It’s that time of year again. As a new year rolls on in, once again pundits are predicting the upcoming peaks and pitfalls for the FinTech industry in the year ahead.
Stifle that yawn. Yes, musings on the game-changing powers of Bitcoin, the cloud and contactless payments now seem as hoary as dry turkey, Slade and grandparents falling asleep after Christmas dinner, so here are three FinTech predictions for the year ahead you may not have heard before:
1. Financial inclusion will be taken seriously by big businesses.
Making serious money and reaching the unbanked have not always gone hand-in-hand. Serving low-value customers – particularly those with limited access to existing banking services like current accounts or card payments - just hasn’t been commercially viable for most businesses. The cost of dealing with alternative consumer payment processes often pushes margins too low, and lack of financing options has been the biggest barrier for small businesses to grow or meet large supplier demands.
We’re now witnessing a major shift in thinking as big-name players in payments and other industries are talking openly about the huge opportunity in reaching unbanked customers. No longer just a buzz-term, financial inclusion is increasingly a part of competitive business strategy. PayPal’s CEO Dan Shulman has talked about “democratising finance” in the same way as we’ve democratised long-distance communications - through technology.
Some may be sceptical of PayPal’s motives but I would argue this isn’t just a corporate social responsibility gimmick. There is business to be made out of low-value, high-volume transactions and in bridging the gaps that are leaving consumers and small businesses out of the mainstream economy. Walmart and Coca Cola are just a few other giants that have begun to pursue innovative financing mechanisms for small businesses and products targeted towards underserved consumers. And a swathe of payments start-ups have taken on financial inclusion as a business goal.
Technological innovation is certainly one reason for this shift. But another cause is broader recognition in government and policy circles that ‘digital’ isn’t just for the tech-savvy – digital payments are now being actively promoted by global policymakers as critical to economic stability and financial inclusion for the world’s poorest.
Which brings us to the second point:
2. The biggest fintech innovations in 2016 will continue to come from the developing world.
Forget about contactless payments apps and challenger banks: the real life-changing innovation is happening not in Europe or North America but in emerging market economies.
The word ‘continue’ is used very deliberately here because emerging markets have already been a huge source of innovation in financial services targeted towards low-income users. Whether it’s health insurance coverage paid for by topping up prepaid airtime, micro-loans that small businesses can get processed instantly with a text message, or even government investment bonds bought through a Mobile Money account, recent FinTech innovations in the developing world have had a greater impact than those in Europe or North America.
Mobile Money – an electronic account for unbanked people using just a basic mobile phone – was introduced by mobile telecoms operators as early as back in 2004 and has now become the foundation for a broader electronic payments ecosystem including small businesses, utility companies, schools and employers across a range of sectors. Available in over 90 countries across the developing world, Mobile Money services are increasingly seen as the lynchpin of the financial sector, enabling huge populations of unbanked people to participate in the formal economy.
Partly this is due to the limitations of banking and payments systems in these countries - infrastructure is, at worst, non-existent and, at best, fragmented across much of the developing world. So it’s been up to companies outside the traditional banking sector to innovate and push the regulatory envelope in terms of allowing new technology-driven financial services to flourish. Today, the world’s ‘best practice’ in electronic payments regulations is not in Europe but in countries like Peru, Ghana and the Philippines.
2016 will bring wider acknowledgement among FinTech companies and regulators in Europe and North America of the lessons and experience to be gleaned from their peers in the developing world.
This brings us on to the third consideration for 2016, as there’s one sector in particular where this learning is already taking place.
3. Mobile-to-mobile will be the new benchmark for transferring money across borders.
In 2015 international remittances – money sent personally between individuals - reached an important milestone: over $600 billion was sent by people living and working away from their country of origin. These small money transfers – often just a few hundred dollars at a time, add up to more than all foreign direct investment in developing countries.
Remarkably, most of these transfers are still sent in cash, either ‘informally’ (cash in a suitcase) or via high-street agents, often at a commission. It’s what makes international transactions so expensive – the average cost of sending just $200 is now 7.4 per cent, with some corridors as high as 19 per cent or 20 per cent.
But as technologies like Mobile Money continue to gain popularity in the developing world, instant mobile-to-mobile transfers will become the global standard for sending money from person to person across distances.
2015 saw a series of ground-breaking partnerships between Africa's largest telcos, banks and global money transfer apps like WorldRemit. This trend will continue through 2016 as consumer expectations settle on instant mobile-to-mobile transfers as the benchmark for international remittance.
Alix Murphy, Senior Mobile Analyst at WorldRemit