The Effect Of Fintech In Emerging Economies
While the belief that technology naturally trickles into emerging economies isn't universally accurate, the current landscape presents untapped potential. With trends like increased internet access and mobile adoption, businesses can employ innovative strategies to cater to evolving customer expectations. This offers a unique chance for a Blue Ocean leapfrogging approach, where entrepreneurs can reshape financial services and tap into previously underserved markets.
Many Westerners hold the misconception that technology "filters down" to emerging economies. This has been the case and will continue to be the case for technologies that need significant upfront expenditures, high distribution costs, and extensive networks. But the emerging markets also present a unique opportunity because they are unrestricted by current infrastructure and client expectations. Depending on what customers are now swiftly growing accustomed to (increasing internet penetration, a mobile-first strategy, and an interconnected network of agents and channels), customers may be nurtured in different ways.
As a result of what is essentially a Blue Ocean strategy for commercially based organizations realizing a new untapped market potential, this capacity to utilize leapfrog technology emerges. The 2008 financial crisis significantly damaged the reputation and credibility of larger international banks. Additionally, there are 2.5 billion individuals without access to basic financial services worldwide, 3 billion people are expected to access the internet by 2020, and the MSME market sector has an untapped income potential of $150 billion in emerging nations. The time is ideal for entrepreneurs from all backgrounds to provide new financial services to these markets because of the collapse of the titans and an underserved market.
Micro finance Opens Up a New Market
When microfinance was at its height in the middle of the 2000s, it was renowned for being both a panacea for poverty and a fantastic means of making money. In actuality, it was neither nor both. In actuality, it represented the beginning of a social need as well as a huge business potential at the point where the two met. Costs were one area where microfinance suffered. Surprisingly, handing out loans for a few hundred dollars isn't a lot less expensive than giving out loans for a few thousand. Additionally, expenses skyrocketed in nations with minimal consumer identification, credit bureaus, payment channels, and internet connection. They were innovators who frequently conflated financial and social impact ambitions. But this sector of the economy is currently being caught off guard by technological advancements and new competitors that can tap into unheard-of market scale.
Origins of Innovation
Then what are these advances, and why are new commercial possibilities being created by them? The structure of a financial organization, the tasks that it assigns to people and to technology, and how well the two interact is at the heart of the problem.
A western company with an online-only concentration, such as ING Direct or the My Community Bank in the UK, obviously wants to leave as little of a physical and human trace as possible. Everything is done on a computer. Online loan applications, integration of credit bureau data, digital signatures in place of paper signatures, email and text messages in place of phone calls and faxes, and direct debit in place of checks and cash are some examples. However, these organizations must put up a strong struggle if they want to seize market share from their banked clients. The opportunity is now for similar innovation to occur in developing economies and spread to the untapped market of unprofitable people and small companies.
Leapfrogging
Why then is everything now possible? The easy response is money. It took a substantial investment to launch a financially sophisticated technological company. Spending $1,000,000 on core banking software On servers, a few hundred thousand. And of course, a group of professionals to oversee and maintain everything. For instance, the World Bank invested $300M on a core banking project in Mexico to convert the technology of a few tiny microbanks into a "modern" banking system, 75% of which was spent on technology. Additionally, there aren't many resources or willpower available to truly innovate because it took so much time and money to build a solid foundation.
They set themselves up to expand along with the market. They are aware that everyone in developing nations will soon have access to inexpensive cell phones. They are cognizant of the impending ubiquity of mobile and internet connectivity. They also understand that their clients won't tolerate paying interest rates of 100% or higher for subpar services. Their brand, business practices, offerings, and pricing have all been designed with a developing market in mind from the outset. And when, from a western viewpoint, the emerging market is "the rest of the globe," there is significant potential.
What Does This Mean for the Future:
The microfinance sector's evolution underscores the power of technological disruption. Western online-centric models provide a blueprint for reshaping banking through digitization. This blueprint can be leveraged in emerging economies, capitalizing on accessible technology and unmet market needs. Entrepreneurs now have an unprecedented opportunity to redefine financial services, reaching the masses and reshaping the global financial landscape in the process.