How are FinTech startups thriving in emerging markets

Financial technology (FinTech) is proven to be a fruitful ground for disrupting the financial services industry in Emerging Markets (EM). Mobile payments, online banking, and alternative lending platforms all disrupt the status quo by employing technology to extend financial services to previously unbanked and disadvantaged groups, as well as provide competition to incumbent service providers (https://www.globalxetfs.com/leading-companies-fintech/ ). Fintech startups all around the world had many investors interested in startup funding, which was another factor in their ability to thrive in this industry. According to the BCG data, the FinTech startups resulted in a number that tripled in the previous two years, going from more than 12,200 in 2019 to 26,000 in 2021.?

When considering the demographics driving the rise of the EM, approximately 40% of the world's population is responsible for the global economy. The faster-growing economies of EMs, however, boosted their market share by about 10% over the past ten years as they switched from export-driven to more consumer-driven growth methods. Additionally, it is predicted that total global consumption would double from 2013 levels to $62 trillion by 2025, with EMs accounting for half of this rise (https://www.mckinsey.com/business-functions/operations/our-insights/global-growth-local-roots-the-shift-toward-emerging-markets ).?

Thus, there comes the question, how are FinTech startups thriving in EMs?

Individuals and small enterprises in emerging nations have historically had limited access to basic financial services, with banks primarily providing services to the country's wealthiest citizens. As a result, many people had to rely significantly on cash transactions, which are vulnerable to fraud and theft, and access to loans was limited. However, digital services are being expanded swiftly and inexpensively to hundreds of millions of people in the developing world because of new technologies that harness software and mobile connectivity. The broad adoption of these services is likely to promote consumerism, technical leapfrogging, and more effective government policies in developing countries, accelerating growth.

Providing financial services to the EM consumers

FinTech are highly effective in EMs because they can fill gaps created by traditional institutions in the financial system for banking services and financial products. Around 2 billion adults worldwide did not have access to financial services in 2017. However, the demand for such products has increased in EMs like China, where life insurance premiums increased from 1% in 2010 to 10% in 2017. In addition, there is a prediction that banking these people in EMs alone could generate $200 billion in revenue, even if the percentage of unbanked or uninsured people varies from country to country.?

As it is?now much cheaper to reach smaller or underserved portions of the population who would have previously been thought of as "unattractive" customers, financial inclusion becomes a far more realistic goal. FinTech platforms typically incur upfront costs for creating the infrastructure and software needed to process transactions. However, by extensively depending on technology, recurring and variable costs frequently tend to be fairly low, making it possible to make a profit on a microloan or even?a bank account with few assets.

EMs adopting the new technologies introduced by FinTech?

Although there is typically less Internet access in EMs, these markets exhibit a remarkable openness to adopting new technology, such as FinTech. For instance, China spent nearly 8 times as much on digital purchases as the US did in 2017. Internet use is less common in developing nations than in EMs, but these countries have huge potential due to their large populations and strong eagerness to accept new technology. Furthermore, mobile phone usage has increased dramatically in China over the previous ten years, with smartphone ownership rising from 56% in 2011 to 96% in 2018. For comparison, 96% of Americans use mobile phones, but 81% of them use smartphones (https://www.pewresearch.org/internet/fact-sheet/mobile/ ).?

FinTech being embraced by EM tech companies

Many of the major tech companies in EMs are welcoming fintech with open arms. To better serve their consumers, even conventional banks in EMs are implementing fintech technologies. The possibility of FinTech is being recognized by some of the biggest tech corporations in emerging nations, and they are investing heavily in the sector. Nearly 20% of the 2,693 FinTech deals concluded globally in 2019 were in the Asia Pacific (APAC) region as major tech platforms sought to integrate FinTech services into their ecosystems (https://www.wsj.com/articles/how-chinas-tencent-uses-deals-to-crowd-out-tech-rivals-1526392800?mod=article_inline). Furthermore, another significant sector of investment is in Digital banking, which allows for online bank accounts, transactions, and loans without the need for a physical branch location. Due to the massive unbanked populations, dysfunctional banking institutions, and general lack of financial infrastructure, EMs are particularly susceptible to these themes.

Fintech adoption to be encouraged by EM governmental policies

Moreover, many governments in emerging markets are recognizing the value of fintech and are developing regulations to support its uptake and development in their countries. Some EM governments are nurturing their own start-up centers or clusters to support domestic FinTech initiatives. Programs for public-private partnerships (PPPs) like Start-Up Chile, Start-Up Brazil, and Incubi (Argentina) give entrepreneurs equity-free investment, mentoring, and partnering opportunities, as well as unique visa options for foreigners. These programs are a relatively simple way for governments to promote innovation by keeping entry barriers low. To drive innovation, other policies reduce regulations. For instance, the sandbox approach enables the testing of novel goods, services, and business models under less restrictive regulatory environments with the necessary safeguards and oversight needs. While regulators monitor the effects and iteratively learn, these adaptable frameworks allow both established players and startups to innovate outside of the current regulatory framework.

While FinTech is thriving in EMs, who are the emerging market leaders??

Local businesses that transitioned from startups to unicorns before becoming multibillion-dollar tech giants include several well-known EM FinTech. These businesses frequently see unfulfilled demand or aim to sabotage a domestic financial services sector that is anti-competitive or inefficient. FinTech companies from mature countries that have software or infrastructure that may be modified for use in regional EMs are additional significant players. Two major players can be mentioned below:?

• Pag Seguro: One of the biggest FinTech companies in Brazil, supporting a rapidly expanding global e-commerce market by offering the necessary payment infrastructure.
• Fiserv: A company that expanded to Latin America 10 years ago. Has been digitalizing and optimizing financial services while improving customer service.

In conclusion, FinTech can be considered a disruptive trend that is upending how money is transferred. For people, it can eliminate obstacles and lower the price of paying for services, saving money, and investing. It can digitalize some company processes, lower borrowing costs, and improve risk management.?