Ajay Vij, SVP and Industry Head, Financial Services, Infosys
While a lot of us look to developed economies to discover new trends in innovation, I feel we could be missing the large picture by overlooking emerging markets. By their very nature, emerging markets are characterized by demanding customers, incumbent players and an open canvas for innovation.
*Take the banking industry, for example. Ever evolving in emerging markets as well as in the face of new disruptors, we've seen institutions like Barclays implement industry-approved Open Banking APIs to enable customers to view all of their accounts – no matter the provider – in one app. According to McKinsey, nearly 60% of revenue development in global banking will stem from emerging markets1. This may not be surprising given that developing economies have large unbanked populations that require financial services but lack access to traditional brick-and-mortar branches. In such countries, omni-channel banking is more than just a value-added feature; it is a lifeline. Further, some rural areas may not have provisions for laptops or desktops, many villagers have smartphones, making mobile commerce an essential channel for banks.
Another aspect worth taking a look at is how countries in Asia, Africa and Latin America are the place to find millions of young, tech-savvy individuals who demand personalized products and services. However, emerging markets are cost conscious and any new strategy, product or service must bear this in mind. While many traditional banks may be unable to keep pace with these demands, start-ups that can are mushrooming across these economies, determined to bridge the gap.
A good example which i see is the rise of digital platforms that simplify online payments. In some cases, these platforms do a much more. For instance, M-PESA, the FinTech app of Safaricom, Kenya's leading mobile telecom provider allows people to send and receive money, make payments, access micro-finance loans, and more. What began as a person-to-person payment company is now a mobile payments provider with 80% market share and 40% growth within Three years of its launch2. India-based Paytm is another clear winner within this space. Beginning as a simple mobile wallet, Paytm rapidly took benefit of the demonetization initiative of the Government of India in 2021 to launch itself in to the payments space making it the largest digital wallet in India with user-friendly features such as its multi-lingual app and support of non-financial services like booking rail and airfare tickets, bill payments, etc. Even government organizations are jostling for share of the market in payments banking space as seen in the case of the India Post Payments Banks, a government-owned company that's expected to launch with 650 branches across the country3.
Unlike developed countries, emerging markets usually have loosely formed regulatory structures and standards, providing an abundant environment for innovation. Consider how disintermediation in China's financial sector has transformed the local banking industry. In fact, the US $10 trillion shadow banking industry in China already connects individuals and business having a host of banking products for wealth management, asset management, financing, peer-to-peer lending, and more. Further, mobile payments in China add up to US $12.8 trillion in transactions, putting it way in front of the US4. The key factor here is how digital age providers leapfrog over traditional banking systems, replacing the need for deposits, accounts and archaic verification processes with mobile-enabled cashless payments. In fact, close collaboration between the banking and telecommunications industries is making way for a new range of cross-industry services. For instance, in Kenya, Airtel and Equity Bank have collaborated to produce the Equitel model that helps over Two million customers send money using their banks to any account in Kenya. Additionally, it enables them to avail non-banking services such as buying airline tickets5.
Through all of this, security remains a vital concern, particularly when new players emerge within poorly-regulated systems. However, developing market players have found smarter solutions to such issues. For instance, the Aadhar initiative by the Government of India is leveraging biometrics to create a nation-wide ID system for all Indian citizens. Recognized as the largest biometrics initiative undertaken by any government, Aadhar aims to use fingerprint and iris scans to secure citizen data while enabling access to a variety of services from opening bank accounts, registering for a mobile number, applying for loans, and more.
So, what is driving the success of these players in emerging markets? I feel it is their ability to adopt agile IT processes, leaving them unfettered from needing to upgrade legacy platforms or mainframes. It is the freedom to truly innovate. Technologies such as cloud computing provide flexibility and scalability in a pay-per-use model that meets the demand for cost-effective alternatives. Even blockchain is poised to revolutionize trading, transaction processing, and much more. Thus, by eliminating capex-heavy investments, banks in emerging markets can concentrate on creating personalized and customer-centric services and products.
The benefits are many: Simplified tax collection, reduced corruption, higher financial inclusion, and socio-economic development, to name a few. In fact, I think emerging markets may have a few important lessons for banks in mature markets, for example:
- Keep your customers at the center of product and repair design
- Re-think existing models to bridge the gap between your brand and the consumer
- Adopt digital finance; it is the way of the future
- Find faster and smarter methods to secure transactions and protect customer data