What’s The Future Of Digital Banking In Emerging Markets?
Solutions of digital banking in emerging markets continue to increase its impact in emerging markets, as in every field. Digital banking dynamics, which offer new solutions to new problems that arise daily, are more compatible with the dynamics of emerging markets than traditional banking.
Financial needs are also developing and changing in emerging markets, such as mobile banking, artificial intelligence technologies, and blockchain tools. This creates new problems and increases the dependence on new solutions.
For example, if a team or individual managing projects related to artificial intelligence technologies or fintech does not choose digital banking solutions for their financial needs, they will lose their competitive advantage in the market.
In these markets where continuous innovations are offered, it may be necessary to make quick financial decisions. In addition to quick decisions, fast and flexible actions also increase the impact of digital banking in emerging markets.
In the modern world where digitalization is widespread in every field, managing financial transactions digitally is almost an essential need.
Digital banking in emerging markets solutions both facilitate accessibility for participants in these markets and enable fintech projects to be managed on a more suitable basis.
Why Is Digital Banking In Emerging Markets Growing Rapidly?
The dynamics of emerging markets are constantly changing. This allows participants in these markets to quickly adapt to innovations. In this process, their dependence on digital banking tools to manage financial needs in a practical, fast, and efficient way is increasing.
The development and widespread use of mobile technologies every day cause more institutions and people to turn to digital banking in emerging markets. Digital banking, which includes more investors and participants, is thus increasing its impact in emerging markets.
Other reasons why digital banking in emerging markets is becoming widespread, especially in emerging markets, can be listed as follows:
- Increased internet access
- Inadequacy of traditional banking services
- High cost of infrastructure changes
- The increasing need to manage financial needs quickly and practically in rapidly changing conditions.
Key Trends Shaping Digital Banking In Emerging Markets
Digital banking in emerging markets has been taking shape with many different sectors and trends over the last 10 years. For example, 5 years ago, when artificial intelligence tools and machine learning technology were not as widespread and advanced as they are today, artificial intelligence tools were not used in digital banking management.
However, the gradual development of this technology has enabled all financial institutions to benefit from artificial intelligence tools in their mobile banking processes. Another trend that directly shapes the dynamics of digital banking is the spread of mobile banking, even becoming the first option.
People of all ages and income levels manage their financial needs and banking transactions with mobile banking solutions. Other trends that directly shape digital banking in emerging markets include fintech developments and the popularity of cryptocurrencies.
Cryptocurrencies have become popular in the last 5 years and have enabled people and institutions to become acquainted with the concept of digital assets. This has started to make digital banking compatible with cryptocurrencies.
The Role Of Fintech In Digital Banking In Emerging Markets
Digital banking in emerging markets is directly related to fintech developments. Digital banking management has already been created and developed due to the developments in the fintech field. Fintech startups or companies are innovative communities that aim to solve problems in traditional banking with digital products or services.
Businesses working in the fintech field generally produce solutions in many different areas such as lending, digital wallets, payment systems, mobile payment processes, and insurance processes.
Since digital banking in emerging markets has a significant impact in emerging markets, fintech developments that affect and develop this area also directly affect the markets.
The accessibility of fintech solutions or developments to everyone increases financial inclusion in emerging markets.
For example, being able to get a loan with a mobile phone provides efficiency to digital banking processes, making it possible for people of all income levels to digitally access the loan packages offered by banks with the help of artificial intelligence.
How Mobile Technology Supports Digital Banking In Emerging Markets?
People now manage their financial processes with mobile technology tools and solutions, not only in emerging markets but also in almost every sector. In fact, I can say that individuals and businesses can now optimize all their financial processes with the help of mobile devices.
Many people continue their communication with banks and benefit from credit offers and payments with mobile devices and mobile technology solutions.
Mobile technology includes not only mobile banking elements but also SMS-based transactions. Today, many banks also offer SMS-based transactions for customers who do not have internet access and individuals can manage their financial needs via SMS.
In addition to these, mobile payments are one of the first solutions that come to mind when it comes to mobile technology. With the development of digital banking in emerging markets, payments or other asset transfers in many different sectors can be completed with mobile wallets.
The best example of this would be digital wallets where cryptocurrencies are stored.
Challenges Facing Digital Banking In Emerging Markets
In emerging markets, digital banking processes can sometimes cause some difficulties. Although technology and digital banking in emerging markets are rapidly advancing areas, many users may, unfortunately, lack digital and financial literacy.
Customers or individuals who lack digital literacy may not benefit from digital banking services efficiently, such as older generations who visit a physical bank branch instead of a mobile app for even simple financial transactions.
Another challenge could be cybersecurity threats. It is known that there are many cases where data security has been exploited. Moreover, it is known that some of these data thefts even affect the democratic level of elections in countries.
In addition, especially in emerging markets, digital banking in emerging markets can experience many regulatory incompatibilities. Artificial intelligence, which has just entered our lives, is not yet legally based even in many developed countries.
In addition to all this, the cost of bringing infrastructures into such a digital transformation is one of the factors that complicate digital banking processes in emerging markets.
How AI And Blockchain Influence Digital Banking In Emerging Markets?
Artificial intelligence and blockchain technologies, which are the trending areas that investors are most interested in among emerging markets, are mutually pushing the development of digital banking.
Thanks to artificial intelligence solutions, special and unique product or service recommendations can be offered to each customer.
Moreover, artificial intelligence tools introduced by fintech startups in recent years can detect potential fraud cases in advance, making digital banking in emerging markets safer.
In addition, most financial institutions outsource many operations of their customer service departments to chatbots or artificial intelligence tools.
In addition to customer satisfaction, the ability to analyze large amounts of data quickly also makes a big difference for financial institutions.
It is known that investors in different markets use digital banking tools to speed up their analysis processes with artificial intelligence solutions.
One of the trending emerging markets is blockchain technology. Blockchain technology has greatly improved digital banking in emerging markets with cryptocurrencies, which are digital asset classes, in recent years, but it has also led to revolutionary changes in data storage methods.
Regulations Impacting Digital Banking In Emerging Markets
Regulations can cause compliance problems, as with every digital development. Today, a new digital banking application is introduced to the market every day. Especially in developing markets, digital banking management may face different regulatory problems in different countries.
Today, even in giant world countries such as the USA, England, and China, legal regulations regarding digital banking have not yet found a solution for every issue and problem.
Although these gaps may occasionally lead to possible fraud cases, digital banking practices will become widespread in emerging markets shortly and regulatory problems will gradually decrease.
KYC protocols that ensure the security and privacy of data and regulations regarding digital asset transfers will gradually become more compatible with innovations and innovative processes.
When the regulations to be made by the European Union in the field of digital banking in emerging markets are examined, it has been agreed that the passport and central licensing principle should be applied to all digital financial products by 2024.
For a competitive European Union financial sector, the European Commission published its “digital finance” and “retail payments” strategies on 24 September 2020, which will shape the financial sector in the coming years.
It is considered that the regulations to be made regarding fintech companies, which perform an extremely important function in both digital banking and service model banking applications, should be created in a way that does not disregard the criteria of facilitating or not obstructing the entry of non-traditional financial service companies into the system.
On the other hand, it would be appropriate to make regulations to reduce the possibility of an increase in operational risks due to cybersecurity, digital fraud and technological infrastructure deficiencies in fintech companies.
Issues such as the integration of all processes and basic systems with technology, API infrastructure, compliance and flexibility with digital systems, changing customer expectations, and changing digital-open customer experience necessitate technological change and an innovative perspective focused on people in legal regulations.
Investment Opportunities In Digital Banking In Emerging Markets
Digital banking in emerging markets, on the other hand, is at the forefront of security technology.
The high-tech security methods of digital banks can be seen in the registration process where fingerprint scanning, voice recognition, and facial recognition are used to verify customer identities before approval.
It also offers instant freeze and unfreeze features that ensure customers’ money security. In many countries, governments have helped consumers in this regard by increasing contactless payment limits.
Those on Visa and Mastercard, the two card networks that account for 94% of transactions outside of China, increased by more than 40% in the first quarter of 2020 compared to the same period in 2019.
An examination of Square card payments, which helps small businesses accept credit, found that the share of fully cashless customers in the U.S. rose from 5% in February 2020 to 23% in April 2020, before stabilizing around 14%.
How Does Digital Banking In Emerging Markets Improve Financial Inclusion?
As a result of technological developments and digitalization, the use of information technologies in financial markets as in every field, and the transfer of transactions, processes, and data to the digital environment have initiated the digital transformation process.
Rapid adaptation to technological developments and the spread of digital banking in emerging markets and applications have also contributed significantly to the rapid recovery of the banking sector, which is one of the sectors affected by this process, after the global financial crisis of 2008.
Technological advances, as in many other sectors, are directing banks to innovative methods that will increase efficiency in order not to fall behind in global competition.
On the other hand, the use of mobile wallets, which started to become widespread especially before the Covid pandemic and allow payments to be made after loading money onto the phone, has been observed to increase in many countries.
For example, while one-third of Singapore’s 18,000 street vendors allowed consumers to pay by scanning a QR code in July 2020, this rate has increased by over 50% in just two months with the pandemic.
Many governments in Africa have declared these wallets as essential services. In Kenya, the amounts held in m-pesa, a ubiquitous mobile money service, increased by a fifth in May alone.
The Future Of Digital Banking In Emerging Markets: What To Expect?
Considering that investments in digital banking in emerging markets are increasing in the future, I can foresee that studies in this area can be financially profitable projects.
So to give a simpler example, investments in trending markets such as artificial intelligence or blockchain today can be good choices for our financial stability in the future.
It is observed that mobile banking traffic increased by 85% and online banking transactions increased by 200% in the USA in April 2020. It is stated that a new era has begun in the financial sector with digitalization.
Traditional banks now account for only 72% of the total market value of the global banking and payments industry, up from 81% at the beginning of 2020 and 96% a decade ago, with the remaining share being taken by companies offering digital banking in emerging markets.
Fintech firms like Ant Group and PayPal account for about 11% of the services mentioned. Their market value has almost doubled in 2020, reaching around $900 billion.
See you in the next post,
Anil UZUN