“There are billions of people in the world who are not connected—so they’re effectively not in the economy,” said Scott Picken, founder and CEO of Wealth Migrate, a real estate investment firm that uses crowd funding to provide greater access to property ownership. “If we have 7 billion people on the planet and only 2 billion are economically active, what effect will it have if there’s a three-fold increase?”
At the end of 2017, only about half of the world’s population had access to the internet—and in Asia and Africa, that rate is even lower (44.7% and 26.9% penetration, respectively). But internet usage in third-world regions is growing exponentially—and those emerging markets also hold enormous opportunity for fintech, said Picken.
“In the first world, new fintech applications are nice to have, but people have plenty of alternatives,” he said. “But in the emerging world, they’re a necessity.”
A stunning success story of fintech in just such markets is M-PESA, a mobile money system introduced in Kenya in 2007 by Vodafone for Kenya mobile telecom operator Safaricom; as of 2014 it had more than 15 million subscribers who transact as much as 60% of the country’s GDP over the mobile platform. The service has since been expanded to Albania, the Democratic Republic of Congo, Egypt, Ghana, India, Lesotho, Mozambique, Romania, and Tanzania.
A report last year by McKinse Global Institute concluded that widespread adoption and use of digital finance could increase the GDPs of all emerging economies by 6%, or a total of $3.7 trillion, by 2025—which could provide market access to 1.6 billion unbanked people, enable an additional $2.1 trillion in loans to individuals and small businesses, increase government tax revenue, and increase the balance sheets of financial services firms by as much as $4.2 trillion.
In addition to bringing financial opportunities to those who have never had it before, fintech holds plenty of potential for financial firms and their customers in the developed world. For example, fintech in the age of machine learning could bring a level of service to the middle class previously enjoyed only by the wealthiest investors.
“Currently, robo-advisors provide standard service—you fill out an online profile, they categorize you, and then they provide standard services based on that category,” said Ting Li, CEO of Yunfeng Financial Group, who spoke on the panel with Picken. “But this is the first phase. In the future, robo-advisors will use machine-learning technology to calculate an individual investor’s risk profile and needs by identifying that investor’s behavior online and have a 360-degree view of who that investor is. This should result in more customized choices for the consumer.”
No wonder that forward-looking CFOs are looking for modern, cloud-based financial tools to help them become more proactive.
Li said that large banks need to up their game in the design of their products and service delivery for a mobile world. Part of the reason for the poor user experience is that IT people in big financial services companies are typically isolated from finance people.
And startups intent on disrupting the financial space are plenty. While investment in fintech companies fell to $25 billion in 2016 from $47 billion in 2015, according to The Pulse of Fintech Q4 2016 report by KPMG, in 2013-2016 more than 4,200 M&A and venture deals took place that were worth $113 billion. The drop in investment in 2016 may have much to do with one-off global uncertainties, and the analyst firm believes that 2017 will see an increased level of investment in fintech-related data and analytics as well as artificial intelligence.