NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, December 14, 2015

Accenture has warned local banking communities in Asia to wake up: It took just nine months for investment in the region’s non-banking fintechs to quadruple from 2014’s $880 million to $3.5 billion.

While in developed markets, fintech disrupts financial models by exploiting service gaps between provider and consumer, in emerging markets, fintech is on its way to becoming the financial industry.

But a green field of opportunities also comes with significant growth killers for the burgeoning fintech industry, including bureaucratic strangulation and government indifference. These five countries illustrate the most promising opportunities and limitations on the road ahead.

Nigeria: Physical Wallets Versus Digital Wallets

Nigeria is one of Africa’s economic success stories. However, 95 percent of Nigerians’ transactions are still cash based. More surprising still is that most cash in Nigeria is handled without the use of banks, because typical current accounts have prohibitive minimum opening balances. Cash payments are frequently insecure and even sometimes illegal. Fintechs like Paga and Ready Cash step in to allow unbanked people to make payments via SMS, and have quickly built multi-million user bases.

However, the creation of alternative unified-banking channels remains a problem, as digital wallets are fragmented across the continent. This means that while SMS-based banking provides a short-term solution, it will not ensure the growth of finances, nor will it provide wealth management.

Connecting local wallets to a global network will have to be overcome if Nigeria wants its citizens to realize longer-term financial plans. Cash Envoy is one company that is working on unifying wallets across Nigeria, with its email payment service working through a single Cash Envoy wallet. If it can succeed in internationalizing, it will go a long way in helping Nigerian consumers grow their finances.