The fintech revolution is unique. When most people think of recent tech revolutions, they imagine them starting in places such as Silicon Valley, New York, London, and other major tech hubs.
While the fintech industry is certainly thriving in these areas, it’s grown particularly fast in emerging markets. There are many reasons why this may be. As this blog has pointed out before, fintech products can help unbanked and underbanked populations gain access to financial services. Fintech may thrive in emerging markets because it helps people for whom financial management tools were previously unavailable.
A Positive Cycle
This could potentially result in a positive cycle for these parts of the world. Fintech products and companies succeed in emerging markets because they serve the needs of underbanked people in those areas. These same fintech services can help customers to manage their funds more responsibly, make profitable investments, and acquire loans to expand their businesses. This bolsters an already growing market. When more people have access to financial services, they’re more likely to have disposable income that will enable them to make positive contributions to the economy.
Following are some examples of how fintech is flourishing throughout the world. Although major tech centers certainly represent a significant portion of the industry, people in virtually all corners of the globe are starting to benefit from these new products and technologies.
Fintech Comes to Indian Cities
The Reserve Bank of India classifies cities into different tiers. Tier 1 cities have a population of 100,000 or more. Thus, they’ve been the main focus of entrepreneurs seeking to bring fintech services to Indian people.
Lower tier cities represent untapped markets. That’s why more fintech companies are now focused on reaching customers in Tier 2 cities (50,000 to 99,999 citizens) and Tier 3 cities (20,000 to 49,999).
For example, the payment app Paytm has been released in special regional language versions, which allow citizens outside of Tier 1 cities to make greater use of it. Kissht, which serves as a digital credit card for ecommerce customers, has also been branching out to smaller cities in India. Krishnan Vishwanathan, the company’s founder and CEO, explains the benefits of working in these markets. “It’s a gateway to fulfill unmet credit needs and also assess customers’ credit worthiness. This will also help in customers’ socioeconomic profiling via accessing 8K+ digital footprint variables,” he said.
He adds, “Companies like ours have a larger customer pool to test and establish a very strong use case with near zero competition.”
Fintech has already done well in India’s larger population centers. Now it’s set to transform other parts of the country.
Singapore and Vietnam Team Up
Recently, the Monetary Authority of Singapore and the State Bank of Vietnam have partnered up with the specific goal of encouraging fintech development in their countries. The two countries understand that fintech companies often struggle to succeed in neighboring markets due to various regulatory differences. While it can be difficult enough to navigate the framework of one country’s regulations, the process of trying to adapt to numerous other jurisdictions can often prove particularly challenging. This partnership aims to reduce those difficulties by fostering communication and encouraging collaboration between fintech startups in both countries.
If it yields beneficial results, then it may be a model that other countries could follow. Although traditional financial institutions can collaborate with fintech startups to help them with regulatory issues, cooperation between neighboring regions and countries can help fintech products to spread throughout the world.
Investments in Emerging Markets Surge
Nearly across the board, venture capital investments in fintech for the first quarter of 2018 have increased from the fourth quarter of 2017. The trend is particularly pronounced in emerging markets. For example, in the fourth quarter of 2017, venture capital fintech investments in Asia totaled approximately $701 million. In the first quarter of 2018, that number rose to $2.2 billion. This was the highest gain for any continent in this quarter.
South America came in second with a 164% gain. In the fourth quarter of 2017, funding totaled $103 million and rose to $271 million in the first quarter of 2018. It’s worth noting that funding in the United States actually dropped somewhat. That said, this may be due to the types of deals made in the US during the first quarter of 2018. The deals were predominantly early stage funding rounds, which tend to be smaller than investments made in later stages.
Still, it’s clear that emerging markets are embracing fintech. This speaks to the benefits that the technology offers. Although there are many different types of fintech products serving a variety of different purposes, most of them are useful in areas where access to financial services is limited. The fintech revolution is not only going to change the way that the average person banks: it could change the global economic landscape.