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The 5 big fintech trends in emerging markets
Fintech is not just about making it easier to buy a mocha latte. In the developing world, it is also about offering financial services to millions of people who have never had a bank account before. Financial inclusion is a big theme in fintech. A recent report by the World Bank claims 700 million adults became account holders for the first time between 2011 and 2014. But there were still around 2 billion left behind in 2015. This is why, in 2016, the biggest growth area for fintech will be emerging economies.
Here are the five major trends to watch out for:
1. Digital banking and payroll
Most internet users in developing countries owned a smartphone before they ever owned a PC. Similarly, many are starting to use mobile banking alternatives without ever holding a bank account. The earliest example of a company taking advantage of this is M-Pesa, a mobile phone-based money transfer and financing service launched in Africa in 2007 by Vodafone. More recently, London-based startup DoPay has started offering a mobile payroll service for the unbanked in India, the Middle East, and parts of Africa. The cloud-based service lets employers electronically remit salaries to their staff’s DoPay account, which comes with a debit card.
2. Payments and remittances
China is one of the more advanced emerging markets when it comes to P2P payments and remittances, with players like Alibaba’s Alipay and WeChat Payments dominating the market. Similarly, in India, companies like Mswipe have focused on offering a POS solution to small business owners, similar to Square in the U.S. There are also fintech startups meeting a demand for alternatives to traditional remittance services like Western Union. The World Bank estimates that Indians sent $72 billion home from overseas in 2015. China comes in second with $64 billion in remittances, while the Philippine diaspora sent home $30 billion.
Digital currencies like Bitcoin have been blazing a trail in emerging economies for over a year now. However, given the volatility of bitcoin, it’s real value in the short term is as an instrument for payments and money transfer. For example, Hong Kong-based startup BitSpark has built a bitcoin-based platform to process Asia remittances at a discount. Similarly, there is Bitpesa, a remittance startup which serves the UK’s African diaspora. Meanwhile, in Latin America companies like payments startup BitPago have been inspired by hyperinflation and currency volatility to offer a bitcoin-based alternative.
4. Microfinance institutions
According to TechCrunch, there are about 10,000 Microfinance Institutions (MFIs) globally — and as many as 100,000 when you add credit unions, co-ops and other informal institutions – serving 150 million people worldwide. MFIs have been operating in China and India for many years but recent fintech innovation, and the better access to mobile technology, has made it easier for MFIs to expand their services. In turn, fintech startups are able to leverage pre-existing MFIs networks to access untapped markets.
5. Credit checking
The biggest problem with being unbanked is that you do not have the credit history needed to access financial services. This is especially an issue for entrepreneurs that need support to start or expand their business. So, fintech startups are harnessing data from other sources to form an alternative credit history for MFIs to use. U.S. companies like First Access and Demyst Data are now finding ways to use someone’s mobile payments history, or social networking activity, as a credit scoring solution for emerging markets. This, in turn, is opening a whole new range of fintech solutions.