How Will Fintech Impact Emerging Markets?
Many countries in emerging markets have long had limited access to basic financial services such as a bank or a savings account. A lack of financial services such as these is a key reason why countries in emerging markets have long recorded limited business and economic growth. But could FinTech be the catalyst in changing this?
Innovations in the FinTech space could see services such as mobile payments, online banking, and alternative lending platforms become more prevalent, and could be key in not only helping to make financial services more easily accessible to the unbanked and underserved populations but also stimulate economic growth.
The Current Financial Landscape in Emerging Markets
As of 2020, the financial infrastructure in emerging markets is still relatively poor. The majority of the 2 billion adults globally who still do not have a bank account, live in emerging markets. And with many traditional banks reluctant to engage with less wealthy individuals and small enterprises, many still have no access to financial services. Often, even those that are fortunate enough to have access to banking systems still use inflexible and expensive services.
The Potential Impact FinTech Could Have
Given that the number of people using traditional banking and insurance services is so low, it presents a ripe opportunity for FinTech. When you also factor in that the growth of mobile phones usage is faster in emerging markets than in developed markets, it seems that FinTech could be the perfect solution to help bring financial inclusivity.
According to the McKinsey Global Institute, this financial inclusion could help increase the GDP of all emerging economies by 6%, or $3.7 trillion, by 2025, and lead to the creation of 95 million jobs. FinTech businesses who are able to provide access to payment platforms and services could play a key in part in helping to reduce inequality and alleviate poverty.
FinTech businesses such as Jumo and Kuda are two good examples of FinTechs who have been able to serve those who have been excluded from accessing financing or were underserved by traditional banking companies.
The Benefit for FinTech Businesses
Being able to capture an unmet demand and fill in the gaps in the financial system, could also prove extremely lucrative for FinTechs. Ernst & Young estimates that banking for these individuals could generate $200 billion in revenue.
It also doesn’t cost much for FinTechs to manage underserved segments of the population. As technology is heavily used in serving customers financial needs, ongoing and variable costs tend to be quite low, which makes it possible for FinTechs to still generate profit from less affluent customers.
Room for Growth
While FinTech will certainly have a global impact, the potential impact on emerging markets could be significant. Demand for easier access to financial services in emerging markets is continually growing, and the businesses that can serve the most unbanked regions would not only be solving a huge problem in making financial services more accessible but would also help in improving its bottom line.