TBY FinTech Report: How FinTech helps emerging markets succeed

Sylvana Lewin, Monday April 23rd 2018

DFS Lab, the FinTech accelerator funded by the Bill and Melinda Gates Foundation, recently announced that they will be investing USD$200,000 in four FinTech startups in Africa who are building financial service products for low-income and unbanked customers. This is a big moment for African FinTech, which has already gained global attention through innovative mobile-money solutions like mPesa.

In 2017, nearly one third of total tech funding raised in Africa went to 45 FinTech startups. It’s no surprise that interest in FinTech is growing so quickly in Africa as the sector offers innovative solutions to many of the problems faced by traditional financial systems.

The Business Year (TBY) has released a Special FinTech Report analyzing FinTech in emerging markets. We’ve broken down some of the key takeaways from the report here for you!  

Facts Behind FinTech

“FinTech is a trend changing practically everything about the way the world acts, interacts, and transacts financially.”

Many factors have contributed to the growth of innovation in the financial sector, including the global financial crisis of 2008 and the mobile revolution. According to TBY, 62% of  business leaders in the FinTech space believe we are moving towards a cashless economy.

The growth of FinTech has raised questions around  how these emerging companies will work with banks. There are several ideas on this including purchase of FinTech companies by banks, data analysis by FinTech companies for banks, FinTech companies selling services to banks, mutual client sharing, and more. Collaboration is certainly something both parties  are interested in: TBY reports that 79% of business leaders in finance and technology suggest that the best approach to fintechs and banks is a collaborative one.

Using FinTech to Promote Financial Inclusion for Migrants

One of the many benefits of FinTech solutions is that they  can be used to promote financial inclusion for the unbanked.

Today there are 65.6 million displaced persons in the world who face a variety of issues when it comes to finance. Many of these people receive or send remittances, which often include  high fees. TBY reported, “Far above the sustainable development goal of 3%, those sending money back to their loved ones are still rinsed oan average 7.45% around the world. The potential for new technologies to disrupt this stale state of affairs is not only huge, but also imperative.”

There are a number of FinTech startups working to resolve this issue . Leaf Global FinTech, for instance, promotes  financial inclusion for displaced persons by using blockchain technology to facilitate converting cash to virtual currency. Displaced persons are often cut out of the digital economy and forced to carry what cash and valuables they can with them as they leave their homes. Leaf’s use of blockchain technology is providing an opportunity for this group to participate in the digital economy.

[caption id="attachment_6660" align="aligncenter" width="665"]Leaf Global Fintech in Rwanda Members of the Leaf Team in Rwanda, where they met with refugees and migrants.[/caption]

Using FinTech to Promote Financial Inclusion for Women

More and more women are becoming entrepreneurs today. TBY reports that 33% of the world’s private- businesses are owned or run by women, but many  still report a general feeling of being underserved when it comes to finances.

“To increase female consumption, we need to boost the numbers of women in the industry. But to do this, we need to raise awareness about the opportunities offered therein.”

Recently, there has been an emergence of FemTech products aimed at empowering women and encouraging female participation in sectors that have seen traditionally low female representation, such as STEM and finance. In Ghana, InvestXD is currently working to promote investment opportunities among women by marketing to them directly based on needs they discovered that are unique to the way women look at their financing. As a result, more women are experimenting with their app.

[caption id="attachment_6729" align="alignnone" width="665"]nvestXD with other participants of DataHack4FI, a program to promote financial inclusion through data. InvestXD with other participants of DataHack4FI, a program to promote financial inclusion through data.[/caption]

Solving Problems with FinTech

Current financial services face numerous problems that can be solved throughFinTech. TBY’s report delved into the challenges of financial literacy, insurance penetration, underdeveloped financial infrastructure, and access to finance.

“For technology to fulfill its true potential, citizens, and more importantly young people, need to be empowered and engaged through technology. And we see that there is an urgent need to enable the youth in Africa to contribute to their local economies, drive a youth-centered information society, and prepare them for the future.” - Ramy Hashem, Country Senior Officer for Nokia Ghana

An understanding of finance is critical for financial services to truly succeed and financial inclusion to be reached. According to the World Bank, only one in three adults are financially literate. FinTech companies are able to change that without a need for extra infrastructure. Companies like InvestED make financial literacy accessible for all through a fun mobile app.

“A bank in Africa can connect into one system for everything, whereas in other developed parts of the world conflicting legacy systems have emerged over time and these now have to be reintegrated. The level of potential and opportunity in Africa to affect and enhance people’s livelihoods is astounding.” - Moussa Beidas, CEO of Bridg

The underdeveloped infrastructure of many emerging economies can be a huge challenge for traditional financial systems. Setting up physical bank branches in rural areas is costly and not always efficient. Thanks to their innovative mindsets and smaller scales, FinTech companies are able to create solutions that work around infrastructure issues.

Creating Better Solutions

Innovations like blockchain are allowing FinTech companies to create better and better solutions. Currently the technology is still in infancy, but in the future we could see a world where governments are heavily reliant on innovations like blockchain.

MEST MD Aaron Fu believes that governments and public sector stakeholders are seeing the potential of FinTech more and more. He explained to TBY for the report, “Most public sector stakeholders realize new fintech solutions can be a critical way to end corruption, erase the middle men and increase efficiency.”

Learn more about African FinTech in our article Amplify CEO Segun Adeyemi Talks FinTech in Africa.