Buzzwords tend to fizzle out as quickly as they come into fashion. But one concept has gained significant importance for emerging markets (EM) in recent years.
FinTech, the marriage between finance and technology, describes the way in which financial service firms have adopted new technologies to streamline their internal processes and to improve the distribution of their products. Think everything from smartphone payments to blockchain technology.
We’ve been monitoring the extent of FinTech uptake in EM for some time and it’s fair to say the speed of adoption has been nothing short of phenomenal.
Why is this so important for EM investors? Well, it provides yet more evidence of the extent to which innovation is a driving force for investment opportunities in EM. Put simply, EM countries (and companies) are streets ahead of their developed market counterparts when it comes to understanding and exploiting the growth potential of FinTech.
A potent combination of favourable demographics, governments keen to accelerate financial inclusion, and tech-savvy populations leap-frogging traditional banking methods, means FinTech adoption rates in EM countries outstrip developed markets in every category from money transfer to savings and investments. China, in particular, has positioned itself at the centre of FinTech revolution, creating an ecosystem unmatched in more established markets.
EM banks are at the forefront of the adoption of FinTech globally. As a result of their early adoption, they are now world leaders in the use of electronic distribution channels.