Potential Of Fintech In Emerging Markets
Fintech in emerging markets is affecting the financial services industry. This article takes a look at the pros and cons of fintech in these areas, with an emphasis on how it could change the financial scene.
Author:Stefano MclaughlinReviewer:Luqman JacksonJan 14, 202414.5K Shares197K Views
Fintech in emerging marketsis affecting the financial services industry. This article takes a look at the pros and cons of fintech in these areas, with an emphasis on how it could change the financial scene.
Particularly in developing nations with higher levels of financial inequality, fintech has helped increase access to the financial system. The bulk of the world's 2 billion adults who do not have bank accounts are located in developing nations.
Fintech has changed the way banks operate in developed countries like the UK, but there is a huge untapped market in emerging economies where fintech companies can really shine. Learn about the big picture of how fintech is changing developing economies in this article.
Why Emerging Markets Need Fintechs
The fact that most of the unbanked people in developing economies are seasonal workers or self-employed exacerbates a huge problem: there are 2 billion people in the world who operate in the informal sector.
That includes people like those who sell goods on the street or who work in the tourist sector. Those in the underbanked population are not well served by the conventional banking model since its procedures and structures do not meet their needs.
The ability to open an account or get a loan from a traditional bank is contingent upon having a steady source of income. However, basic banking services are out of reach for many of the unbanked since their income is volatile due to seasonal employment or self-employment.
On top of that, most brick-and-mortar banks in emerging nations are still using an outdated strategy that requires prospective new clients to physically visit their locations in order to create accounts or have access to services.
Many people do not have bank accounts because they do not have access to traditional banking services, especially in rural locations where the closest bank might be thousands of miles away.
Many people in the informal economy operate as stand-alone contractors, such as tailors or fruit vendors, and do not keep records of their financial dealings.
Businesses have challenges when trying to secure loans or money for expansion due to the stringent requirements imposed by banks regarding credit references and financial records.
Most people in developing countries also don't have physical assets that may be used as security for loans from more established financial institutions.
Fintech Opportunities In Emerging Markets
Fintech businesses have a lot to gain from emerging economies due to the large population that does not have bank accounts or is only partially banked. Many people in developing economies cannot afford or cannot access traditional banking services. These neglected areas may soon be able to afford and gain access to banking services, thanks to fintech.
Among the many promising areas for financial technology in developing economies is the rise of mobile payment systems. Because many people in developing countries have access to mobile phones but not to bank accounts, mobile payments have largely supplanted traditional banking services as the principal means of payment in these areas.
Financial technology firms may reach these communities by offering loans and insurance through mobile payment systems.
Fintech also has a chance to shine in developing economies through blockchain technology. Financial transactions may be made more safe and transparent with blockchain technology. This is particularly useful in places where people have a negative impression of traditional banks.
Financial technology firms may leverage blockchain technology to offer services like microfinance and remittances, which enable people and small enterprises to engage in the global economy.
Lastly, fintech companies may offer customized financial services to clients in developing markets by utilizing AI and ML. With the help of these technologies, fintech businesses can sift through mountains of data in search of patterns and trends, enabling them to provide individualized services and solutions.
Fintech In Emerging Market Challenges
Several obstacles stand in the way of long-term growth for fintech companies operating in emerging markets. A major obstacle for fintech companies is staying in compliance with regulations, which can be complicated and ever-changing in many markets.
Fintech companies should work closely with authorities to make sure they follow all the rules and regulations in their respective jurisdictions. Many developing markets require assistance from local governments and other stakeholders due to a lack of infrastructure, including dependable internet access and digital identification systems.
Financial technology companies must also work to bridge the digital gap in these regions. Despite the prevalence of mobile phones, many people still do not have access to or feel comfortable using digital devices. Fintech companies can help close this gap by developing more user-friendly products and services, like offline capabilities or agent networks.
Emerging markets may present growth opportunities for fintech companies, but these companies still face formidable obstacles, including the digital divide, trust, infrastructure, and regulatory compliance.
Fintech firms can increase their reach and make better use of existing infrastructure by partnering with local startups, entrepreneurs, and traditional financial institutions.
Also, financial technology companies can help close the digital gap in developing countries by spreading the word about the many ways fintech can improve people's lives and giving them the tools they need to take advantage of these opportunities.
For instance, financial technology companies can team up with neighborhood centers and schools to teach people how to use computers and other digital tools, as well as how to use fintech services.
How Fintechs Solve The Challenges Of Financial Exclusion
Fintech companies have skillfully woven innovation into the very fabric of traditional finance services, seamlessly addressing an array of challenges faced by both the supply and demand sides in the financial landscape.
A pivotal obstacle tackled by Fintech services revolves around the substantial costs associated with traditional banking. For 25% of individuals without a bank account, the prohibitively expensive transaction costs of banking act as a significant deterrent.
Fintech disrupts this norm by reducing both marginal and fixed costs. The elimination of the need for brick-and-mortar locations allows banks to slash consumer banking costs, making financial services more accessible.
Moreover, Fintechs adeptly confront the hurdle of insufficient documentation or historical financial reports. By leveraging digital transaction data and exploring alternative sources like social media, Fintech companies gain insights into a customer's creditworthiness and financial history. This innovative approach ensures a more comprehensive understanding of clients, especially those lacking traditional financial records.
A staggering statistic reveals that two-thirds of adults without access to financial services do possess a mobile phone. Recognizing this, Fintechs strategically leverage mobile phones as the primary tool to deliver their services.
This mobile-centric approach not only aligns with the technological preferences of the underserved population but also accelerates financial inclusion in emerging markets at a pace far surpassing that of traditional banks.
Fintech To Eliminate Financial Exclusion
Fintechs have revolutionized the financial industry with their numerous innovations. It's not surprising that their smart process re-engineering has the potential to eradicate financial exclusion.
Traditional retail banks aren't recognized for providing services and processes that are specific to the requirements of people in developing economies.
Consequently, many people without bank accounts find that their face-to-face approach isn't practical because of the high cost of transportation or the limited availability of their services outside of normal business hours. Furthermore, they may need to do customer assessments on more than one occasion, and so on.
Banks have to offset their operational expenses with minimum balance requirements or transaction fees, which many unbanked people can't pay because direct customer involvement is directly connected to fixed costs. Therefore, it's possible that the unbanked view the costs of banking as substantially higher than the advantages.
When it comes to fintech enterprises, though, the rules are different. Their technological advancements allowed them to revolutionize the way financial services, especially through mobile phones, are provided.
Estimates show that 61% of persons without access to financial services also own a phone; this bodes well for fintechs looking to expand into new areas and scale up their operations.
Thus, fintechs' approach relies heavily on technology, expertise, and the disruptive potential of this technology to outperform their competitors and reach more customers with superior solutions.
Fintech's Impact On Developing Economies
As fintech has grown in popularity, it has undeniably opened doors for people who were previously unable to access traditional banking services. Developing nations are a prime example of this since they face extreme financial inequality that calls for new solutions and increased foreign investment.
In addition to facilitating consumer access to financial services, cellphones present developing nations with exciting new avenues for foreign direct investment.
Not only do they make it easier for people to send money back to loved ones overseas, but they also open doors to new markets and development aid channels. Senders from other countries often utilize their services to help recipients pay for basic necessities like housing, food, and medical care back home.
To sum up, fintech has been essential in helping emerging nations alleviate financial inequality. The underprivileged have gained access to financial services, people have gained agency, and investment and economic opportunities have opened up.
Growing fintech in emerging nations is being propelled by local innovation and strategic collaborations, so there is hope for the future despite the hurdles. The worldwide future of financial technology is going to be heavily influenced by developing economies, which are changing the economic landscape.
Cultural Factors Affecting Fintech Adoption
To overcome obstacles like high transaction costs, a lack of necessary paperwork, and the need to track customers' financial histories, fintech companies have effectively integrated innovation into conventional financial services. Through the reduction of these costs, fintech services enhance client understanding and make financial services more accessible.
Since 63% of adults who do not have access to traditional banking services also own a mobile phone, fintechs are increasingly making use of this platform. Accelerating financial inclusion in developing markets, this mobile-centric strategy reflects the preferences of the underprivileged population in terms of technology.
Strong regulations that promote safe and effective services are difficult for developing nations to establish. A lack of consistency and clarity in Africa's financial regulations, for instance, makes it difficult for fintech businesses to expand quickly. If remittance companies don't earn their customers' trust, it will hurt their chances of getting people to use digital financial services.
There has been a "double jump" to mobile payments among consumers in Sub-Saharan Africa, thanks to the region's fast-developing fintech industry.
Brazil is home to six of the most popular mobile banking apps globally, indicating a surge in the country's involvement in the financial technology industry. Changes in emerging markets may shake up the financial technology industry and the global economic system as a whole.
FAQs - Fintech In Emerging Markets
How Does Fintech Contribute To Financial Inclusion In Emerging Markets?
Fintech plays a crucial role in promoting financial inclusion in emerging markets by leveraging innovative technologies to reach underserved populations, providing them with access to a variety of financial services.
What Challenges Does Fintech Address In Emerging Markets?
Fintech addresses challenges such as limited access to traditional banking, high transaction costs, and insufficient documentation by introducing digital solutions and alternative data sources to cater to the unique needs of individuals in emerging markets.
Can Fintech Help Reduce The Costs Of Banking For Consumers In Emerging Markets?
Yes, Fintech can significantly lower the costs of banking in emerging markets by eliminating the need for physical infrastructure, allowing for more cost-effective financial services delivery.
How Does Fintech Assess Creditworthiness In Regions With Limited Financial History?
Fintech companies leverage digital transaction data and alternative sources, such as social media, to assess the creditworthiness of individuals in regions with limited traditional financial history, ensuring a more comprehensive understanding of their financial capabilities.
Why Is A Mobile-centric Approach Crucial For Fintech Success In Emerging Markets?
A mobile-centric approach is vital for Fintech success in emerging markets because a substantial percentage of the population in these regions has access to mobile phones. Utilizing mobile technology allows Fintech to offer services that align with the technological preferences of the underserved population, fostering greater financial inclusion.
Final Thoughts
Fintech in emerging marketshas a lot of potential for growth, but there are also a lot of obstacles, including issues with technological infrastructure, trust, and regulation.
Fintech companies can gain an advantage in the long run if they work together with more conventional banks, local startups, entrepreneurs, and educational initiatives to remove these obstacles.
Using technology and partnerships with local stakeholders, fintech companies can propel economic growth and financial inclusion in these areas.
Regardless of where you are in the globe, fintech has already begun to revolutionize the financial services industry. It will only accelerate this trend in the future.
It has encouraged investment and prosperity while lowering income disparities and giving people more control over their own lives.
Local innovation and strategic partnerships are fueling fintech growth in developing economies, so there is hope for the future despite various challenges. When it comes to the global future of fintech, emerging markets will be pivotal players.
Jump to
Why Emerging Markets Need Fintechs
Fintech Opportunities In Emerging Markets
Fintech In Emerging Market Challenges
How Fintechs Solve The Challenges Of Financial Exclusion
Fintech To Eliminate Financial Exclusion
Fintech's Impact On Developing Economies
Cultural Factors Affecting Fintech Adoption
FAQs - Fintech In Emerging Markets
Final Thoughts
Stefano Mclaughlin
Author
Luqman Jackson
Reviewer
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