It’s difficult to comprehend the size of the global financial services ecosystem. Take just a minute to think about every person on earth with access to financial services (deposits, business loans, microlending and so forth). It’s around 2.5 billion adults.
Despite having access to financial services, many people fall into the category of being underbanked, which means that typical banking services aren’t readily available. And another 2 billion people are unbanked, meaning they don’t have access to formal financial services at all.
Globally, Six and a half times the entire population of the United States are unbanked. The good news is that that number is continuing to drop (700 million since 2011). Most unbanked people are in emerging and developing economies (India, China, sub-saharan Africa). Banks and fintech companies are discovering new ways to acquire previously unbankable customers. It’s a win-win combination: people get access to critical financial services and banks acquire new customers.
To be clear, the takeaway here is not about the underbanked. The takeaway is that there is a necessity for innovation in emerging markets and, as they say, necessity is the mother of invention.
Timing and context matter, a lot
It’s easy to think, “That's interesting. They’ve got a long way to go before they reach the issues I deal with in a mature banking system!” That’s true, but there are some critical differences to consider.
Community and regional banks in the U.S. didn’t come of age with the following:
- The internet
- Pocket supercomputers (smartphones)
- Cloud computing
- Machine learning and automation
- Practically limitless datasets on customers
- APIs, real-time payments, P2P lending and blockchain
Imagine how different you would bank if you had started from scratch. Imagine how different regulation would be with easy access to real-time data from banks. It’s difficult to imagine this whole new world but it’s exactly why fintech is (rightly) recognized as a great opportunity for the industry and the consumer.
It’s also why fintech’s greatest opportunity is outside the U.S. Banks in developing countries, without so many legacy systems and processes, have the freedom to experiment. Out of necessity, emerging banking ecosystems are creating new products and services to serve un(der)banked customers and qualified customers. No bank is doing it perfectly today, but emerging markets are being forced to gain experience and practice. It’s that practice that is critical. Practice helps build the fintech muscle, which impacts how you conduct business and serve clients better.
Global Fintech is Local Fintech
So, who cares? How does innovation in banking in a country 8,000 miles away apply to you? I see two ways.
First, it’s an opportunity to learn. Innovation is most likely to occur when there are both incentives and constraints. Emerging economies have a huge, untapped customer base. Developing new services to acquire and serve all customers pays in spades over a person’s (and their family’s) lifetime. Emerging economies are digital and mobile first because of infrastructure challenges that make it difficult if not impossible to operate a traditional U.S.-style branch network. That’s not the same experience we have here in the U.S. However, appreciating these new products, services and risk assessment methods may give you insight into how to better serve your customers.
Second, it’s a (future) threat. What happens when the next international bank that can serve everyone, from the rural farmer to the high net worth individual, wants to expand? What market will they target next? What experience and technology will they bring with them that’s been honed to serve all clients. What will you do to compete? How can you widen your moat today?
The most important question, what can you do now?
The first step is to start learning about fintech, both at home and abroad. We believe this is critical so we write about it everyday on the Let's Talk Payments website. The more familiar you are with global trends and technology, the easier it will be to apply that learning to your own bank. It will equip you to have more meaningful conversations with your team, customers and potential fintech vendors.
Next, come up with a list of pain points for your customers (big or small) and start the journey of leveraging fintech to enable a better customer experience, new products and increased operational efficiency at your bank. Remember, it’s that experience that will help you and your team develop your fintech muscle.
As your team evolves your banking experience it’s important to remember that technology isn’t the answer. Technology is merely the great enabler to satisfying the needs of your customer. You need to experiment and gain experience. Your customers, shareholders, and communities will be better for it. So don’t wait, get started.
Patrick Rivenbark is the VP of Strategic Partnerships at Let's Talk Payments, a global leader in FinTech Insights. He will be presenting at this year's FinXTech Annual Summit on the panel titled "Ideas Know No Boundaries: A Global Perspective" where he will speak about innovation in financial services taking place outside of the United States.