You may have heard quite a lot about digital financial services by now.
We are going to reveal truth and myth. The top 5 common misunderstandings about digital financial services in emerging markets.
1 – People are not interested in digital financial services for tax reasons: TRUE
It is true that many people prefer to trade in cash to 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 trust in government which are seen to “not be doing enough” for the underbanked.
Some governments have taken action to build a bridge between government institutions and the underserved by facilitating financial inclusion programs like tax amnesties associated with social benefits, or government loans for all small and medium-sized enterprises (SMEs) which join regular banks or financial institutions.
It is clear that governments still have a lot to do to help banks to drive financial inclusion. Hopefully, the combination of changes in policy and new, safe, easy to use technology will help to build confidence and better services over the next few years.
2 – Airtime distribution network is creating a parallel economy: TRUE
It is true that in most emerging markets, airtime is used like paralleled currency, being dealt with outside the banking network. The real question is why consumers are adopting airtime as a payment currency rather than fiducial currency with banks?
The answer is simple (in addition to point 1 above) ‘ease and availability’. You can buy, transfer and sell airtime in any corner of any city in the world today. The biggest factor for mobile payment penetration in the world today is the strength of distribution network that telcos have developed.
So the question is – instead of trying to undo a service that is working today, how can banks leverage this to include it in the financial ecosystem? If consumers are more comfortable trading on airtime value, then why not give them the opportunity to trade on say “energy value”, “wood value” or any alternative tangible assets available in their market. Is it really bad to go back in creating alternative currencies as long as the value of this currency is controlled by the central bank?
3 – Mobile banking is about creating a mobile banking app: FALSE
All banks are adopting a strategy for mobile transactions, which usually means the development of a mobile banking app. But a mobile banking strategy is not just about developing an app to send money and to check your balance, it is also about developing a strategy for mobile consumers (consumers who are looking for real-time services, 24/7) to forward innovation for services and deliver the best customer experience possible.
Banks may develop the best, most secure design for their mobile banking apps, but if they don’t also develop their back office function to serve these mobile customers with automated decision-making and real time transactions; they are not really adopting a mobile strategy.
4 – Fintech companies will take market share from banks – FALSE
This could happen if banks do not adopt the right strategy and take the chance to transform this challenge into an opportunity.
To say that fintech companies will take market share from banks is like saying that Skype, Viber and WhatsApp are killing the telco business. Realistically, telcos could do nothing to stop Viber and WhatsApp from starting up and developing.
Instead of banks trying to stop them (like they tried a few years ago when it was already too late and the damage was done) The banks should have instead tried to develop a stronger business model to provide a better service and to protect their revenue.
The same goes for all banks today. To survive and to do well, they must evolve and learn to live with fintech companies. Fintech will always need banks for regulation, funding etc. But more than ever, the banks also need fintech to grow market share and to drive innovation in services.
5 – Telcos are mastering the mobile payment industry: FALSE
When we look at the GSMA reports on the development of mobile money, we can clearly see that the penetration rate of mobile money is spectacular, but when we go into the details of the services offered, we realise that – except for some strong fundamental services in Kenya, Pakistan and a couple more countries – it is clear that mobile money has completely failed to deliver on its promise so far.
There are two main reasons for this failure:
1) A lack of investment in financial services that brings real value to the consumer
2) The very limited technology
The good news is that banks are now taking over the service and that technology has evolved a lot in the last ten years. If banks adopt the right strategy by creating the right ecosystem and build the right partnerships then perhaps mobile money will finally be the revolution everyone is expecting in emerging market.
@RedCloudTech – 14 March 2017 – Based on original blog by Soumaya Hamzaoui, Chief Product Officer