Future Perfect: Opportunity for Banksin Emerging MarketsUniversal Banking Solution System Integration Consulting Business ...
New Nomenclature in a New World Order                 The rise of local banksWhen it comes to listing the forces that will...
jointly with the European Financial Management           That being said, these markets are highlyInstitution in September...
Join us on Twitter, LinkedIn and Finacle Whiteboard at www.infosys.com/finacle/networking.asp
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Future Perfect: Opportunity for Banks in Emerging Markets

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When it comes to listing the forces that will
influence banking in the coming decade, emerging
economies rank right up there along with the
digital consumer, mobility and green innovation.
The term ‘emerging market’ was coined in the
1980s as a more positive way to describe what
until then were known as ‘less economically
developed countries’.

Published in: Economy & Finance, Business
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Future Perfect: Opportunity for Banks in Emerging Markets

  1. 1. Future Perfect: Opportunity for Banksin Emerging MarketsUniversal Banking Solution System Integration Consulting Business Process Outsourcing
  2. 2. New Nomenclature in a New World Order The rise of local banksWhen it comes to listing the forces that will Of the several factors contributing to the growthinfluence banking in the coming decade, emerging of the emerging markets’ financial sector,economies rank right up there along with the demography and technology are perhaps thedigital consumer, mobility and green innovation. most important. There is ample evidence fromThe term ‘emerging market’ was coined in the countries such as China, India and the Philippines1980s as a more positive way to describe what of their youthful populations’ willingness tountil then were known as ‘less economically adopt new channels and practices that havedeveloped countries’. But neither ‘emerging come by as a result of automation of coremarket’ nor ‘emerging economy’– words that banking activity. This openness to new technologyare used interchangeably – do justice to a is reflected in the high mobile penetration,phenomenon that is not only about a particular and even more by the acceleration of mobilegeography or its state of economic progress. communication into mobile banking andA better description would be to say that these commerce. Contrast the success of M-PESA, aare regions undergoing an information and mobile money transfer service used by over 10communication revolution despite being partially million Kenyans at last count, with theor less industrialized. Semantics aside, what conservative banking behaviour of Americansets emerging markets apart is that they are mobile bankers who haven’t progressed beyondhome to a huge community of new users using their devices for anything other thanadopting products and services in non-traditional fulfilling the most basic transactions.ways, and a source of innovation in producttechnologies and platforms. What’s more, the ready adoption of technology is not restricted to the urban elite. With mobileNew Land of Opportunity operators plying their trade deep within rural areas, banking institutions in South Asia andThe proliferation of IT and BPO companies parts of Africa have leveraged this outreach toproviding high end, high value, cost effective advance their financial inclusion agenda inservices as well as much of the innovation places lacking basic infrastructure and otherhappening in these countries caught the attention forms of connectivity. Once again, the inhabitantsof well developed nations which for long had of these areas have embraced the mobiledismissed the less developed world as an banking offering – designed for simplicity andeconomic dead-end. The timing of this newfound viability without compromising security – as a wayinterest coincided with the realization that it was to channelize their savings and lead a morebecoming increasingly harder to do business in fiscally responsible life.the West on account of the high cost of thoseeconomies and the limited opportunity offered by Another reason for the rapid spread of bankingtheir ageing populations. Thus, companies from technology is the fact that unlike their Westerndifferent sectors including automobiles, retailing counterparts, emerging market institutions wereand pharmaceuticals stepped out of the highly not burdened by legacy systems. Hence, theycompetitive, low margin markets of the West in skipped a whole generation of legacy technologysearch of attractive opportunities elsewhere. It when they migrated their core banking operationswas the same for financial institutions. to a fully integrated, online, real-time platform. This enabled them to take products and servicesTherefore, from a banking perspective, emerging to market in a quick, lean and cost-efficient mannermarkets are interesting for two reasons, namely, to benefit their own operations as well as theirto track the progress of their local banks’ customers. That the legacy overhang continues todomestic operations, and to understand the trouble institutions in mature markets is clearlyimportance of these burgeoning markets to the voiced in the response to a survey of 145 banksfinancial institutions of the developed world. across 50 countries which Infosys conducted Future Perfect: Opportunity for Banks in Emerging Markets
  3. 3. jointly with the European Financial Management That being said, these markets are highlyInstitution in September 2010: 63% of West stratified, encompassing a wide variety ofEuropean banks said that inflexible IT was a customer expectations that must be fulfilled. Thisbarrier to innovation, versus just 50% of is driving the banks to focus on understandingrespondents representing banks from the Middle the consumer dynamics through behaviouralEast and Africa. analyses and predictive analytics so that they can meet future needs perhaps even beforeThe entry of foreign banks they are articulated.The vast population of emerging nations was a What Next for Emerging Market Banks?huge draw for Western banks which werestruggling to find avenues of growth within their It’s fair to say that the limited automation oflimited, greying home markets. However, the emerging market banks turned into an advantagedestination countries’ policy of protecting their when they started to modernize, because theydomestic industry by restricting foreign banks’ could leapfrog a generation of intractable legacybranch network and equity ownership meant systems while switching to new integratedthat the latter did not have a level field to play on. technology. Having rapidly upgraded their backThat problem was solved to a great extent by end systems, these banks have now shiftedtechnology, which enabled Western banks to focus to the front end in the online space. Hence,offer sophisticated products and services over they will take their next big leap in Internet andalternative non-branch channels to a large, mobile banking as well as mobile commerce.interested emerging market audience. Ratherthan fight a losing battle against local giants When the concept of mobile banking wasfor a share of the vanilla segment, foreign banks introduced in mature markets, it seemed thatsmartly piloted their initiatives in the markets’ their customers only wanted to use theirwhite space, to bring high-end products, new handsets to ‘talk, talk, talk’; in contrast, emergingchannels of delivery and superior service to their market consumers want to ‘shop, shop, shop’.customers’ doorstep. Hence, there is a big opportunity for financial institutions operating in these markets toIt is important to qualify the above by saying that leverage their mobile platforms to offerthis would not have been possible had the cost commerce, money transfer and wallet servicesof technology not come down over the years to and capture their sizeable population of tech-make it viable for these banks to set up shop in savvy young consumers for life.countries that would otherwise entail a high costof penetration. The future looks bright for emerging markets, now widely acknowledged as the world’s growthHere again, the favourable demographics engine and hub of future innovation. But beyondof emerging markets has added to their that, the onset of a refreshingly open mindsetattractiveness. Since the citizens of these led by the young citizens of these countriescountries are unafraid to experiment with new holds much promise for forward-thinking, first-products, channels and technology, Western moving banking institutions.banks know that they have a real chance ofsucceeding provided they put together a Authormeaningful value proposition. And becausethese customers are young – there are 830 Sanat Rmillion people between the ages of 15 and 34 in Vice President and Global Head Finacle SalesChina and India alone – they are great prospects Infosys Technologies Limitedfor building long term relationships with. Future Perfect: Opportunity for Banks in Emerging Markets
  4. 4. Join us on Twitter, LinkedIn and Finacle Whiteboard at www.infosys.com/finacle/networking.asp

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