True or False: FinTech in Emerging Markets


There’s a lot of chatter about digital financial services, particularly in emerging markets. Here, we separate truth from myth.

TRUE: People aren’t interested in digital financial services for tax reasons

Many people prefer trading in cash, as they can then avoid declaring and paying taxes on their revenue. People in emerging markets often do not see the point of paying taxes due to a lack of faith in the local government, who they often perceive as being dismissive towards the unbanked.

Some governments have attempted to build a bridge between their institutions and the underserved by facilitating financial inclusion programmes such as:

  • Tax amnesties associated with social benefits

  • Government loans for SMEs that join banks or financial institutions

Governments still have a lot to do to help banks drive financial inclusion. Hopefully, the combination of changes in policy and new, safe, easy to use emerging technologies will help to build confidence and better services in the coming years.

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FALSE: Airtime distribution networks are creating a parallel economy

There is truth in the statement that airtime top ups, which are dealt with outside the banking network, are used like parallel currency in some emerging markets. The real question is:

Why are consumers adopting airtime as a payment currency, rather than using fiducial currencies offered by traditional banks?

The answer is simple: “ease and availability.” Airtime can be bought, transferred and sold on any corner, in any city. The biggest factor in mobile payments penetration in the world today is the strength of the telco-developed distribution network.

Instead of trying to undo a service that currently works, how can banks incorporate it into the financial system?

If consumers are more comfortable trading on airtime value, why not give them the opportunity to trade on say, “energy value,” or “wood value”? Is going back to central-bank controlled alternative currencies really a bad thing?

FALSE: Mobile banking means mobile banking apps

Many banks are implementing mobile transactions strategy, mostly in the form of mobile banking apps. But mobile banking strategy is about much more than an app, which simply allows you to send money and check your balance. It’s about customer service.

Consumers are looking for real-time services, and genuine innovation.

Even if banks design secure, well-performing apps, if they don’t simultaneously develop their back office functions to better serve mobile customers, with automated decision-making and real time transactions for example, their strategy needs work.

FALSE: FinTech companies take their market share from banks

FinTech has always, and will always, need banks, whether it be for funding, or regulation. But banks also need FinTechs, whether it be to to grow their market share, drive innovation, or facilitate reform.

Instead of trying to halt the rate of FinTech progress, which they attempted unsuccessfully some years back, banks need to improve their business model, and provide their customers with better service.

FALSE: Telcos are the masters of the mobile payments industry

When we look at the GSMA reports on the development of mobile money, it’s clear that the penetration rate of mobile money is spectacular. But when we go into the details of the services offered, we realise that with the exception of some strong fundamental services in Kenya, Pakistan and a few other places, –mobile money has, thus far, failed to deliver on its promise.

This failure can be attributed to two things, primarily:

A lack of investment in financial services that provide tangible customer value

Limited technological offerings

Banks are now taking over services, and technology has developed significantly in the past ten years. If they continue adopting effective, and all-encompassing strategy and fostering a diverse ecosystem with strong partnerships, then we have full faith that mobile money has the potential to be the revolutionary force people are looking for from emerging markets.

About RedCloud Technologies

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