The role of fintech in developing countries

The role of fintech in developing countries

Fintech is quickly starting to become the go-to financial system in most countries worldwide. In developed countries such as the United State or the United Kingdom, nearly all of the financial institutions have moved to online and are now relying on technology to basically run their business for them.

In the future, it’s believed that the whole world will move to the digital space in terms of finance, and the idea of physical money will disappear completely. The catalyst of such a development will be the various Fintech companies and startups that are starting to pop up all over the world.

However, like almost anything else, the more room these startups have to grow, the more impactful their products will be. That’s why many believe that the best Fintech companies will be created in developing countries, where the populations need relevant banking opportunities and various other services in terms of finance.

Where is Fintech taking hold most?

As of now, it’s believed that financial technologies are mostly used in the European Union especially in the Nordic states, where the use of cash has all but been removed from the economy.

For example, only 11% of Swedes now use cash as a daily driver and the rest simply rely on their cards or even better, their implanted microchips for various payments.

That’s right. There are around 10,000 Swedes that have microchips implanted in their hands which allow them to make payments without cash or even a credit card. Many believe that this new technology is going to spread across the whole Fintech world so that companies are forced to adapt and manage their business models accordingly.

Furthermore, it’s beneficial to the industry that nearly every single country is starting to ease its regulatory frameworks to better accomodate these companies and integrate them into the economy.

Where is Fintech most needed?

Fintech could mean quite a lot of things. It could be a simple microfinance platform that operates only through the webs or mobile application, or it could mean something as extensive as the blockchain network which also operates completely online.

Therefore, it’s easy to determine that Fintech is most required in the least technologically developed countries in the world. Countries, where visits to the bank are still essential to get service or even cash out payments.

Countries where there’s a huge majority of the unbanked population and countries where poverty is a rampant issue.

Most Fintech companies are starting to realize that the more people they support, the more likely they are to increase their own growth factors, and that’s why we see so many new startups in places like Africa and South East Asia.

Nearly all of them are focusing on providing banking services to the digitally unbanked so that they could participate in the global economy.

Why do these countries need Fintech?

As already mentioned in the previous paragraph, Fintech is the gateway to the digital economy. Not having online banking opportunities deprives people of buying or selling various goods and services online.

Sure the banks have started to provide credit and debit cards for these purposes, but that’s not nearly enough to accomodate the large demand.

Some startups have decided to focus on the more familiar methods of the unbanked, by taking their payment platforms on the mobile SMS industry which is much easier to adapt to.

A primary example of the impact of Fintech is Venezuela, where people are still suffering from mass inflation and the severe reduction of living qualities.

The citizens of Venezuela are now partially, if not completely reliant on the funds sent by their relatives from abroad, but even those funds quickly fall victim to the local currency’s inflation tendencies.

For example, if a person received $100 from abroad and cashed it out in the local Bolivar, it could take no less than a week for that $100 to turn into $50.

Because of this, the local population started using the Dash cryptocurrency as their alternative payment method. The company quickly saw the importance of their platform and adapted it to the SMS versions.

Even today. The Venezuelan economy heavily relies on Dash transfers to function and provide basic necessities to their population. It is truly a display of what Fintech could do to a country’s population when the government doesn’t pay attention.

What does Fintech look like in developing countries?

Although Venezuela is a great example of how Fintech provides currency security, there are other versions that the companies follow.

For example, in the developing countries of the Caucasus region, nearly every single Fintech company is somehow related to microfinance, simply due to the poverty factor of the population.

Although the economy looks great on the surface, quite a lot of strife and economic uncertainty is hiding under it, nearly all of the country is in deep credit and lives off of it on a monthly basis.

This is mostly due to the overwhelming number of digital microfinance platforms that don’t really dedicate too much effort towards researching their borrowers. This then leads to company failure as well as economic uncertainty for the population.

No matter how we look at it, the end goal of a Fintech startup needs to boil down to value rather than profit. That’s what most companies are targeting in developing countries in Africa and are thriving as we speak.

Fintech is a great alternative to the large banks, which usually provide quite unfair interest rates on the loans they give out or the digital services they provide.

By expanding the industry in developing countries, every citizen of the world will have the opportunity to participate in the global digital economy, which will then subsequently drive growth in both inside and outside of the countries.