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FinTech (short for Financial Technology) can be characterized as the movement to bring transformative and disruptive innovation to financial services through the application of new and emerging technologies which address consumer needs through automation. Due to factors including consolidation in the financial services industry and regulatory constraints, financial services firms may find themselves constrained from being able to focus their energies on innovation initiatives.
FinTech startups have the advantage of not being encumbered by legacy systems and processes. As a result, FinTech firms are generally able to move faster and develop solutions that compete directly with traditional methods of delivering financial services. With customer acquisition costs high, and regulatory hurdles to overcome, financial services firms are faced with a choice whether to build their own capabilities or seek out FinTech partners to help drive innovation initiatives.
This opening has provided an opportunity for FinTech firms to provide new applications either directly to customers, or in partnership with large financial services institutions. Large institutions must consider how they can move quickly to address consumer needs in an industry on the cusp of change, either through partnerships, acquisition, or internal initiatives. Most firms are taking a hybrid approach.
Because financial services are very important and delicate part of any economy, there have been stiff regulations and high entry barriers into the fintech space, which necessitated the introduction of a sandbox for developers and non-developers alike to test run their ideas.
In order to support fintech entrants who have innovative ideas in financial services, with information and resources to start, succeed, and scale their businesses, the Financial Services Innovators (FSI) has been at the forefront of transforming these ideas to reality through the effective application of the industry innovation sandbox.
Sandbox is a controlled environment for experimentation without public judgment. Scalable financial services innovation needs such safe spaces. A typical fintech sandbox is a virtual web-based platform for developers to test product ideas and get a sense of usability.
Ecobank, the pan-African bank with branches in 33 countries, launched a banking sandbox in January to give banks and fintechs access to its APIs. Five African fintechs including Flutterwave and Africa’s Talking, the Kenya-based payments infrastructure builder, were invited to participate in the sandbox’s pilot launch.
But sandboxes should not be for companies alone. Individuals prospecting for ideas or already in the building process should have access to tools with which to fix bugs and collaborate with established institutions.
The Financial Services Innovators (FSI) is on a mission of bringing to the market the latest technologies that will transform financial services through one such industry innovation sandbox. Launched in December 2019, it became the first platform to host multiple APIs from a variety of African financial institutions.
Aituaz Kola-Oladejo, FSI’s Executive Director, says the beauty of the sandbox is the central view it gives a user of the nuts and bolts of innovation happening in African fintech.
The FSI’s sandbox hosts APIs from the Nigeria Inter-Bank Settlement Scheme (NIBSS), and commercial banks like Sterling, Union, Fidelity and Stanbic. APIs for voice, SMS and USSD integrations from Africa’s Talking are in the mix, as well as features from Reliance HMO, a Lagos-based health insurance company.
The aim, Kola-Oladejo says, is to spur incremental and disruptive innovation in banking, insurance, capital markets, pensions and other aspects of finance.
Through the industry sandbox, the FSI also helps Fintechs get the best solutions in front of the financial institution partners, to explore opportunities for partnership, proof of concept engagements, as well as investment opportunities.
The FSI’s sandbox doesn’t set criteria for what counts as an innovation. One micro-loan product may have been tested and launched within the environment by other players. But anybody can access the sandbox to, in a manner of speaking, reinvent the wheel.
“There are no limitations. 1,000 people can test their micro-loan ideas,” Kola-Oladejo says.
“You won’t know what the other person is testing because you don’t know how many APIs he will need to consume to develop his own product.”
In other words, the sandbox is a discrete playground where one developer cannot know what sand type another is moulding with.
The FSI is equally seeking new partner institutions to further enhance the number of API feeds on its sandbox, with international companies like SWIFT and Mastercard on the radar.
“We want to see these innovations scale and gain market adoption with the help of industry players,” says Kola-Oladejo.
Using APIs and dummy data from partner institutions (including three BVN-related APIs from NIBSS), the FSI sandbox simulates real life conditions. This gives developers a controlled environment for prototyping.
After exiting the sandbox, a developer could go on to conduct live tests within the environments of specific institutions who, if things go well, can choose to collaborate with them. A benefit of testing on FSI’s playground is receiving a recommendation to the CBN.
The sandbox’s discrete architecture assures innovators of protections for proprietary products, Kola-Oladejo says. Every innovator has an access code and only FSI is privy to what any individual innovator is building.
Towards the end of 2020, FSI plans to have an app store of sorts on the sandbox, incentivizing innovators to publish their work for visibility to regulators, investors and recruiters.
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