The future of fintech is bright in 2020 despite challenges
By Bassim Haidar, Founder & CEO, Channel VAS
Fintech has reshaped the financial services sector in several ways over the last few years, most notably in emerging markets. Now, as the world contends with the impact of the coronavirus pandemic, the fintech industry’s adaptability is being put to the test. Despite this, companies such as Channel VAS remain committed to providing financial inclusion to the unbanked populace, efforts which are more crucial now than ever and have so far yielded multiple subcategories in several sectors. This is also an opportunity for fintech to garner greater respect as well as serving as a critical catalyst for further prosperity and accountability, both through this crisis and as we begin to reopen.
COVID-19 chills strong growth
While fintech’s reputation as an industry modifier looks set to continue as the appetite for innovation remains largely unsaturated, the impact of the COVID-19 pandemic is threatening to put a brake on the pace of growth. Some industries will inevitably be less impacted than others, and some may even thrive. Others, unfortunately, will be unable to sustain their business model without employees in the office or footfall in the stores. This will likely be the case for many businesses, particularly smaller ones, even in the fintech sector, which will simply run out of cash before businesses reopen.
The fintech industry as a whole, however, has a strong record of resilience and plays a more important role now than ever before in ensuring that isolated people have access to their finances. Fortunately, due to our reliance on technology, we at Channel VAS have been able to continue pursuing our goal of extending financial inclusion.
In the developing world, fintech is acting as a connector rather than a disruptor. The unbanked masses will use fintech schemes as building blocks towards financial inclusion rather than a nice-to-have addition.
However, for emerging markets to fully embrace what fintech has to offer, they first need to conquer the challenge of limited digital connectivity. The rapid adoption of mobile internet in these markets presented a unique opportunity to give people access to fintech solutions – the concept of handset loan projects. Internet-enabled handsets often represent the only form of internet access, and by placing the devices in everyday people’s hands, greater connectivity is virtually guaranteed.
Handset loan projects: where do they fit?
Statistics provided by the GSMA reveal that the number of mobile internet connections is approximately three times higher than fixed-line internet. Accelerating affordable smartphone ownership for low- and middle-income consumers in emerging markets must be a top priority.
Handsets are the bridge that connects people in emerging markets with the financial services they need – not to mention access to information, communication, and other vital services. Fintech serves unbanked people in ways that the existing banking sector cannot, meaning that effective fintech solutions are essential, not merely a matter of convenience as it is in the first world.
The pandemic has shed light on the existing issue of accessibility. People without mobile phones and unable to visit their bank due to social distancing, lockdowns or other restrictions are left with extremely limited access to their funds. In some cases, they may simply be unable to access their own money to pay the rent or buy food.
Fortunately, the high adoption rate of mobile technology and low financial inclusion rates have created fertile ground for fintech services. And while market pressures alone will not lower smartphone prices to affordable levels within the foreseeable future, handset loan projects will help significantly to give the underbanked access to the financial mainstream.
Pronounced smartphone penetration will fast-track the adoption of mobile financial services such as micro or nano loans, data loans, and airtime credit. These fintech services will continue to flourish owing to the vastly unbanked populace in Asia, Africa, the Middle East, and Latin America.
Online remittances: A key fintech trend in emerging markets
Travel restrictions due to COVID-19 have turned the spotlight on cross-border remittances. Buoyed by a rising urban population, remittances are more popular than ever. Fintech products make this form of transaction a breeze, and its popularity looks set to surge in 2020 as more and more people turn to alternative and more affordable solutions. The combination of constructive regulation and easier cross-border transactions play a great part in reducing the cost of remittances and improving access to credit. Collectively, it drives peer-to-peer payments in emerging markets.
Extensive regulatory change
As with any technological advancement, the prospects of fintech-led prosperity bring a host of risks, and a sound regulatory framework is the only approach that can promote fair outcomes for customers. Currently, however, regulators seem to be trapped in a ‘90s mentality’ that deters them from realising the new reality, and the potential fintech conveys.
A shift in the regulatory framework in emerging markets could support the development of a more digitised and robust financial system, as well as pave the way for more innovation. Therefore, fintech providers need to work together with regulators, banks and mobile network operators to take the lead to provide optimal value for the customer.
Regulators need to sit down and determine how they can consolidate and centralise data from financial institutions, telephone companies, insurers, aggregators, and payment service companies. Such a centralised database must be enabling and inherently flexible while continuing to promote safety and mitigate risk.
According to The Africa Report, successful regulatory frameworks will highlight issues of transparency and information sharing, cybersecurity and control standards, as well as the outsourcing and offshoring of data. If regulators share data responsibly, and the customer gives consent for a fintech company to use that data, then such a person can be brought safely into formal financial systems with a resultant improvement in wealth.
Ultimately, overzealous protection of the legacy system and the traditional banking sector hinders the expansion of the financial inclusion for the masses, and I strongly hope that 2020 will be the year that this perception shifts for the better.
Despite global uncertainty surrounding the current situation, the aforementioned trends show that the sector will not only survive but also thrive through the business opportunities that will inevitably arise in the aftermath of the pandemic, as the world will shift towards a new reality. This crisis has made clear the critical importance of financial inclusion, and hopefully, we will see continued investment in handset loan schemes as society returns to normal. When it does, we can expect fintech to continue to advance in emerging markets which, due to their unbanked and underserved populations, offer significant opportunities for the fintech industry.
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