“Fintech and the advance of developing markets”
Few newspaper editors would yell ‘stop the presses!’ (or, more likely, ‘update the webpages!’) if a journalist came to them with a story that major technology companies like Apple and Google are increasingly encroaching on territory traditionally dominated by established financial institutions.
Since launching in the US in October 2014, Apple Pay’s digital wallet service has expanded to the UK, Canada, Australia, China and Singapore1, while Google’s peer-to-peer Wallet lending service will celebrate its 5th anniversary in the US on May 26th 2.
Technology industry leaders Amazon, Apple, Google, Intuit and PayPal have even combined forces – forming a coalition called Financial Innovation Now (FIN) to promote policies to help foster greater innovation in the financial services sector, and address challenges such as security and the protection of personal data .
Yet while consumers can now use their iPhone to glide onto the London Underground and pay for many other goods and services, overall penetration of mobile payment services remains modest. In 2015, just 3% of in-store retail payments in the US were conducted by mobile–pay systems, barely a tenth of the proportion paid in cash (29%)4.
Consumer attitudes, particularly to privacy and security, have emerged as significant barriers to growth. GfK has found that just 16% of US and 23% of UK consumers agree that making mobile payments with their mobile device is more secure than using other methods5.
This is in sharp contrast with the picture in developing markets. 52% of Indian consumers, and 41% of those in China, agree that mobile payments are more secure. Indian and Chinese consumers are also far more likely to agree that making payments on their mobile devices makes shopping more efficient: 56% of Indian and 66% of Chinese shoppers say so, compared to just 30% of UK consumers and 23% of those in the US6.
Ironically, the more developed state of markets like the US and UK may hamper the uptake of Fintech innovations. The existence of tried and tested payment systems means British and American consumers have a variety of familiar options which most feel they can trust, to a much greater degree than their counterparts in countries like India and China.
As a result, the ‘push factors’ for uptake of Fintech solutions – such as a reliance on cash and lower security of financial transactions – are less powerful in more mature markets. By contrast, consumers in countries with less developed financial infrastructure appear to be more willing to leapfrog to newer, more innovative fintech products and services.
Of course, it is not all doom and gloom for the big fintech players in advanced economies. Technologies such as mobile pay are still in their infancy, and there is no reason to suppose that consumers will not ultimately become more accepting over time.
Concerns about security do not in themselves overshadow the advantages of many Fintech solutions – especially in the area of mobile payment. Digital wallet systems offer unparalleled convenience to the consumer, enabling them to manage money in a sophisticated way without having to change devices or repetitively enter pin numbers. Existing brand consumers also benefit from a significant time saving factor when signing up to the likes of Apple Pay.
Moreover, many Fintech solutions boast impressive security chops, and these appear to have designed in a way that reassures prospective buyers. Apple Pay gives users the option to set a unique, more complex password for greater protection, while for the Amazon Payments system this is compulsory.
Nevertheless, it is clear that consumer sentiment in developed economies represents a much bigger hurdle to growth for major fintech companies than their counterparts such as India’s Paytm, MobiKwik and Freecharge.
While this is likely to make the short term prospects for such solutions brighter in the developing world, there may be long term implications as well.
The dramatically different attitudes to technology GfK has found in countries like India and China suggest a greater openness to new approaches and hunger for new solutions than in the West. The demographic profile of India – which has a median age of just 27, compared to 38 in the US and 40 in the UK – suggests that this apparent divergence in attitudes is likely to only grow over time, as younger consumers acculturate faster to new technologies7.
So while the advanced, western economies may have defined the evolution of fintech solutions so far, the key markets of the future for these products and services may look very different
Sam Beresford, Senior Analyst, GfK London