"Silicon Valley is not a single corporation; rather, it is an ecosystem consisting of a range of players that provide value to one another." Ernest Kayinamura, chairman of the Rwanda ICT Chamber, commented at the regulatory awareness for fintechs event, hosted by Rwanda financial services, information technology regulators and aimed to provide more light on the overall regulatory environment of fintechs in Rwanda.
What Mr. Ernest was arguing here is that the success of the fintech industry in Rwanda is contingent on the efforts of every fintech industry player and collaboration among all industry actors, from industry regulators to incumbent banks to a codes-playing vicenarian at Norrsken Kigali House attempting to develop a solution that they believe will revolutionize the financial industry.
The term business ecosystem was first introduced by James Moore, to make the point that to understand the success of a company that is focused on innovation, you need to look at how this term relates to other companies in the production of innovation in the same industry.
Moore said that innovative business cannot evolve in a vacuum. It must attract resources of all sorts drawing on capital, partners, suppliers, and customers to create co-operative networks. Therefore, companies that compete on digital innovations in the industry, can also be said to exist in ecosystems. An ecosystem analysis, focuses on the companies, organizations or factors that are directly or indirectly affecting the company.
One concrete example that most of us are familiar with is Apple and the IOS ecosystem. IOS is the operating system that powers the iPhone, iPad, and iTV, among others. When you use your iPhone, you are interacting with something co-produced by an ecosystem of players, component makers, software companies, app developers, and content creators, etc. In Apple's ecosystem, there are numerous clusters of firms or functional groupings with comparable relationships to Apple.
When discussing ecosystems, one must always consider dependent system issues. The idea here is that the new innovations that will be launched in the next iPhone are dependent not only on what Apple does to innovate, but also on what its partners do.
Touch ID, for instance, was only possible because ARM, the firm that creates the iPhone's chipset, invented the Trust Sewn technology to securely store the fingerprint on the chip. Apple uses the NFC standard for wireless contact with payment terminals for Apple Pay. Without NFC or the terminal companies, Apple Pay cannot be used anywhere.
How do we then apply this to the financial sector? To easily comprehend this, let's examine the fintech ecosystem of Citibank, a multinational consumer-oriented bank. Citi has launched the CitiPay for Android, a digital wallet that includes the possibility to install mobile payment systems.
Citi also enables the customers to use Android Pay in certain countries and Samsung Pay in others. But for now let us focus on CitiPay and see how that works. I'm going to focus here on the dependencies and how they are part of an effective ecosystem.
CitiPay enables MasterCard's MasterPass service to accept mobile payments in-store. MasterPass works because it can connect the entire NFC protocol to Fin.X, a mobile payments solution developed by mFoundry. Fin.X is accessible to over 850 banks and merchants. The fact that these companies utilize and enable MasterPass makes the technology more widely accepted.
FIS, a prominent provider of general payment technology, owns MFoundry. . As can be seen, these businesses are interdependent. How well mFoundry and FIS develop their technologies will also affect the growth of CitiPay and vice versa. CitiPay can also be used for purchases made online. Then CitiPay is leveraging the mobile network to integrate MasterPass because of MasterPass' online reach.
We may continue to investigate the technological methods utilized by mFoundry, FIS, and MasterCard, and we could add similar analysts for Android Pay and Samsung Pay. We could also conduct a similar study for all Citi bank products and determine that the interbank transfers, ATMs, and credit cards, among others, are the result of equally sophisticated partnerships in the ecosystem.
But let us pause here and ask, why does this matter? These relationships are important since they are crucial to the success of Citibank. CitiPay would ride the success wave if MasterPass becomes a global success and conquers the world. The success of MasterPass depends on mFoundry and FIS. CitiPay would likewise vanish if MasterPass fails to become successful. MasterPass' success is contingent upon the performance of all ecosystem participants.
In Rwanda’s small fintech ecosystem, according to data from the government's fintech strategic plan, there is a lack of collaboration among the ecosystem participants, where competition is more visible and highlighted by the government as one of the most lethal challenges the ecosystem currently faces.
The incumbent sub-sectors, such as brick-and-mortar banks, continue to view other innovators in the financial industry primarily as rivals, rather than as potential partners. As a result, we observe an unhealthy hyper-competitive environment in which everyone is hyper-focused on self-disruption rather than collaboration. This is harmful for small companies and innovators and economies such as ours, as competition kills the finest ideas that cannot flourish without ecosystem support. Who triumphs? None! This is a race to the bottom.
To exemplify this, Rwandan banks are still reluctant to adopt open API (public API) policies, which would enable external/third-party developers to easily access unique software programming capabilities and offer innovative solutions for the industry. Some of the individuals with whom I discussed this, believed that this is due to the lack of regulatory acts concerning open banking in Rwanda, while others cited security risks and the absence of an adequate business model to monetize it. If evaluated at the level of the ecosystem on a collaborative basis, these reasons may be more or less concerning.
Similarly, hackathon projects are uncommon in the industry. There are also no incubators and accelerators with enough funding dedicated to financial technology solutions.
Why do these initiatives remain rare? Costs, the lack of strong ideas worth support on the market, the size of our market, you’re likely not to make return on that investment, the availability of cheaper ready-to-use technologies that we can import, and if our industry peers can innovate, we can innovate too internally- these are some of the responses to this issue I received from some of the industry players, and sadly no one is taking an ecosystem perspective.
They need to also understand that sacrifices are necessary to create a thriving ecosystem. Silicon Valley loses billions of dollars to create new innovations, the kind of PayPal. If the innovation succeeds, the entire ecosystem benefits and that’s why we know Silicon Valley the way we know it.
The Rwandan Fintech ecosystem should not consist of predators and prey. Together, industry participants must build a fintech ecosystem that creates an enabling environment for innovators and empowers individuals and communities to advance innovation and financial inclusion.
The views expressed in this article are of the author.
The author is a fintech enthusiast and corporate and commercial lawyer at ENSafrica Rwanda.
Email; fcuicredidi@ensafrica.com