to wait 20 years to make it up to a senior level.
Disruptive FinTech businesses appeal to these millennials in many ways. There is a rebelliousness in them that they can express at smaller speedboat companies that take on the big dogs. This is a global theme, whether you're talking about the Far East or North America."
"A lot of success flows through networks and relationships. At business schools globally, what students get is access to a strong network, which over a five to 10 year period has a big effect on the success on the deals they put together. There is quite a wide variance in the approaches that business schools adopt. Some institutions like the Massachusetts Institute of Technology are very applied and others are more conceptual, like the Oxford and Cambridge schools."
What challenges do local FinTech entrepreneurs face?
"I hear about regulation all the time in the FinTech industry, and while I agree that it is vital, if it a company's sole focus, it will never be disruptive because regulations are written and lobbied by the big players. In South Africa, I think we will see a big change in the retail banking space and number of new banking licences being issued. Discovery has just got its licence and Old Mutual is offering an innovative lending product. It's only a matter of time before the local market opens up."
"We're going to see a lot of smaller banks popping up."
"Nigeria has 23 banks and Kenya has 43, even though both countries have far fewer people who are able to use these facilities than South Africa. We only have five incumbents. These big financial institutions have never been able to address the question of how to bank the unbanked. Their cost structures made it impossible, until Capitec came along without any legacy issues. We're going to see a lot of smaller banks popping up. The biggest inhibitor to this is broadband access. We continue to be one of the worst countries in the world for broadband access, and unless this changes, I don't see FinTech being successful here. If, on the other hand, fibre-to-the-home filters down from affluent areas to rural and poor environments, digital banking and FinTech innovation will really take off."
Do you have any advice for aspiring FinTech entrepreneurs?
"It is good to work in large financial services businesses because it gives you a much deeper understanding of technology and finance. I've seen a lot of successful FinTech operators come out of relatively boring banking businesses and start something quite nimble and exciting. It is much easier to identify gaps and eliminate the frustrations of consumers when you've seen the market from a corporate perspective."