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The Challenges that FinTech Startups in Emerging Markets need to consider

9 August 2020    
The Challenges that FinTech Startups in Emerging Markets need to consider

(FinTech Egypt – Forbes.com)

The scaling stage of a startup is complicated enough regardless of where they are established, but even more so when found in emerging markets due to their unique challenges and distinctive infrastructures.

Data analytics firm The Mix have released a survey of 50 FinTech companies from across Africa, East Asia and South Asia that represented data from various business models and focuses like payments, savings, insurance and more. The results delivered three main action points that define FinTech entrepreneurs in emerging markets: They create inclusive offerings, build comprehensive solutions and leverage their partners to scale. Let’s explore each of those results.

 

FinTech entrepreneurs create inclusive offerings

One common trait of emerging markets is that they contain a high percentage of the financially unbanked and underserved global population, where the unbanked reach more than 1 billion people and the underserved are at 3 billion across the world. This corresponds to the deducible fact that 90% of the surveyed entrepreneurs have mentioned accessibility as a key objective of their mission. The survey also revealed that 40% of FinTech customers were below the poverty line, 51% are trying to offer more financial products to the underserved and 18% are providing financial services to new clients through their platforms. 

FinTech companies’ KPIs and general success are apparently linked directly to scaling inclusive solutions. When retention rates improve, customers become recurring ones and express loyalty to the product or service. If the cost of acquiring customers decreases, then organic traffic likely rises and customers are more compliant to signing up. This is especially relevant in today’s ongoing COVID-19 pandemic, where FinTech products and services are in high demand, which presents a great opportunity for FinTech companies to provide a multitude of options to keep users on board and therefore increase retention.

Perhaps one of the most concerning aspects of emerging markets is the lack of diversity, where the startups surveyed revealed a mere 36% female customer base; a figure that could improve over time through efforts supporting gender diversity, which in turn presents an untapped market opportunity.

 

Building comprehensive solutions

Returning to the challenge of serving the underbanked population in emerging markets, one of the harder aspects of this challenge is the high cost of serving customers in remote locations and with low account balances. This issue is being addressed by FinTech entrepreneurs by using several reinforcing approaches across a wide range of product categories to produce all-encompassing solutions. Examples of these solutions are leveraging various types of data analytics, creating new lower cost engagement methods like chatbots and building personalized user interfaces. Although product innovation is the name of the game here, it is the aggregating of product bundles that serves a wider consumer base and thus effectively covers a wider range of different consumer needs.

 

Leveraging partnerships to scale

Let’s agree that emerging markets have their challenges, but this also entails that there are many untapped opportunities that could greatly elevate their performance; there is always room for improvement in developing markets. The Coronavirus pandemic has also further complicated things in developing countries, but that also reflects in their digital-hungry populations that are increasingly in need of proper digital solutions to alleviate the stress of visiting branches, going to ATMs and similar physical activities.

However, these opportunities need solid infrastructures that these markets are likely to lack in some degree. According to the Mix survey, the most critical adoption barrier for the underbanked population was the legal requirement of a valid national ID, while other threats include target users not having access to mobile connectivity due to the lack of smartphones. In that regard, FinTech startups are creating solutions that are SMS and 2G-centric for owners of non-smartphones, in efforts not to exclude this population and achieve greater financial inclusion. Startups can also establish partnerships to scale properly and get support in building infrastructure, and the companies that did that were able to decrease customer acquisition costs by more than 50%.

 

Lessons Learned

FinTech startups that are looking to mirror solutions from developed markets into emerging markets need to reconsider these models, since the two market types and their requirements are completely different. Emerging markets - although filled with potential and the need for comprehensive solutions to digital finance in times of global uncertainty - have a tendency to require much more fundamental work such as infrastructure and similar basic aspects that they might lack. Whichever way we look at it, emerging markets present a great opportunity to achieve financial inclusion at a much larger scale around the world.

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