FINTECH COMPANIES – Giving people more banking options

 

An article on Harvard Business School, Jake Kindall shares his idea how a new breed of financial technology (or Fintech) companies is unbundling banks in the developing world.

There is a huge rush of capital & talent into startups over the past five to six years. These startups attacking all of the components of the traditional bank value proposition (account, portfolio management, mortgage, loans)

The resulting efficiency & security benefits of their innovative product have been a boon to consumers, it largely bypassed the 2 billion consumers who lack formal service altogether.

However, there are signs that this is changing. According to the article “due to the increase in the number of people with mobile phone in the developing world , new fintech players are attempting to disrupt the existing financial order in these market- “The Money Lender & Informal Remittance service” the only option for much of the population.

 

To succeed in these markets, these startups must overcome three challenges:

 

  1. Lack of Infrastructure and Efficient Cloud Services

Many developing countries lack infrastructure that exists in advance economy, which give huge opportunity & a challenge. It promoted some fintech company to jump in and try to fill the gap by creating “Regtect”.

  1. Users who don’t have a Digital Footprint

The limited digital footprint means that the sophisticated algorithms that some fintech companies use to generate risk scores or personalized offers in the developed world aren’t useful in these market.

To succeed in this environment, local players are evolving models that tap into and create new sources of data on users, often by giving users tools that encourage them to expand their digital lives.

One example in India is SERV’D, which is building an app that helps households and the informal workers they employ (e.g., nannies, drivers, cooks, delivery services) create simple formal work contracts and pay them online.

To succeed in this environment, local players are evolving models that tap into and create new sources of data on users, often by giving users tools that encourage them to expand their digital lives.

  1. Consumers Who Lead Chaotic and Cash-Based Lives

 

Few consumers in developing countries have the luxury of regular paychecks. Often they live payout to payout. They also struggle to deal with unpredictable expenses, including medical emergencies, motorcycle breakdowns, and demands from friends who need help.

Consequently, their financial lives are orders of magnitude more complex than those of consumers in the developed world. In these situations, standard, rigid insurance premiums or loan-repayment contracts often don’t work, resulting in missed payments and defaults. some companies are creating clever offerings to help people through the difficult times. One example from the developed world is Uber’s Xchange, which allows drivers to participate in very-short-term leasing programs (just a few months) and requires little money up front.

Thus Fintech companies are proving that they can create workarounds for the infrastructure of developing countries. They can develop flexible products tailored to the lives of the people in those markets. And they can figure out how to generate data streams that shed more light on potential customers’ finances.

They can play an important role in bringing the 2 billion consumers into the digital world and improve both their lives and their countries’ economies.

 

 

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