FinTech in Emerging Economies

How FinTech startups are democratizing the financial services industry for women in emerging economies

What is FinTech?

FinTech is short for financial technology — it seems simple, right? Well, the term FinTech includes a huge range of products, technologies, and business models that are changing the financial services industry.

It refers to everything from cashless payments, to crowdfunding platforms, to robo-advisors, to virtual currencies. So every time you donate to someone’s Kickstarter campaign — that’s FinTech. Or if you transfer money to someone using Paytm/Venmo — that’s also FinTech.

High Investor demand

Global investment in the FinTech sector has added up to nearly $100 billion since 2010. The total value of investments in fintech companies worldwide increased dramatically between 2010 and 2019 when it reached 213.8 billion U.S. dollars.

In 2020, however, fintech companies saw investments drop by more than one-third, reaching a value of 124.9 billion U.S. dollars, but the investment value increased again in 2021 up to 210.1 billion U.S. dollars. The Americas were the region attracting the most investments in the sector, accounting for nearly 80 percent of the total. Startups focusing on payment and lending technologies received the majority of those funds.

Source: Statista

It’s not just startups that are getting into FinTech. Some of the world’s biggest companies, from Apple to Alibaba, are going big on it, too. Just think of Apple Pay or Alipay.

Fast Adoption

One reason for all of this investment? Consumers are adopting FinTech — fast.

One out of every three people across 20 major economies reports using at least two FinTech services in the last six months.

Source: CNBC

China and India are leading the way, with more than half of consumers using services like money transfers, financial planning, borrowing, and insurance.

Traditional Banking Alternative

Financial technology has filled a void for people around the world who don’t have access to traditional banking services. In fact, it’s estimated that nearly two billion people worldwide are without bank accounts. Now, thanks to FinTech, all you need is your phone to take out a loan or insurance.

Take Kenya, which pioneered a mobile banking system called M-Pesa. Kenyans access their M-Pesa accounts directly on their mobile phones to transfer money, pay bills, or take out loans. Today, an estimated 96% of households in Kenya use M-Pesa, and one study found it has helped lift roughly 2% of Kenyan households out of extreme poverty.

The rise of FinTech has forced traditional lenders, insurers, and asset managers to embrace new digital technologies. For example, wealth managers now have to compete with robo-advisors and automated financial planning services.

These services are available 24/7 and can be more affordable than traditional asset managers, thanks to high-tech algorithms. That helps explain why robo-advisors already have billions of dollars under management.

Growing Concerns

Like any growing industry, FinTech isn’t without risks. And some regulators have struggled to keep up with the fast pace of innovation. Think of peer-to-peer lending platforms, where individuals borrow and lend without going through a bank. Compared to traditional banks, these services might not be required to set aside as much money in case customers default on their loans. This can be risky for companies and consumers.

Data privacy is another major concern. As more financial services go digital, cyber-attacks become a bigger risk. The challenges facing financial technology are likely to grow as more and more businesses go digital.

Indian FinTech Landscape

It is no news that the FinTech industry in India is booming. Globally, the FinTech adoption rate of India stands at a mighty 87 percent, second only to China. The factors behind the good numbers are increased smartphone usage and improved internet penetration, making FinTech more accessible.

The UNCDF’s Inclusive Digital Economies and Gender Equality Playbook regards digital and financial inclusion as one of the key drivers for women’s economic empowerment and agency — it enhances access to income and assets, grants control over economic gains, and the power to make financial decisions.

Twenty-three percent of Indian women remain financially excluded, and a vast 42 percent of the financially included are dormant account holders. Though India has been making strides in leading gender-responsive financial inclusion initiatives with schemes like Pradhan Mantri Jan Dhan Yojana 2014, which managed to bring down the gender gap in financial services from 20 percent in 2011 to 6 percent in 2017, it still needs to deal with the gaping divide in digital access that limits women’s ease of access at a policy level, especially so during a pandemic when physical realities are highly altered.

A brief exploration of the structural challenges faced by women would very easily lead us to repeat patterns that aren’t yet redressed by the policy-level financial inclusion schemes that are in place. Some of these challenges are social, such as the lack/control of mobility and the gender roles imposed on women to limit their economic participation and restrict earning and saving opportunities, while others are market constraints, such as low digital literacy, low entrepreneurial skills or market information, lack of personal collaterals or credit history. Factors like restrictions on in-person mobility and loss of employment have increased limitations of already underbanked groups such as women, making them more vulnerable.

Female FinTech

Therefore, FinTechs need to invest more in Research and Development to unearth distinctive challenges women face. They need to forge newer gender-sensitive approaches to redress structural challenges faced by women and cater specifically to them through tailor-made financial services that understand their needs and savings strategies.

The ‘Power of Jan Dhan: Making Finance Work for Women in India’ report states that by serving 100 million low-income women, public sector banks in India can attract approximately INR 25,000 crore in deposits while financially empowering 40 crores low-income Indians. This will improve financial inclusion and provide a stable platform for FinTech companies to operate.

A gender-inclusive focus can contribute to efficient collaborative efforts between the government and FinTechs. Though the pandemic has disproportionately affected women and led them to face extreme financial distress along with massive job losses given their over-representation in the informal sector, they can start to re-envision a smoother road from isolation to inclusion with the help of financial technology. Technology can work as a great leveler of the playing field and a game-changer in the financial landscape of India. It has erased barriers of the physical world, and with the help of gender-focused policies, it can paint a more sustainable picture for financially-empowered women. It is a long road to closing these gender gaps, but FinTechs can tread these choppy waters with ease.

Startups such as Basis are becoming India’s financial services destination for women. They began with the vision of bridging the knowledge and trust gaps that women face while making and taking action on financial decisions. They now provide a rich library of tailor-made content, curated financial advice and recommendations, resources that help Indian women set and plan for financial goals, and most importantly, a strong community they can count on.

Join the Movement

The global fintech technologies market size was valued at $110.57 billion in 2020 and is projected to reach $698.48 billion by 2030, growing at a CAGR of 20.3% from 2021 to 2030.

Women control more than 60% of all personal wealth in the U.S. Yet globally, women have fewer savings and invest less than men. A report by Fidelity found that women who did invest outperformed men by 40 basis points. More women in the workforce mean greater spending power. Tools and platforms are key to managing and amplifying women’s financial wellness. As the Minister of Finance at Government of the Grand-Duchy of Luxembourg, Pierre Gramegna, says, “FinTech is not only an enabler but the driving engine.”

If you’re a woman led or focused FinTech startup, here’s our open invitation to join the FinTech movement. The leadership team and advisors at StrongHer bring years of experience in entrepreneurship, corporate leadership, technology venture investments, and diversity initiatives. Our strategic investor and partner, Tholons, provides us access to one of the largest global innovation networks. We have the operational experience to scale early-stage companies, and we bring our strong network and investment expertise to catalyze that. The female economy is here, and StrongHer is leading in it.

Check out Arise, the largest capital-backed accelerator program for pre-seed women-led and focused companies, and follow us on Twitter, LinkedIn, and Facebook to stay connected with us.