From ATMs to credit cards and PayPal, the West’s dominance of innovation in consumer finance appears to have exhausted itself.  

At the top of the emergent new order is the fintech duo from China — Alibaba Group Holding Ltd. and Tencent Holdings Ltd. Next in line are Alphabet Inc. and Walmart Inc., whose highly localized smartphone payment rivalry is playing out between Google Pay and PhonePe in India. In Southeast Asia, two homegrown ride-hailing giants are aspiring to dominate commerce.

But the ultimate frontier in tech-enabled consumer banking lies far from the Asian theater.

Consider this one statistic: In 13 countries, more than 10% of the population uses mobile phones for payments. All of them are in sub-Saharan Africa, where a majority of adults don’t have basic bank accounts. 

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The rise of African mobile money is associated with M-Pesa, Kenya’s digital-wallet revolution. Now traditional lenders like Standard Chartered Plc, with a presence on the continent going back more than a century, are discovering that online banking can help them mobilize low-cost current and savings accounts more profitably than acquiring customers via physical branches. 

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StanChart’s digital push, which began last year in Cote D’Ivoire, has spread to other countries including Uganda, Ghana, Kenya and Tanzania. The next stop will be Nigeria. Among the attractions of going fully online: a 15-minute client signup process that doesn’t require physical validation of people or documents. Can Hong Kong’s eight virtual banks – StanChart will be among them – similarly compress expensive and time-consuming know-your-customer processes? That’s one question analysts will ask when the lenders finally arrive next year, after a delay caused by the ongoing anti-government protests in the city. The answer would partly determine the dent online-only banks will make in the sprawling deposit franchise of HSBC Holdings Plc, Hong Kong’s undisputed banking leader.

Large as it is, Africa remains a tiny laboratory for finance. The revenue pool for the continent was $35 billion in 2017, according to McKinsey & Co, which sees it expanding to $53 billion by 2022. By contrast, HSBC’s Hong Kong operations alone garnered $18 billion last year.

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There are other distinctions, too. Hong Kong and Singapore are giving out brand new virtual banking licenses, whereas in Africa, StanChart uses its existing commercial banks to offer its SC Mobile app. Not only will virtual banks in Asia – especially those that don’t have pedigreed lenders backing them – have to win depositors’ trust from scratch, they’ll also have to find borrowers online. Big Data is supposed to make it easier to find creditworthy customers; yet that theory will be put to the test, since digital-only banks won’t have any branch managers intimately familiar with local businesses and their prospects. 

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Africa won’t be without its own peculiar challenges. The verdict will come down when StanChart begins digital-consumer lending operations there, starting with Kenya later this year. This is an area where fintech firms are growing fast, though the basic infrastructure for disciplined lending – consumer-credit registries – are underdeveloped in many parts of the continent. The sudden decision by Tala to shutter its consumer-loan operation in Tanzania has also made the industry jittery. Just last month, the California-based fintech raised new money from the likes of PayPal. Even in Kenya, where small and medium-size enterprises routinely fund themselves with working capital from fintech, onerous debt loads could become a problem.

StanChart is right to focus on deposits before it dips its toes into online lending. It’s embarrassing enough that the lender was unable to tell regulators how some of its private-banking clients amassed their wealth, as Bloomberg News reported recently. Promoting an unsustainable credit culture among poorer African customers could be a PR disaster. 

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The rewards of getting it right are high, though. HSBC, StanChart’s traditional rival, has bet big on the Beijing-sponsored Greater Bay Area, an economic powerhouse connecting the manufacturing hubs of southern China — and the gambling centers in Macau — with Hong Kong, and the financial and corporate services the city has to offer. But not only is the mainland caught up in a global trade war, its relationship with Hong Kong is also fraying. And while StanChart has its strong presence in Southeast Asia, especially Singapore, to compensate for any weakness in China and Hong Kong, HSBC is far too reliant on both. Investors took note when Beijing snubbed HSBC by excluding it from the group of banks that help set the loan prime rate, a new policy tool. 

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The Africa push may not have a direct bearing on StanChart’s digital plans in Asia, but it makes sense. Even StanChart’s rivals privately say that the specialist emerging-markets lender, which CEO Bill Winters has been trying to remake with uneven success, has a good story to tell investors. A tale from exotic Africa, no less. And that, too, when HSBC is running thin on happy news.

To contact the author of this story: Andy Mukherjee at amukherjee@bloomberg.net

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To contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

©2019 Bloomberg L.P.

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