Embedded finance, aka embedded banking, is transforming the financial services distribution model. E-commerce companies, Point-of-Sale systems, ride-sharing apps, food ordering apps, and other digital financial service providers consider it a revenue opportunity.
Is 2021 the Beginning of the Embedded Finance Era?
With over $7 trillion in revenue, embedded finance has generated a significant buzz in the FinTech market. Sadly, the financial services industry has not upgraded its core business model in years, and the COVID-19 pandemic has made the need even stronger than before.
While banks and insurance companies have spent exorbitant amounts of money digitizing their existing processes, it is high time that they invest fully in creating digital business models to recover the economic crisis.
Embedded finance helps businesses overcome digital adoption barriers and offer outstanding financial services to customers. While embedded finance will benefit the economy globally, its potential implication for the FinTech industry is massive.
Fingent’s FinTech application development services continuously provide financial service and technology innovations, valued by global financial services institutions.
What is Embedded Finance?
Embedded finance is the amalgamation of a non-financial service provider with a finance service. It allows enterprises to create new revenue streams and reinvent the services they offer their customers. It is beneficial to both the enterprises as well as users. In most cases, it is easier to buy products from one single source instead of interacting with many other businesses over the day.
FinTech is already growing at a significant rate, and the pandemic has caused more people to use day trading platforms from lending sites to stocks.
As the world will start incorporating FinTech in their lives, embedded finance opportunities will increase in the future.
What are the opportunities for Embedded Finance?
The most significant advantage of embedded finance is that it streamlines financial processes. Previously, there was a gap between a consumer and the service provider or seller. So, the consumer would often approach a lender or a bank to bridge the gap. However, with embedded finance, the need for a third-party bank or lender is eliminated. Here are a few examples to understand how embedded finance can help you.
Read more: FinTech Innovation: What Is In Store?
1. To make payments
For some consumers, paying with cash for a purchase hurts, making them reconsider a purchase. Embedded systems help eliminate this pain. A consumer using a mobile app with an embedded payment program can tap a few buttons and make a purchase instead of digging into their wallets for cash – for example, a ride-sharing app like Uber. So, when you book your ride, you don’t have to pay the driver cash or pull out your debit or credit card at the end. Instead, you complete the transaction in the app after you reach your destination. You can also use the embedded system to order your favorite cold brew or lip-smacking snack from Starbucks. The mobile app allows users to order and pay for their best-loved delicacies. Starbucks’ online ordering system also rewards customers with redeemable points for every purchase.
Before embedded finance, a person had to apply for a bank loan or open a credit card if he/she needed to borrow money. However, with an embedded system, a person can apply for and secure a loan at the time of purchase.
Klarna and AfterPay are examples of embedded lending. These programs split an online purchase into smaller monthly payments. For instance, a payment of $100 can be divided into four installments with $25 each.
The need to consult an insurance agent or broker for purchasing an insurance policy is eliminated with embedded insurance programs. In the past, buying insurance was needed to buy a car or a house. Also, it was a completely separate part of the process. Some companies have now found ways to speed things up and increase their bottom line by embedding the action of applying for an insurance policy into making a necessary purchase.
For example, Tesla offers an insurance program that allows people to purchase an appropriate amount of coverage almost instantly. Additionally, the insurance available directly from Tesla costs less than a policy from a third-party insurance provider.
Most people feel investing is a complicated process and prefer to stay out of it. However, embedded banking programs help simplify the investing program.
For example, Acorns is a program that invests your spare change by rounding up purchases, thus making investing seamless and touch-free. It doesn’t require you to manually pay back the money since the app takes care of that. They adjust their portfolio according to the market, and so you don’t have to pay attention to the values of mutual funds or stocks.
How can enterprises use embedded finance or banking in their products or services?
Organizations can embed finance or banking in several ways. Even companies that are not in the FinTech industry are seeking ways to offer financial services. For instance, Shopify is offering lending services and bank accounts to companies. Organizations like Udaan and Grab have also started financial services like Udaan Credit and GrabPay.
In some cases, companies can act as connectors between financial services and non-financial businesses. For example, organizations can use a data transfer network by Plaid to offer financial products.
Another option for companies is that they can work with businesses that embed the required infrastructure into their products or services. With an increasing number of transactions and payment processing, the platform ecosystems can expand quickly, giving rise to the need for external financial services.
How is embedded finance beneficial to companies?
1. A new revenue system
Most customers show displeasure when redirected to multiple applications or experience a failed transaction due to timeout. The best resolution to this issue is to have a single unified flow in the customer journey. Customers would stay loyal to a brand if they have an easy-to-use eCommerce website.
Companies can charge a small fee as a commission on such transactions. It helps companies to have a new revenue opportunity without investing in bringing in new customers.
2. Increased hit rate/footfall
Embedded finance products can boost footfall if they can provide an overall improved experience. Given the cut-throat competition, customer loyalty can decline when a better product is launched in the market. Consumers will not hesitate to switch their allegiance to a competitor as long as they get what they need.
Companies can expect an increase in hit rate and better scope of converting users to potential customers with embedded finance products. If the transactions are smooth, the conversion rate will improve.
3. Use existing resources
Organizations need not worry about the expenses and resources needed to acquire new customers or procure high-level infrastructure. By including a financial angle to create an embedded product, you can modify the current systems.
4. Improved customer experience
Embedded finance helps companies create a unified journey for their customers. Offering more services to the customers will eliminate their need to deal with a third-party vendor for completing their transactions. It will result in higher profits. The direct connection between the customer and the company will help improve the customer experience significantly.
How will embedded finance change the future of the FinTech landscape?
With the evolving nature of technologies, embedded finance will persist due to its customizable nature. It will give rise to new opportunities and reduce the gap between various industries and their interactions.
Companies must be open to collaborating to build a bigger market, survive, and stay ahead of the competition. Software solutions providers and technology companies like Fingent play a crucial role in boosting the financial services landscape. Contact us to know more about our FinTech software development services and solutions.
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Technology in Finance: An Overview of the 2021 Landscape
Technology in finance, along with evolving consumer behavior and regulations, are transforming the financial services industry. The COVID-19 pandemic is accelerating the industry’s focus on digital offerings. Government payment schemes, emergency loans, and personal finance management are the need of the hour.
With several bank branches shut and long waiting hours for phone assistance, financial institutions are forced to invest in better IT infrastructure, relevant automation, and technology in finance to deal with the growing consumer demands.
Read more: The impact and significance of digital transformation in financial services.
A study of financial institutions (FIs) by ISMG and OneSpan in North America revealed that providing customers with a top-notch experience is their main priority. 49% of the respondents feel that legacy and manual ID verification are the biggest obstacles to digital opening for FIs, while 35% found that knowledge-based authentication tools were obstacles to onboarding.
Some general FinTech statistics worth knowing are:
- By 2022, the global financial sector is expected to be worth USD 26.5 trillion with a CAGR of 6%.
- 49% of banks and 60% of credit unions in the US believe that FinTech partnerships are worth it.
- Digital payment is one of the most significant FinTech products and holds about 25% of the FinTech market.
That said, many banking and financial institutions are adopting the latest technologies such as artificial intelligence, blockchain, etc., into their operations to benefit their customers, stay competitive, and improve business growth.
Here are the top five technologies that transform the financial services industry currently.
1. Artificial Intelligence
The most crucial advantage of Artificial Intelligence in the finance industry is cost savings, which is anticipated to be worth $447 billion by 2023.
AI systems are a game-changer for the finance industry as they can examine vast amounts of data and find patterns and trends that people may miss, and even predict future trends. AI technology makes it possible to automate processes and manage tasks such as comprehending new rules and regulations or generating personalized financial reports for individuals. For example, IBM’s Watson is capable of understanding complex regulations, including reporting of markets’ requirements in the Financial Instruments Directive and the Home Mortgage Disclosure Act.
Chatbots in banking are helping automate simple tasks such as opening a new account or transferring money between accounts and are proving to be a great money-saving tool.
Many financial institutions such as Bank of America and JP Morgan Chase use AI to streamline customer service. Additionally, AI facilitates mobile banking that allows 24/7 access to customers to conduct banking operations. AI is also helping financial institutions boost security and detect and prevent fraud.
Blockchain is a promising technology that will impact financial systems significantly. Blockchain technology is inspiring to create several P2P (peer to peer) online financing platforms that help monetary interactions happen in a more decentralized way. Blockchain technology can improve existing systems and processes and create cryptocurrencies.
Five typical applications of blockchain include:
- Make cross-border transaction processes faster, more accurate, and less expensive
- Banks can leverage trade finance to create smart contracts between participants, increasing transparency and efficiency
- Clearing and settlement procedures
- Protect against fraud and speed up the verification process with blockchain-enabled IDs
RegTech is a regulatory technology that uses cloud computing technology through SaaS (software-as-a-service) to help businesses comply with regulations efficiently and lower costs.
The various areas of RegTech intervention are:
- Data management
- Reframing regulations and implementing new governances
- Real-time reporting
- Data- analytics and decision
- Fraud and risk management
Non-compliance with mandatory government rules leads to fines and crisis. So most FIs want to do everything in their power to avoid non-compliance.
The need for RegTech solutions is growing as FIs grapple to stay compliant with new and existing regulations. RegTech solutions will create a layer that companies will rely upon significantly. Its high accuracy, single dashboard, data analytics, alerts, and insights will help companies optimize resources allocated to compliance and achieve better results.
4. Machine learning
Similar to AI, machine learning helps create a marketing campaign around the consumer. It enables you to understand what kind of services will attract your target market. For example, how people find a financial website, what page they clicked, and what services they need.
Machine learning algorithms and their capability for sentiment analysis will impact trading significantly in the future. It involves using enormous volumes of unstructured data such as photos, video transcriptions, social media posts, presentations, webpages, blogs, articles, and business documents to understand the market sentiment.
Sentiment analysis will transform the future financial markets, and many believe that machine learning will be central to developments.
5. Big Data
According to the IDC Semiannual Big Data and Analytics Spending Guide, currently, banking is one of the top investors in big data and business analytics solutions. Credit card transactions, ATM withdrawals, credit scores, etc., generate massive amounts of data. Deriving actionable insights from this data is crucial to optimize financial processes and make effective business decisions. It will increase the competency of financial institutions in the future.
Big data can help FIs learn more about customers and make business decisions in real-time. Big data analysis allows FIs to identify market trends and streamline internal processes and reduce risks.
Read more: FinTech Innovation: What Is In Store?
The Future of FinTech Adoption
82% of traditional financial organizations plan to collaborate with FinTech companies in the next five years as they fear losing out. 88% of established FIs believe that they may lose to standalone FinTech companies in the next five years if they fail to adopt FinTech innovation.
Financial companies will have to work towards providing a seamless digital experience for their consumers. To avoid the risk of losing out in the market, many FinTech startups, incumbent financial institutions, and technology companies are entering into new partnerships.
Technology in finance is no different than other disruptive technologies across various industries. It would be wise for even small businesses to consider FinTech as an investment for the future. Fingent has developed end-to-end disruptive technologies and innovative FinTech solutions that will help your business thrive and stay relevant. Contact us for more details.
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The inevitable role of FinTech in improving your financial systems and outcomes
The COVID-19 outbreak has affected every aspect of the economy including financial technology or FinTech. Postponed events and conferences mark missed opportunities for FinTech companies, which could have been a great time to build relationships and focus on new businesses. As investors and customers retreat to more cautious positions, FinTech companies may find fundraising a challenge. Those who seek consumer investments are hit harder. Consumers may be reluctant to invest during such volatile times. Even those consumers who are relatively insulated from economic fallout may choose to invest in safer options for the present. FinTech innovations can improve the efficiency of the financial system and financial outcomes for their customers. This article will discuss how FinTech can safeguard customers’ interest in the post-pandemic world.
What is FinTech?
FinTech is a combination of Finance and Technology. It is used to describe new technology that can improve and automate the use and delivery of financial services. It also enables people to live upgraded lives through innovation. FinTech includes many sectors such as fundraising, education, retail banking, and more. It plays a major role in the development and usage of cryptocurrencies. FinTech also covers various day-to-day financial activities including money transfers, check deposits, and investment management.
Read more: FinTech Innovation: What Is In Store?
Why protect customer interest?
Customers are the primary source of growth, so they must be handled with the respect they deserve. Any product or service which is customer-centric offers the potential to attract and retain customers. Since FinTech provides advantages of speed and convenience, customers are looking at FinTech as a viable alternative. People want streamlined services with applications that are easy to adapt to. Hence, FinTech companies are outlining measures to make their services less complex and more transparent. They are focusing on creating better digital processes that their customers can personalize easily.
Customers’ convenience and requirements are paramount for FinTech start-ups. To that end, they are designing products and solutions to ensure customer satisfaction. Delivering a top-notch customer experience is the goal of FinTech companies globally.
Measures to protect customer interest
Here are some cutting-edge technologies that are protecting customer interest now and into the future:
1. IT foundation for better customer experience
FinTech startups are usually smaller in size and have a technological edge. They have a fresh canvas, allowing them to migrate easily from legacy technologies. The younger digital-first audience is attracted to their services. Larger FinTech enterprises must adopt a new IT foundation with modern technologies. Currently, FinTech customers prefer startups over established brands because they can reap the rewards in the form of better digital experiences. Though startups have a technological advantage, they must continue to focus on their capital reserves to make it through these unprecedented times.
2. Digital communication tools
The FinTech sector is based on understanding the needs of their customers. It is crucial for these companies to strategize the manner in which service providers communicate with their customers. This gets customers locked onto their services with relative ease. Communication through online media or through the content on your site can draw in new leads and build customer trust. When customer interest is protected, they will most likely return to you. In turn, they will recommend the service to their relatives and friends. These parameters are crucial if you want to keep your business afloat.
3. Embrace digital transformation
While your staff may be susceptible to coronavirus, technologies like ML and AI are immune. The financial services system must address customers’ demands swiftly and efficiently. Smart devices and the integration of artificial intelligence are a great way to achieve this. Virtual assistants and chatbots can deliver a customized experience to your customers. They perform all the activities that are usually done by customer service personnel and other executives. However, these digital solutions are faster and reflect sophistication. Digital transformation provides holistic 24/7 monitoring and automated remediation.
4. Digital banking
Previously, a customer’s confidence in a financial company depended mostly on physical infrastructure. However, COVID has changed that momentously! The new generation banking system is going all-digital to reach mobile-first customers. Digital-only banks do not need sophisticated infrastructure or higher human resource management. Digital banks are able to deliver cost-effective, robust services that match the high standards set by traditional banks.
5. P2P Transactions
P2P digital payment is quickly gaining popularity. Customers are adopting such technologies for daily use. P2P eliminates the middle layer and drastically reduces transaction costs. Digital transactions help FinTech enterprises expand their footprints and customer base.
6. Security and privacy
FinTech is an industry where the risk of financial crime is high. It is vital for FinTech companies to think over customer security while designing their consumer experience. Apparent security measures make customers feel comfortable. Customers expect rigid security from FinTech solutions along with reliability and FinTech is practicing stringent security measures to beat the competition. They are making visible efforts to handle customer data with care. To gain the attention of your customers you can make your privacy policies visible enough on your website or app. Remember, it can reflect on the confidence a company has in its security measures.
Changing for the better
It may be difficult to predict how the payments landscape will emerge in the next few years and what will be the long-term impacts on the FinTech industry. Nevertheless, it is likely to witness a transformation that can dwarf what has been achieved thus far. At such times, it is important to gain the confidence of your customers to retain them and enjoy their loyalty.
Thus far, FinTech has only been in the shadows as it were, but now it has found a home in the innovation economy globally. Millennials are more reliant on their smart devices to accomplish their daily tasks. They want the world and its conveniences at their fingertips anywhere and anytime. Given that, perhaps the future might see more interesting innovations in customer experience.
Let’s look at some opportunities for FinTech in the future:
- Companies with remote workforces are better positioned to thrive during and after this difficult period.
- FinTech gives an impetus for greater adoption of contactless money transactions.
- FinTech companies are well-positioned to find new ways to incorporate better digital solutions.
In order to capitalize on all these opportunities, you will need a technology partner to help guide you through the latest innovations. Give us a call and let’s discuss how Fingent can help you guide your business and customers to success in the post-pandemic world…
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How is AI Transforming Various Industry Sectors?
From Siri to self-driving cars, Artificial Intelligence has been breaking into new realms, including industries that are late to adopt technology or that heavily rely on manual labor. Gartner predicts that by 2020, AI will produce more jobs than it displaces. By 2022, one in five workers engaged in mostly non-routine tasks will rely on AI to do a job.
The future of AI only looks bright!
According to experts, AI and the future of work will amplify human efficiency and productivity. AI may match or even surpass human intelligence and capabilities on tasks related to pattern recognition, complex decision making, sophisticated analytics, language translation, reasoning and learning, and speech recognition.
This article discusses how five major industries are benefiting from AI and its innovations.
No surprises here. AI in healthcare always comes first on the list. From doctors, surgeons, nurses to desk receptionists at clinics, Artificial Intelligence is enabling process automation across the healthcare community and ecosystem.
AI tools enable medical professionals to diagnose symptoms, identify trends, analyze data or information that would predispose a person to a particular disease.
AI-powered bots assist surgeons with heart, thoracic, and colorectal surgeries. Using bots for surgeries helps lower the risk of infection and blood loss, reduce pain, ensure higher accuracy, shorten hospital stays, and expedite recovery. Digitized health records (EHRs) help patients access their information on a shared online health portal.
Along with other technologies, Artificial Intelligence is being widely used in the ongoing fight against the COVID-19 pandemic. Remote patient monitoring using AI-powered medical equipment or devices help doctors maintain a safe distance from the patients, while offering treatment. The massive amounts of data generated every second in the field of medicine can be utilized effectively to continuously train AI systems through which these systems acquire the capabilities to generate insights that can aid medical researchers.
The future of AI in healthcare could include everything from answering the phone to interpreting radiology images, and designing therapeutic drugs.
AI plays a key role in helping achieve better productivity, efficiency, and visibility across manufacturing operations. AI systems can transform the way organizations run their production lines, enhance human capabilities, garner real-time insights, and facilitate the design and product innovation.
Read more: Digital Transformation in Manufacturing
Following are some of the ways by which AI impacts the manufacturing sector:
- AI systems help monitor every stage of the production cycle and machine learning algorithms can be used to predict the fill rate, thereby optimizing the manufacturing processes and production planning.
- Small, lightweight “cobots” help create safer working environments. Manufacturers can adopt robotics to perform dangerous jobs, thus sparing their employees for crucial tasks, thereby avoiding occupational health hazards. Cobots are considerably less expensive and easy to program than the usual industrial robots. Soon, machine learning algorithms can improve their capabilities and help the cobots take instructions from humans and interact with them in a better way.
- Predictive maintenance helps companies understand when machines need to be attended and serviced. Using machine learning, predictive maintenance can generate valuable data that helps prevent unplanned downtime. Sensors and advanced analytics in manufacturing equipment allow manufacturers to respond to alerts and resolve machine issues on time.
- Engineers or designers can input design goals and other parameters into generative design software (a program that generates several outputs to meet specific criteria) to explore better designs. Using machine learning, designers can learn from each iteration and understand what works and what does not.
According to a report by Business Insider Intelligence, about 75% of bank respondents with assets worth over $100 billion said that they are using AI technologies compared to the 46% of banks with assets less than $100 billion.
As much as $199 bn is saved for the front office and $217 bn for the middle office. AI technologies in banking can help generate over $250 billion in value. Considering the significant savings opportunities, more and more companies are implementing AI. Simply put, AI helps financial services companies mitigate risk, reduce overheads, and generate more revenue.
Thanks to the numerous AI applications, the academic world is becoming more personalized. Today, a student can access study materials easily through computers and smart devices. AI helps automate administrative chores and minimizes the time required to complete complex tasks thereby allowing teachers to spend more time with each student.
Teachers can assess both multiple choice tests as well as written responses easily. Robots are helping create smart content such as video lectures and simulations as well as digitized textbooks that can be customized to the learning requirements. Along with the learning aids, these digitized interfaces help students of all academic ages and grades.
There is also a rising interest towards smart campus initiatives. A smart campus is a physical or digital set-up in which humans and technology- based systems come together to create and deliver automated experiences across higher education institutions.
AI is eliminating the boundaries of learning regardless of the physical locations. Today, students can learn any course from anywhere across the globe, at any time. AI-powered education helps nurture the fundamental IT skills of students and soon, there will be a wide range of highly interactive and personalized courses available online.
The retail and e-commerce industry has huge volumes of customer information, sales forecasting, stock and inventory to be tracked. Artificial Intelligence helps simplify data management to a large extent. For example, while searching for a product on an e-commerce application, AI recommends similar items according to your budget, color preference, purchase history, browsing data, online behavior, etc.
Cart abandonment is a common issue in the e-commerce industry which occurs when a customer adds items to their shopping cart but does not purchase them. With the help of chatbots and predictive analysts, the likelihood of cart abandonment can be reduced. Chatbots can remind your customer of the items left in their cart before they choose to navigate away.
Previously, people had to rely on the FAQ section of the website to get their questions answered. However, this included unchangeable questions and static answers and most customers were not satisfied with the answers. Today, however, it is changing. A chatbot agent can respond to questions using Natural Language Processing or NLP in a much better way and ensure that potential customers don’t abandon your website. Integrating voice search features into e-commerce applications helps offer a seamless digital customer experience.
Artificial Intelligence and machine learning together are promising to help transform every industry by guiding, organizing, and automating work. AI is definitely here to stay! At Fingent, we have the expertise to help businesses of all sizes including startups as well as established enterprises to gain an edge over competitors.
From suggesting products or providing basic customer service or running software tests, developing apps, and completing extensive problem-solving procedures for industries, we use AI technologies such as machine learning, natural language processing, and business rules that will provide you with optimal results. Get in touch with us to learn more.
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The impact of mobility goes much more than facilitating on-the-go online transactions. Mobility powered digital commerce has the potential to give a big boost to financial inclusion, throwing open banking facilities to people hitherto cut off from the same. At a macro level, it can propel growth, boosting the economy and the GDP of the country itself.
“Emerging economies,” such as India, Brazil, Philippines, and others are neither here nor there in terms of the economy. While such countries do have a strong banking system, generally the system is archaic in nature, with limited number of savings and credit products, and high fees. Moreover, a good chunk of the populace and small businesses, 1.6 billion people and 200 million micro, small and mid-size businesses to be precise, do not have access to such credit and savings products altogether. The mobile phone is a panacea to such woes, offering both the deprived and those already in the conventional banking system access to digital finance.
Digital payments and financial transactions, conducted through smartphones and other mobile devices are now a vital cog in the financial infrastructure of modern, developed economies such as the US and the Eurozone.
How Digital Finance Benefits
Digitization of financial transactions extends the traditional mobility benefits to finance, facilitating anywhere, anytime transactions, and flexibility in sending and receiving payments. It improves efficiency of the process, and offers a world of convenience as well. This apart, the widespread adoption and use of mobile phone powered digital finance is a win-win for everyone.
- Individuals and small businesses gain easy, wider, and often cheaper access to loans, over and above traditional and informal sources. McKinsey estimates an additional $2.1 trillion of loans would be available to individuals and small businesses, from current levels.
- Loan providers not just gain access to a whole new customer base, but also stand to save $400 billion a year in direct costs, considering digital accounts are 80% to 90% less expensive to service compared to traditional accounts. Overall, financial services providers could increase their balance sheets by an estimated $4.2 trillion.
- Digital finance can reduce leakages in collection of taxes, delivery of public services and transfer of subsidies. Governments gain a potential by $110 billion per year on these fronts.
- Service providers, such as telecommunications companies, payments providers, financial-technology start-ups, retailers, and others have a huge business opportunity on their hands. Even within banks and financial service providers, digital finance offers a new level playing field, giving everyone a more-or-less equal opportunity to establish dominance.
Consider the case of a farmer in rural India, who travels for kilometers and spends almost the whole day, just to make a utility payment. The same farmer gets paid just once or twice a year, during the time of crop harvest, but has no access to banks, to save the money. His business is highly risk-prone, at the mercy of monsoons or droughts, but he has no access to insurance. The smartphone can transform his life, by allowing him to accept payment in bank account, make utility payments in just a few minutes through the mobile wallet linked to the bank account, and likewise buy crop insurance on-the-fly.
Digital finance also allow small businesses integrate themselves to the formal mainstream economy, without being dependent on the local middleman. For instance, 70,000 small e-tailers from remote and desolate rural communities in China now sell on the Taobao marketplace, accepting payments digitally.
At a macro-level, digital financial inclusion has the potential to increase the GDPs of emerging economies by around 6%, or by $3.7 trillion, by 2025. This figure equals the size of Germany’s GDP. The resultant growth has the potential to employ 95 million people. The potential however varies from country to country, with countries such as India, Ethiopia and Nigeria having the potential to add as much as 10% to 12% to their GDP, whereas countries such as China, Brazil, and Mexico could add about 4% to 5% to their GDP.
The Long Road Ahead
Realization of such benefits was a long drawn out process in the developed countries, with digital finance maturing over time, in sync with the development of mobile internet infrastructure. Emerging economies can gain similar benefits while fulfilling the pressing need of financial inclusion, without going through similar efforts, since the mobile infrastructure is already in place in most parts of the world. About 80% of adults in emerging economies already have a mobile phone, whereas only 55% of them had a bank account, as on 2014.
However, there is still considerable ground to cover in most emerging economies before they can realize the full benefits of digital finance.
- Individuals may need to purchase a smartphone, or would need to upgrade their mobile phones. While this may sound obvious for the urban educated elite, it is still a tall ask for the rural poor, the primary targets of financial inclusion.
- Mobile service providers may need to roll out 3G and 4G networks over a wide area, before mobile powered digital finance can become widespread.
- Businesses would need to roll out digital financial products that offer better value and cost less than conventional financial tools and products. If they import digital financial products from the developed economies, they need to localize it as well, and ensure it meets local compliance regulations.
- Digital payments could unlock new finance and business models, such as peer-to-peer lending. There is a pressing need for regulatory innovation to facilitate such new models.
- There is also a need to change behavioral patterns and preferences, to make digital finance acceptable. NGOs or other agencies need to take the lead in educating the masses on smartphone usage and how to gain benefits from digital finance.
The onus is on the governments and stakeholder businesses to make a concerted and coordinated effort in such direction.
Efforts are already underway in several emerging economies to facilitate digital finance. For instance, in India, the “Pradhan Mantri Jan Dhan Yojana” (PMJDY) aims to establish the backbone of digital payments initiative by opening bank accounts for all citizens.
However, much work still needs to be done. Financial and banking apps emerge as major conduits for digital finance transactions. Players who aim to grab a pie of the lucrative digital service market need to roll out intuitive apps that enable various possibilities and make digital transactions easy. It pays to partner with an established provider who have considerable experience in developing financial apps and software. We fit the bill perfectly on all counts, offering app and software solutions to enable your business gain new ground.