Fintech’s impact on developing countries
There is no doubt that the rise of fintech has helped bring people into the financial ecosystem who would have previously been excluded. This is especially true of developing countries – regions of the world that face greater economic inequality and often require more in-depth investment, two problems that fintech can help solve.
According to Jon Frost, head of economics for the Americas at the Bank for International Settlements, “fintech adoption, particularly in developing countries, is driven by an unmet demand for financial services.” So how successful has fintech been in reaching underserved markets, and what does current penetration look like?
What impact has fintech had on developing countries?
“Fintech has relatively improved the economic fortunes of developing countries,” says James Cope, SVP – Head of Product Management at Crown Agents Bank. “Fintech gives less affluent people in emerging markets access to financial services they would not get from traditional banks. From a payments perspective, it makes it easier and cheaper to send development sector payments, remittances and trade payments, all of which benefit emerging market economies.”
This has largely been triggered by an increase in the number of smartphones used in developing markets, which has enabled new opportunities for economic prosperity. According to GSMA Intelligence, smartphone adoption in sub-Saharan Africa was already 49% in 2021, but is expected to reach 61% by 2025. Likewise, smartphone adoption in Latin America was 76% in 2021 and could reach 83% – more than four out of five people – in the same period.
To put these numbers into perspective, the smartphone adoption rate in the world’s largest economy, the US, is currently reported to be around 85%, but will also grow by 2025.
Karen Jordaan, from digital payments company WorldRemit, says: “Globally, there are now over 6.5 billion active devices, and this number is growing as they become increasingly affordable in developing countries. These smartphones – and access to the fintech services available on them – have led to the rise of online payments and other services that improve the economic fortunes of developing countries.”
Access to a smartphone is not only about the services available to consumers on the ground – such as digital payments or current accounts. It opens up emerging economies to new opportunities for inward investment: access to new marketplaces, fresh ways to link development aid, and, importantly, remittances from loved ones abroad. WorldRemit surveyed 3,000 international remitters and found that the main reason they were used was to help recipients cover the costs of education, healthcare and payments from home.
Karen Jordaan says there are still challenges to fintech adoption – including inconsistent regulation, mistrust of technology, the high cost of internet access and the challenge of connecting large rural communities. But people are still getting online anyway: “Last year, the World Bank recorded a 30% increase in the number of adults using financial accounts to 71% of the global population, which it attributes to fintech developments such as mobile money,” says Jordaan.
What economic inequalities still need to be addressed?
There are two stories to most statistics, of course, and the World Bank report that 71% now use financial accounts is no exception. On the one hand, it shows a remarkable increase in economic participation – spurred by the pandemic and the way governments around the world chose to deliver relief and support digitally. However, it still shows that almost 30% are disconnected from the financial system – more, arguably, in emerging markets, with developed economies likely to push this statistic upwards.
“In short, many developing countries still have many people – often the majority of the population – who are unbanked or underbanked. Fintech has helped close that gap and will continue to do so,” said James Cope of Crown Agents Bank.
