How Fintech Has Advanced the Banking Industry in Developing Countries

Countries across Africa and the Middle East have seen an explosion in microfinance lending, with lending officers arriving at people’s homes and businesses armed with a clipboard, assessing the value of collateral such as cars or livestock.

Financial inclusion has become something of a buzz phrase of late. To be inclusive, we must make banking services accessible to everyone globally: “banking the unbanked.”

AI is increasingly being implemented across developing countries, improving data collection, and streamlining credit decisions. According to Accenture, reaching the world’s underbanked population represents a $380 billion opportunity.

Developing predictive analytics software

Factors like weak digital infrastructure are significant stumbling blocks in many countries. In Egypt, 2 out of 3 citizens still do not have a bank account. In response, Egypt’s Commercial International Bank has invested heavily in developing predictive analytics software, including a platform that assesses an applicant’s ability and willingness a repay a loan. With such a high demographic of the Egyptian population remaining unbanked, excluding them from traditional credit-scoring methods, tools such as this one enable banks to lend to more customers with less risk.

In fact, emerging markets in Africa, Asia, and South America are effectively leapfrogging the developed world in fintech, particularly in China, where the speed of fintech adoption took experts by surprise. From modern shopping malls to street food vendors, mobile payments have become an everyday payment method across China today. Even in rural areas, visitors can use WeChat to pay for a taxi or meal. In fact, digital payment methods have become so popular that many Chinese citizens abandoned banknotes and coins long ago, preferring virtual wallets instead.

In China, Kenya, Brazil, and Indonesia, fintech companies are driving down transaction costs and easing credit market frictions, reaching demographics that would otherwise be unable to access standard financial services.

Comprehensive package of digital offerings

In developed countries, such as the US and UK, virtually all financial institutions have invested in developing a comprehensive package of digital offerings, increasingly relying on technology to run their businesses for them. However, fintech adoption is actually somewhat slower in many developed countries compared with emerging economies. Some European unicorns have begun to penetrate certain segments of the market, but it is in developing countries that fintech advancements are having the most impact, with expanded implementation of digital financial services stimulating economic development and reducing poverty.

As the World Bank highlights, countries with deeper, more developed financial systems benefit from faster reductions in poverty, higher economic growth, and income equality. As the world grapples with economic fallout from the pandemic, providing secure, contactless, low-cost financial tools for citizens and governments has become even more of a priority.

Accessing basic financial services such as checking accounts, insurance, credit, and savings products helps people with low incomes to become more financially resilient. Digital technologies show vast potential in terms of connecting the as-yet unbanked with the tools they need to access financing and increase their incomes. Fintech has increased the security, speed, and transparency of transactions. Technology has eliminated many barriers to financial inclusion, with a new generation of sustainable products specifically developed with the needs of individuals with low incomes in mind.

‘First wave’ of digital financial services

Leveraging high mobile phone penetration in many developing nations, mobile money has delivered a “first wave” of digital financial services, according to World Bank. Across 90 countries today, there are more than 850 million mobile money accounts, with somewhere in the region of $1.3 billion in transactions carried out daily.

In Sub-Saharan Africa, 20% of the adult population has a mobile money account, earning the region the top spot in the global mobile money market. World Bank suggests that the surge in interest in mobile money markets throughout Sub-Saharan Africa has spawned hunger for more sophisticated financial offerings in the region, such as insurance and digital lending. Telecom operators and e-commerce platforms have developed a variety of innovative services in response, such as pay-as-you-go solar energy, leveraging digital finance to facilitate payments.

Fintech a gateway to the digital economy

Fintech has the most impact in the world’s least technologically developed countries, places where it is still essential to visit a bank in person to withdraw money or access banking services. In these countries, the unbanked population is a huge majority, and poverty is typically a rampant problem. Fintech serves as a gateway to the digital economy, enabling people to buy and sell goods and services online. Companies all over the world are rapidly coming to recognize that the more people they support, the greater their own potential for growth, which is why so many new startups are targeting markets across Africa and Asia, and thriving as a result.

The world’s most successful companies do more than merely make a profit. For any enterprise to be sustainable, it must add value to people’s lives. This is why so many fintech companies are targeting their offerings to developing countries today. Expanding the banking industry in developing countries ensures that each and every citizen of the world benefits from the same opportunities to participate in the global digital economy, driving growth both within their home country, and beyond.

Originally published at http://carltonjamesguyana.com on April 6, 2022.

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Carlton James is a Director of GBTI and a Consultant Specialist in corporate communications for development

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Carlton James

Carlton James

Carlton James is a Director of GBTI and a Consultant Specialist in corporate communications for development

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