How the future of finance is shaped will in turn define the lives of millions of people, particularly those living in emerging economies. Unravel spoke with Marcel van Oost, an Amsterdam-based fintech strategist and investor who works with several digital banks and fintech companies globally, about the future of financial services in emerging economies.
He speaks specifically about the role digital banks can play in emerging markets, and key fintech trends we can expect to see. He also talks about the importance of fintech companies making products not for themselves but for the people who will eventually use them.
Unravel: Do you think neo-banks/ digital banks have a greater role to play in emerging economies? Why or why not?
Marcel van Oost: I absolutely think neo-banks can play a much bigger role in emerging markets. My world won’t change if there is another digital banking app available in my hometown Amsterdam. But it could mean a lot in regions where groups of people and small business owners have been excluded from the financial system and now get access to banking products, loans and the like through these neo-banks.
So yes, neo-banks can, and will, have a great impact on emerging markets with high numbers of under-banked or unbanked. The digital banking revolution is just getting started.
Unravel: How can fintech lend itself to socio-economic ends, especially in emerging economies?
Mr van Oost: There are many ways – for example, early payouts to gig workers, (micro-) loans to small and medium enterprises, and others. There is also the example of economies where large parts of the population can’t save too much money even if they wanted to, because they don’t have access to formal banking services.
And they can’t get a mobile phone subscription so they need to continue using prepaid, which is way more expensive.
This is all because of the lack of credit checks and scores and ridiculous bureaucracy at the incumbent banks. This holds back a big part of the economy and keeps the gap growing between the rich and poor.
Digital banks can help these groups of people with their first bank account. Small steps to include every person in the world into the financial system. You can see in Brazil that it works very well with Nubank having great success with more than 20 million customers.
Neo-banks can, and will, have a great impact on emerging markets with high numbers of under-banked or unbanked. The digital banking revolution is just getting started.
Nubank has a completely different UX if you compare it to neo-banks like Revolut, Monzo or Chime. At Nubank, the sign-ups are mostly people that sign up for a bank account for the first time ever, so they need completely different information in their customer journey. If you take that into account, it’s going to be interesting to see how Spanish neo-bank Bnext will do in Mexico, as it is a completely different audience compared to what it has in Spain.
Unravel: Going forward, what are a couple of defining fintech-related trends/ developments you expect to see in developing economies?
Mr van Oost: As I’ve mentioned, I think especially fintechs targeting gig workers and small business owners will do well. This market has been overlooked for way too long and could make a major impact on the economy. Keep an eye on Oyster in Mexico, whose digital banking platform is specifically for freelancers, solopreneurs and SMEs, for example.
Unravel: Fintech platforms are beneficial in that they extend banking services to the unbanked. But the previously unbanked are typically of lower socio-economic strata. In such a scenario, how can fintech players onboard this demographic? And once that is done, how can fintech companies make their business models sustainable from a profitability perspective?
Mr van Oost: That one is hard to tackle indeed. There is no shortage of mobile phones in most parts of the world, so generally speaking, a lot of people should be able to sign up for a banking app account.
The hard part for these fintech companies is mostly the KYC process, and the limited availability of credit scores. A combination of all of this makes it hard to build a solid business model around these startups.
This also shows the opportunity for regtech startups to solve these problems in emerging markets. I am very confident there will be a few big winners in this segment in these markets, soon.
Unravel: How can fintech companies get around infrastructure problems—such as inadequate or weak data connectivity—in developing markets?
Mr van Oost: Five years ago, fintech companies used existing infrastructure to build apps. These days, fintech is reinventing these systems. There is an enormous opportunity for fintech companies to build and provide this infrastructure. First, the industry-wide progression in areas like new standards and regulation, such as the global adoption of open banking, is a good example. Second, there is also the opportunity for individual fintechs to connect and invent new infrastructure and partner with local players in lesser connected areas.
I think fintechs targeting gig workers and small business owners will do well. This market has been overlooked for way too long and could make a major impact on the economy.
Unravel: What can fintech players in developed markets learn from their peers in developing economies?
Mr van Oost: Not only to look at fancy UX, but ask themselves the question what product can really make a difference in people’s lives. One example is that of Brazil’s Nubank that I spoke of earlier, which has customised its UX to the needs of the market it is in.
Unravel: On the flipside, what can fintech companies in developing economies learn from the experiences of their peers in developed markets?
Mr van Oost: As soon as they grow exponentially, they could learn from the smooth UX of the European/ UK challengers. But that is not their main objective – neo-banks in emerging economies target the underbanked or even unbanked. In Europe, neo-banks need to stand out from the incumbent banks that are already in the market. People already have access to bank accounts and banking apps. They need to be convinced to move to a neo-bank for a better product/ services.