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’.

1. Future Perfect: Opportunity for Banks
in Emerging Markets
Universal Banking Solution System Integration Consulting Business Process Outsourcing

2. New Nomenclature in a New World Order The rise of local banks
When it comes to listing the forces that will Of the several factors contributing to the growth
influence 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 the
digital consumer, mobility and green innovation. most important. There is ample evidence from
The term ‘emerging market’ was coined in the countries such as China, India and the Philippines
1980s as a more positive way to describe what of their youthful populations’ willingness to
until then were known as ‘less economically adopt new channels and practices that have
developed countries’. But neither ‘emerging come by as a result of automation of core
market’ nor ‘emerging economy’– words that banking activity. This openness to new technology
are 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 mobile
geography or its state of economic progress. communication into mobile banking and
A better description would be to say that these commerce. Contrast the success of M-PESA, a
are regions undergoing an information and mobile money transfer service used by over 10
communication revolution despite being partially million Kenyans at last count, with the
or less industrialized. Semantics aside, what conservative banking behaviour of American
sets emerging markets apart is that they are mobile bankers who haven’t progressed beyond
home to a huge community of new users using their devices for anything other than
adopting products and services in non-traditional fulfilling the most basic transactions.
ways, and a source of innovation in product
technologies and platforms. What’s more, the ready adoption of technology
is not restricted to the urban elite. With mobile
New Land of Opportunity operators plying their trade deep within rural
areas, banking institutions in South Asia and
The proliferation of IT and BPO companies parts of Africa have leveraged this outreach to
providing high end, high value, cost effective advance their financial inclusion agenda in
services as well as much of the innovation places lacking basic infrastructure and other
happening in these countries caught the attention forms of connectivity. Once again, the inhabitants
of well developed nations which for long had of these areas have embraced the mobile
dismissed the less developed world as an banking offering – designed for simplicity and
economic dead-end. The timing of this newfound viability without compromising security – as a way
interest coincided with the realization that it was to channelize their savings and lead a more
becoming increasingly harder to do business in fiscally responsible life.
the West on account of the high cost of those
economies and the limited opportunity offered by Another reason for the rapid spread of banking
their ageing populations. Thus, companies from technology is the fact that unlike their Western
different sectors including automobiles, retailing counterparts, emerging market institutions were
and pharmaceuticals stepped out of the highly not burdened by legacy systems. Hence, they
competitive, low margin markets of the West in skipped a whole generation of legacy technology
search of attractive opportunities elsewhere. It when they migrated their core banking operations
was the same for financial institutions. to a fully integrated, online, real-time platform.
This enabled them to take products and services
Therefore, from a banking perspective, emerging to market in a quick, lean and cost-efficient manner
markets are interesting for two reasons, namely, to benefit their own operations as well as their
to track the progress of their local banks’ customers. That the legacy overhang continues to
domestic operations, and to understand the trouble institutions in mature markets is clearly
importance of these burgeoning markets to the voiced in the response to a survey of 145 banks
financial institutions of the developed world. across 50 countries which Infosys conducted
Future Perfect: Opportunity for Banks
in Emerging Markets

3. jointly with the European Financial Management That being said, these markets are highly
Institution in September 2010: 63% of West stratified, encompassing a wide variety of
European banks said that inflexible IT was a customer expectations that must be fulfilled. This
barrier to innovation, versus just 50% of is driving the banks to focus on understanding
respondents representing banks from the Middle the consumer dynamics through behavioural
East and Africa. analyses and predictive analytics so that they
can meet future needs perhaps even before
The 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 were
struggling to find avenues of growth within their It’s fair to say that the limited automation of
limited, greying home markets. However, the emerging market banks turned into an advantage
destination countries’ policy of protecting their when they started to modernize, because they
domestic industry by restricting foreign banks’ could leapfrog a generation of intractable legacy
branch network and equity ownership meant systems while switching to new integrated
that the latter did not have a level field to play on. technology. Having rapidly upgraded their back
That problem was solved to a great extent by end systems, these banks have now shifted
technology, 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 and
alternative non-branch channels to a large, mobile banking as well as mobile commerce.
interested emerging market audience. Rather
than fight a losing battle against local giants When the concept of mobile banking was
for a share of the vanilla segment, foreign banks introduced in mature markets, it seemed that
smartly piloted their initiatives in the markets’ their customers only wanted to use their
white space, to bring high-end products, new handsets to ‘talk, talk, talk’; in contrast, emerging
channels 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 to
It is important to qualify the above by saying that leverage their mobile platforms to offer
this would not have been possible had the cost commerce, money transfer and wallet services
of 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 cost
of penetration. The future looks bright for emerging markets,
now widely acknowledged as the world’s growth
Here again, the favourable demographics engine and hub of future innovation. But beyond
of emerging markets has added to their that, the onset of a refreshingly open mindset
attractiveness. Since the citizens of these led by the young citizens of these countries
countries 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 of
succeeding provided they put together a
Author
meaningful value proposition. And because
these customers are young – there are 830 Sanat R
million people between the ages of 15 and 34 in Vice President and Global Head Finacle Sales
China and India alone – they are great prospects Infosys Technologies Limited
for building long term relationships with.
Future Perfect: Opportunity for Banks
in Emerging Markets

4. Join us on Twitter, LinkedIn and Finacle Whiteboard at www.infosys.com/finacle/networking.asp