Fintech has been disrupting the financial services industry all over the world, but it has had an especially large impact in emerging markets. In this article, we will look at the benefits and drawbacks of fintech in emerging markets, as well as how this technology is changing the financial landscape.
Fintech Opportunities in Emerging Markets
Because of the large unbanked or underbanked population, emerging markets present a significant opportunity for fintech companies. Traditional financial services are inaccessible or prohibitively expensive for large segments of the population in many emerging markets. Fintech has the potential to make financial services more affordable and accessible to these underserved markets.
Mobile payments are one of the most significant opportunities for fintech in emerging markets. Mobile payments have replaced traditional banking services as the primary method of payment in many emerging markets, with a large portion of the population having access to mobile phones but not traditional banking services.
Fintech companies can use mobile payments to provide financial services, such as loans and insurance products, to these populations.
The use of blockchain technology is another opportunity for fintech in emerging markets. Blockchain can provide a secure and transparent way to conduct financial transactions, which is especially valuable in markets where traditional financial institutions are distrusted.
Blockchain can be used by fintech companies to provide services, such as remittances and microfinance, allowing individuals and small businesses to participate in the global economy.
Finally, fintech firms can use artificial intelligence and machine learning to provide personalized financial services to emerging market customers. These technologies can analyze large amounts of data to identify trends and patterns, allowing fintech companies to offer products and services that are tailored to each individual customer's specific needs.
Emerging Market Fintech Challenges
While emerging markets offer significant opportunities for fintech, there are challenges that must be addressed to ensure long-term growth. Regulatory compliance is one of the most difficult challenges.
Many emerging markets have complex and changing regulatory environments, which can make it difficult for fintech companies to enter. To ensure that their products and services comply with local laws and regulations, fintech companies will need to collaborate closely with regulators.
Another issue that many emerging markets face is a lack of infrastructure. Many times, the infrastructure needed to support fintech services, such as reliable internet connectivity and digital identity systems, is still lacking. Fintech firms will need to collaborate with local governments and other stakeholders to build the infrastructure required to support their services.
A third issue is a lack of trust in fintech firms. Traditional financial institutions are regarded as more trustworthy than fintech firms in many emerging markets. Fintech companies will need to demonstrate their dependability and security to potential customers in order to gain their trust.
Finally, fintech firms must address the digital divide in emerging markets. While mobile phones are common in many emerging markets, significant portions of the population lack access to digital devices or are uncomfortable using them.
Fintech firms must create products and services that are accessible to these populations, such as agent networks or offline capabilities.
Fintech offers significant growth opportunities in emerging markets. Mobile payments, blockchain technology, and artificial intelligence have the potential to make financial services more affordable and accessible to underserved populations.
However, significant challenges, such as regulatory compliance, infrastructure, trust, and the digital divide, must be addressed. Fintech firms that can address these issues will be well-positioned to succeed in the rapidly evolving financial services industry in emerging markets.
These firms can use collaboration with traditional financial institutions to overcome some of the challenges in emerging markets. Traditional financial institutions have built trust and credibility with the local population in many emerging markets. Fintech companies can collaborate with these institutions to expand their reach and leverage the financial institution's existing infrastructure.
Collaboration with local startups and entrepreneurs is another possible solution. These individuals have a thorough understanding of the local market and can provide valuable insights into the local population's needs and preferences. Fintech firms can use these collaborations to create products and services that are tailored to the specific needs of the local market.
Finally, fintech firms can use education and awareness campaigns to help bridge the digital divide in emerging markets. These campaigns can assist in educating potential customers about the benefits of fintech services as well as provide them with the knowledge and skills required to access these services. Fintech firms, for example, can collaborate with local schools and community centers to provide instruction on how to use digital devices and access fintech services.
Why Fintechs are primed to eliminate financial exclusion
Fintechs have been the source of many innovations in the financial industry so it wouldn’t surprise anyone that their clever process re-engineering could very well result in the elimination of financial exclusion.
The processes and services provided by traditional retail banks aren’t known to be tailored to either the characteristics or the needs of the population in emerging markets.
As such, their face-to-face model simply doesn’t suit many of the unbanked given how expensive it is for them to visit either due to how far away they are or due to how they’re only open during working hours. On top of that, multiple visits could be required to be given to them having to undertake client evaluations, and so forth.
To further aggravate things, given that direct client engagement is directly correlated to fixed costs, banks are led to offset their operating costs through minimum balance requirements or transaction charges, something which many unbanked are simply unable to afford. This means that there might a case of unbanked simply seeing their potential benefits as being completely outweighed by the potential costs.
On the other hand, with fintech companies things work differently. Through technology, they were able to reshape the provision of financial services, namely through mobile phones.
In fact, it is estimated that two-thirds of adults who lack access to financial services have phones, meaning that it will become much easier for fintechs to enter emerging markets and proceed to effectively scale up activities.
Technology, combined with the know-how and its inherently disruptive nature, has, thus, proven to be key in fintechs’ strategy as they leverage these elements better than anyone to deliver better solutions to broader markets.
Conclusion
Fintech offers significant growth opportunities in emerging markets, but it also poses significant challenges. Regulatory compliance, infrastructure, trust, and the digital divide are all significant barriers that must be overcome in order to ensure long-term growth.
Fintech companies that can address these challenges by leveraging partnerships with traditional financial institutions, local startups and entrepreneurs, as well as education and awareness campaigns will be well-positioned to succeed in the rapidly evolving financial services industry in emerging markets.
To summarize, there are significant opportunities for fintech in emerging markets, and the challenges are not insurmountable. Fintech firms that can harness the power of technology while collaborating with local stakeholders will be well-positioned to drive financial inclusion and economic growth in emerging markets.
Fintech will continue to play a critical role in transforming the financial services industry in emerging markets and beyond as the world becomes more interconnected and digital.
