Fintech is changing the way the developing world transacts by turning the tables on financial technology advancement: instead of waiting for resources from established economies, developing nations are addressing their problems in-house, and providing some excellent innovations that the developed world would be wise to take note of. Said Bill and Melinda Gates in 2015, “If we waited a few decades, banks in developed countries would invent digital banking tools, and they would trickle down eventually to developing countries. But because there is strong demand for banking among the poor, and because the poor can in fact be a profitable customer base, entrepreneurs in developing countries are doing exciting work—some of which will ‘trickle up’ to developed countries over time.”
Often disrupting traditional financial models through more efficient and accessible service provision, fintech is incredibly important globally due to its role in progressing an industry that has for decades, if not centuries, seen the power rest with providers; and now it’s putting the power in the hands of the developing world, a valuable asset pushing for inclusion across dividing lines and teaching the world’s financial elite that sometimes their ‘little brother’ knows best.
Fintech and the Developing World
Lowering the cost of dealing with financial institutions and expanding the reach into rural or undeveloped locations, fintech is providing modern financial products and services to a range of people previously unbanked. For inexperienced users often taken advantage of through schemes and deals that only benefit ‘providers’ who earn high interest returns and enjoy vague terms of service that leave users always the losers, fintech is Christmas come early.
Though for a time technological advances increased the socio-economic gap, the transformations we see today are more often than not positive for everyone. Tech availability is increasing as prices drop, and a few of the larger tech giants focus on providing solutions that aren’t merely cost-effective, they’re downright cheap. In developed markets, the spread of technology is improving user experiences and encouraging new methods of interaction, but in the developing world we’re seeing an impact perhaps more benevolent as it pulls previously excluded members of society into the global village, providing access to valuable products and services that developed nations have long taken for granted. For the savvy entrepreneur, the opportunities are endless.
While markets such as the US have unbanked populations of less than 10%, developing nations including the likes of India, Mexico and sub-Saharan Africa report four, five and six times as many people existing outside of formal financial frameworks. In part, developing nations see far fewer users accessing recognized financial services because their needs are very different from the facilities typically offered to the banked; often, physical barriers related to branch locations make it impossible to access services, while the financial barriers of service charges and subscriptions make the consumption of financial services impractical. Fintech provides solutions for many of these challenges, with digital platforms increasing accessibility and reducing costs, and mobile technology offering a simplified means of interaction that meets the comfort levels of far more users.
Mobile Technology Integrating the Developing World
Mobile, one technology that has seen enormous adoption in developing countries, is a key player in the drive of fintech through both the developed and developing world. It’s predicted that mobile phones could provide financial services to approximately 80% of the global population, and considering the millions of businesses in emerging economies that don’t currently have access to financial services, mobile technology is an invaluable fintech partner.
Unsurprisingly, mobile solutions are spreading quickly through developing nations, with payment apps making it easier for informal traders to sell their wares and mobile-based accounts steadily reducing the World Bank’s estimated 2 billion people unbanked around the globe. Fintech advances have been particularly evident in India, China, and Sub-Saharan Africa, and, since the introduction of mobile payment program M-Pesa in Kenya in 2007, more than 85% of the country’s population now use mobile payment apps to transact. A distinguishing characteristic of M-Pesa, the technology is available not only on smartphones but also on the most basic mobile phones obtainable, ensuring that availability is near complete.
Products and Services That Foster Inclusion
Governments, traditional financial institutions, tech groups, and startups are all playing a role in the provision of fintech products and services that foster financial inclusion of the developing world in the global village. These advances are boosting economies and benefiting individuals in countless ways.
Education has long been a challenge in the developing world, and with it financial literacy. Not only does a lack of financial understanding tend to produce poor financial choices, it furthers economic decline and creates an environment in which fraud and exploitation becomes the norm. Providing financial education has previously been a challenge, but straightforward fintech solutions are ensuring that users have easy access to streamlined information, making it possible for users to grasp their financial circumstances. This first step to financial literacy is the foundation that promises greater consumer protection as users are able to make informed decisions about their money and investigate options that better suit their needs.
Credit Histories & Financial Identity
With so many people never accessing traditional financial products and services, many users in developing worlds don’t even have credit histories or financial identities, let alone understand how to support or bolster them. Thus there is a large population that banks, with their strict regulations, are able only to offer the most basic of services. Fintech provides the tools to gather data from a much wider range of sources, and through the employment of advanced analytics it’s possible to better understand users, capture necessary details regarding identity, and provide relevant services. Already several fintech companies are using alternate data from mobile phone bills, rental payments, and utility payments to understand financial behaviors, and biometrics are proving a useful tool in establishing financial identities.
Money transfers are widely used in developing countries, but these services are often expensive and not always easily accessible. New advances, however, are seeing popular supermarkets offer such services, and startups are providing services for moving money via mobile phones. Such tools tend to offer a much broader reach, and at a fraction of the cost of the traditional providers.
Cash can be risky anywhere, and so cashless fintech solutions are popular worldwide. Typically making use of mobile phone technology, cashless payment products offer secure and reliable methods for merchants and consumers to transact. For users in developing nations without access to traditional banking products, these solutions are becoming the norm.
Micro-Finance & Peer-to-Peer Lending
Providing a practical alternative to bank loans, micro-financing is often more easily accessed by the impoverished in developing countries. And peer lending, a solution already common in many developing nations, is advanced through fintech applications. Currently, the benefits of such applications also have some worrying drawbacks since most of them aren’t regulated, and unfair collection practices leave much room for improvement.
Installment and Pay-As-You-Go Plans
Eliminating the need for upfront payment or large sums of cash, installment and pay-as-you-go plans aid the developing world by providing necessary commodities when they’re needed, with flexible payment arrangements more easily managed. When offered by reputable merchants through practical technological platforms, such solutions ensure both the provider and the user benefit.
Of particular note in locations where financial literacy is low, consumer security is essential for the appropriate development of economies. Fintech helps reduce fraud in a range of financial services, from lending, to payments, to transfers, and when the right measures are taken to develop secure financial service networks, both individuals and their economies profit.
Not merely a high growth area worth investigation by shrewd investors, fintech is providing the tools and services to millions of people who might otherwise struggle their whole lives on the outskirts of the financial sector. The technologically advanced developed world could certainly learn a thing or two about fintech innovation from the plucky newcomers capitalizing on developing nation opportunities.