The world’s next 1 billion middle class consumers are coming online in Africa. Mobile money is enabling Africa’s transformation to a digital economy through the delivery of affordable financial services. Africa has been a global leader in innovating payments technologies and has important lessons for fintech practitioners.
What does the emerging markets fintech opportunity look like? What is the potential here?
There has been a lot of hype around U.S. fintech, an industry now saturated with thousands of companies doing lending, insurance, payments, regulation, and wealth advisory. I believe the industry will begin to consolidate. VC investment into U.S. fintech has slowed down recently but is picking up in emerging markets. African, Latin American, and Asian markets are ripe with opportunity: the world’s 2.5 billion unbanked consumers are coming online. In Africa alone (from Irrational Innovations) :
- Over 85% of people have a mobile phone
- Only 20% have access to financial services
- $4 trillion consumer and business spending
- $528 billion credit gap for Small and Medium Enterprises (SME’s)
Commercial banks, microfinance institutions (MFI’s), and traditional lenders have not yet adapted to digital finance. The mobile generation in developing countries is growing quickly and needs financial services now - smartphones and mobile money enable the low-cost delivery of financial products to this captive audience. Emerging markets fintech is the trillion dollar opportunity of this decade. According to the GSMA's 2017 State of the Industry Report on Mobile Money :
- 690 million registered mobile money accounts in emerging markets, a number that’s rapidly growing
- Mobile money transactions worldwide topped $1 billion per day
- Generating $2.4 billion in direct revenue
What does the emerging markets fintech landscape look like? Who are the major players?
- Emerging markets fintech landscape
- Vertical - Innovations
- Insurance, Supply Chain, Pay As You Go
- Merchant Services
- Personal Finance/Savings
- Money Transfers
- Tools for Financial Institutions
WorldCover uses satellites and remote sensors to predict drought and underwrite smallholder farmers for rainfall insurance in Ghana. Subsistence farmers are sometimes more interested to protect their downside risk than to increase their upside. For example, getting a loan to buy twice the typical amount of seeds and fertilizer could potentially double a farmer’s crop yields for the season. But if there’s a drought, then the harvest won’t come through and the farmer’s family won’t be able to eat. In this scenario, having an insurance payout triggered by drought would be more useful as it ensures a baseline level of household consumption.
Lenddo uses up to 12,000 data points from a user’s smartphone to construct a behavioral profile indicating the willingness to repay a loan. Its credit scoring algorithm analyzes psychometric qualities like honesty, patience, and resilience and other characteristics like the size and diversity of one’s social network to determine the default risk of a loan. Lenddo recently partnered with Experian to expand its financial inclusion efforts in Indonesia and Vietnam. In the absence of traditional financial data like credit scores, Lenddo’s algorithm makes it possible to lend to previously unbanked populations.
The $500 billion global remittance market has attracted many fintech startups. Migrant workers living abroad frequently need to send money back home to relatives, a need that was met for decades by giants like Western Union that charged exorbitant fees. BitPesa uses bitcoin to enable the speedy transfer of money to and from African countries, with payout options to bank or mobile money accounts.
Broadly, how do financial services differ in developed and emerging markets?
- Legacy Infrastructure
- Formality vs. Informality
- Returns on Investment
Practical advice on regulatory issues
Blockchain and emerging markets
Kaivan is the CEO & co-founder of Asaak, a mobile microfinance company. Asaak is solving a major inefficiency in global credit markets: U.S. investors have few options for high yield fixed income products, and emerging markets consumers pay exorbitant rates on microloans from traditional lenders, if they can access loans at all. Asaak bridges the gap using technology to provide African entrepreneurs and consumers with affordable loans through a smartphone interface using a steady flow of debt capital from the U.S.
Kaivan most recently worked as a Data Scientist at LendingHome and previously as a quant at the New York Fed for 3.5 years, where he valuated loans in the Discount Window’s $1.6 trillion portfolio and was the lead developer of two risk models for the Fed’s annual stress test of “Too Big to Fail” banks. In college, he conducted field research in Ghana, Bangladesh, and India to understand how the poor save and borrow money without access to banks. This early research informed his mission to redefine finance in emerging markets.
He holds a masters in Operations Research from Columbia University and a bachelors in Mathematics-Economics from New York University.