The barriers and enablers to effective fintech start-up collaboration with South African Banks

Abstract

South Africa faces a crisis of entrepreneurship - there are too few small businesses, and not enough skilled entrepreneurs to start more. Yet at the same time, the country has one of the best banking systems in the world. Recently, the interaction between technology entrepreneurs and the financial sector has come under the spotlight, and these two formerly isolated sectors have become the focus of much consideration in the thriving fintech space. Increasingly, financial services organisations, especially banks, and financial technology entrepreneurs, are recognising the importance of strengthening relations. This exploratory study uses findings from interviews with bank executives and fintech entrepreneurs to explore the growing role that collaboration plays. Banks employ a variety of means to drive innovation, and some of these factors affect the relationship with external collaboration partners. Similarly, fintech entrepreneurs are motivated to partner with established firms in order to bring their business to market and access the resources and funding they need to scale. This study explores the process of collaboration between fintech entrepreneurs and banks in South Africa, as a means of understanding which factors contribute to, and which undermine, the likelihood of effective collaboration. Drawing on established theory on innovation and collaboration, as well as scrutinising the entrepreneurial ecosystem that influences these collaborations, the study presents a framework for engagement between banks and fintech entrepreneurs looking at four key factors: innovation capability within banks, collaboration characteristics of fintech entrepreneurs, the modes of collaboration, and the macro-economic conditions that affect fintech ecosystems. Primary data collected from both a focus group and individual interviews was interpreted via qualitative analysis. The study found that ecosystem factors are less important than effective fintech-bank collaboration in South Africa, despite evidence to the contrary in the literature. Furthermore, the innovation dynamics within banks have a greater impact on collaboration than the behaviour of fintech entrepreneurs alone, and clear rules of engagement in cooperative arrangements between these two former foes can vastly improve success.