In emerging markets, digital transactions are booming and providing financial inclusion to underserved countries.
Emerging markets are driving technological advancements in the digital payments sector, as non-bank providers capitalise on the need for increased financial accessibility and wider services. Digital wallets, QR codes, and smartphone apps are powering inclusion, enabling innovative tech firms to tap into and service unbanked customers—a figure of over one billion adults worldwide.
Elements of major financial change
The emerging markets, identified as economies of developing nations, such as Africa and Southeast Asia, represent 85 percent of the entire global population, including 90 percent of all individuals under the age of 30.
With low levels of banking penetration, combined with key trends that are contributing to a digital payments revolution, non-banks and digital payment providers are disrupting industry norms and taking advantage of a rapidly changing banking services landscape.
The first of these trends is the substantially accelerated transition from cash to contactless payments, following the COVID-19 pandemic. Second, e-commerce volumes, already up 25 percent between 2019 and 2020 are expected to grow a further 15 percent by 2025, increasing the need for accessible digital payment solutions. Government-backed technology, particularly in countries such as India and Thailand, are also having an effect. UPI (Unified Payments Interface), for example, enables instant bank transfers from a mobile app—bypassing the need for traditional brick and mortar services and already facilitating an estimated six billion transactions per month worldwide.
Given the rapid expansion of new technologies within the digital payments industry, emerging markets are now beginning to support ‘underbanked’ populations, by offering a wide variety of financial services to customers and providing inclusion through fintech.
Mobile wallets leading the way
In emerging markets, where payment infrastructure is less developed, non-bank wallets are taking precedence over the solutions afforded by banks and businesses to their customers. Although banking institutions retain market dominance through infrastructure, interoperability, and regulation, mobile wallets are challenging the status quo.
Due to the increase in e-commerce sales, mobile wallets now account for 39 percent of all transactions in Indonesia and 31 percent in the Philippines. In Kenya and Ghana, whose digital payment adoption rates sit only behind China, over 80 percent of all GDP is accumulated through digital payments.
Responding to the demand for more accessible methods, and the deviation from traditional banking measures, firms in developed markets, such as DBS in Singapore, have actively launched their own digital products, in an effort to stem the tide of the fintech revolution. In fact, telco and insurance companies are two further examples of businesses using embedded finance to launch or expand regulated banking services to their user bases. This is a major global theme that’s only set to accelerate over the next few years.
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