TBY’s fintech interviewees shed light on some of the successes and failures for alternative financial technologies over the past 12 months.
A UBS employee works in the UBS “fintech lab” at Canary Wharf in London, Britain. REUTERS/Hannah McKay
In 2017 TBY conducted over 2,000 interviews in more than 30 emerging markets worldwide. Many of our interviewees in the finance and IT sectors spoke to us about the impact of fintech on their businesses. Here are some of the key trends we have noticed:
1. Cash is still priceless
In 2016 and the beginning of 2017 many top financial institutions were predicting the arrival of the so-called cashless economy. In systems where card culture is long established, this might well be applicable.
But in developing markets, where many people remain unbanked, the numbers tell a different story.
Despite over 50% of our interviewees noting a shift towards mobile money and cash-lite solutions, common consensus is that the end-user, who is arguably driving fintech trends in all of these markets, remains heavily invested in a cash-based economy.
Industry experts suggest two reasons for which non-cash solutions might stay second choice: the enduring popularity of cash in the informal economy, and the fact that traditional payment methods are better supported.
Though many emerging market governments are prioritizing cashless drives in order to improve efficiency and transparency, cash is going nowhere until the informal market is fully digitalized.
2. Cooperate or die
Our statistics show that most fintechs, banks, financial service providers, and telcos have realized they can only remain competitive through innovation.
In 2018, this means cooperation.
Due to the rapid increase of cellphone usage in urban and rural areas, telcos in particular are finding themselves in an increasingly privileged position.
They now have access not just to many more online customers than ever before, but also, more importantly, access to those customers’ data. Unsurprisingly, mobile network operators (MNOs) are some of the most popular players at the fintech party.
More broadly speaking though, over three-quarters of our fintech interviewees stressed their plans for 2018 involved increased co-operation with other entities working in similar fields.
Within this, the most common kind of cooperation included mutual client sharing, although mutual expertise sharing, financing, and purchasing of fintechs by banks, as well as outsourcing of services and data analysis from banks to fintechs also ranked highly.
3. It’s a numbers game
While previous financial service providers may have concentrated on high-net worth individuals, or corporates, fintechs in emerging markets have fewer overheads, meaning they can cater to more low-net worth individuals.
For many incumbents, collecting a dollar a day from millions of loan subscribers has not been a feasible option. However, hundreds of fintechs have in-built systems designed to collect daily micropayments for equipment leasings, savings, pensions, and insurance.
Moreover, if they can achieve interoperability between merchants—which many fintechs are now setting out to do—financial services providers can reach out to all online low-net worth individuals, regardless of their MNO.
As we mentioned above, the data gathered from these individuals via their internet providers is also becoming a vital tool for fintechs and incumbents alike who are looking to expand their reach in the market, or offer products better suited and more attractive to these individuals.
4. Governments are driving fintech…
From the Cash-less Nigeria project, to Dubai’s Blockchain Strategy, governments across the world are shaping up policies to support their own respective fintech ambitions.
Governments are adopting different methods to grow these ecosystems. Some countries, like India, are looking to promote the digitized transaction industry by implementing legislation that penalizes cash and check payments.
In addition, the majority are implementing e-government strategies, directly supporting the industry themselves through a subsequent need to partner with fintechs and govtechs. State-funded and supported accelerators and incubators, such as Abu Dhabi’s RegLab, or Malaysia’s Digital Hub, have enabled hundreds of promising young fintech startups to rise to success.
Obviously this approach is paying off, as over 70% of our interviewees said they were satisfied with the level of government support the industry was receiving.
5. …but regulators lag behind
However, the same interviewees were less convinced by the approach of regulators.
Understandably, many central banks and other regulators are cautious about overhauling entire systems. They also have the demands of corporates and existing banks to reckon with. But because of this, regulators have been criticized for lagging behind.
On this front, opinion is divided: around half of our interviewees were positive that continued dialog between fintechs and their regulators was helping the latter understand first, and act later—a unique setup allowing developing market regulators to avoid the same pitfalls as their counterparts in more developed markets.
On the other hand, the other 50% of our interviewees feel this approach is too slow. In Mexico for instance, the regulator is still putting the finishing touches to its “ley fintech,” which has been several years in the making.
Once complete, the law will regulate financial technologies such as virtual currencies and crowdfunding.
2018 may well see the resolution to some of these issues—at least, many of our interviewees are hoping so—but the pace of change will certainly not slow in the coming year.
