This document discusses the digitization of financial services in emerging markets. It makes three key points: 1) Digitization of financial services is no longer optional but compulsory for remaining competitive and reaching underserved customers. Digital services provide convenience, safety, speed and a transaction history for the unbanked. 2) There are different approaches to digitization, including partnering with mobile network operators, technical service providers, fintechs, or a combination. Not all organizations are ready to digitize at the same pace. 3) While emerging markets face challenges like low financial access, literacy and digital infrastructure, they have been among the most proactive in adopting digital finance. Payment

1. DIGITIZATION OF
FINANCIAL SERVICES IN
EMERGING MARKETS
PABLO E. VERRA
December 2019

2. This is not digitization…
1

3. …butitistherighttimeto investinit!
2
“9 in 10 global financial services and insurance providers say the time is now for transformational digital change […]
The stakes have never been higher for traditional providers to evolve their business models to engage customers.”
NTT Data Survey, July 2019
Source: Digital to the Core: Transforming Financial Services and Insurance in the New World of Digital Business Platforms and Ecosystems.
NTT Data. July 2019.

4. FINANCIAL DIGITIZATION
IN EMERGING MARKETS

5. 4
Thereisnouniquesolutionfordigitization…
“No single archetype meets all the success factors to win in digitization.”
Bain, Google & Temasek Study, October 2019
Source: Fulfilling its Promise – The Future of Southeast Asia’s Digital Financial Services. Bain, Google & Temasek. October 2019.

6. 5
…butitisnolongeroptional.
“Technological tools are a fantastic tool for financial services and microfinance –
they reduce time and literally eliminate the need for cash.”
Rosanna Ramos-Velita, Chairman of the Board of Caja Los Andes, September 2019
Digitizing services is no longer an option to maximize financial inclusion.
It is now a compulsory path to remain competitive and reach the last mile.
• For customers:
• Provides convenience and proximity, eliminating the need to travel to physical branches;
• Decreases travelling risks and increases safety of funds, reducing the need to travel long distances with large
amounts of cash;
• Increases transactional speed, allowing clients to transact, save, take out and repay loans in seconds;
• Creates a ‘digital transaction history’ for customers with no previous access to formal banking.
• For financial providers:
• Increases operational efficiency;
• Allows for a higher diversification of its customer base;
• Facilitates and reduces the cost of reaching rural areas – the cost of using digital devices is currently 25% lower
than operating a brick and mortar branch, with the perspective of going lower (1).
(1) Source: Digital Transformation in Microfinance. Agency for Financial Inclusion. 2018.

7. 6
AnOpenApproachTowardsDigitization
“Financial providers need to develop a culture of experimentation, in contrast to an organizational
identity that is wedded to its traditional methods.”
Elizabeth Rhyne, Former MD, Accion’s Center For Financial Inclusion, June 2019
When looking at digitization, there are different ways and methods
to maximize synergies and partnerships between brick and mortar providers and digital players.
• With MNOs, to leverage on their mobile money platforms’ technological expertise, recognized brands and existing
customer base;
• With a technical service provider (or a credit score provider) to pursue new services for which they do not have the
technical expertise;
• With a fintech, to obtain a modern IT system, specialized solutions, technological expertise and data analytics.
+ =

8. 5
IdentifyingPotentialFundTargets:ShouldEveryoneDigitize?
• Not all organizations are ready to digitize at the same speed (1). Financial providers might be at different
stages in its digital evolution:
• Early stage digital lenders use digital lending to increase the access and usage of financial services by providing
existing products and services over new channels;
• Base digital lenders move beyond access to customization of financial products;
• ‘Digital Plus’ lenders deploy a fully digital business model to enhance the customer’s overall experience of
financial services.
• As noted earlier in this presentation, there are many approaches to digitization.
• Finding the right balance between technology and the human touch is key (2) for acquiring and retaining
customers. The following cases are critical:
• Low digital savviness;
• Limited product understanding;
• Lack of trust in financing service providers;
• Limited brand awareness;
• Competitive differentiation.
(1) Source: Demystifying Digital Lending. Accion. 2018.
(2) Source: The Tech Touch Balance, Accion, 2018.
• The region’s and the country’s regulative
environment needs to be supportive.

9. 8
Itwouldseemasdigitizationoffinancialservicesin
EmergingMarketswould presentadditionalchallenges…
Low Levels of Formal
Financial Services
• Cash dominance in
transactions;
• Informal credit and
savings.
Lower Income and
Financial Literacy Levels
• Low value transactions;
• Smaller fees;
• Need for user
education.
Underdeveloped
Digital Ecosystem
• Limited technology
and venture capital
development;
• Relatively weak
digital infrastructure.

10. 9
…but,yet,EmergingMarketshavebeenthemostproactive
to ‘adopt’digitalfinance.
“Clearly, fintech has caught on all around the world,
entering mainstream in all countries studied [...] Emerging
Markets are leading the way, in both China and India, the
adoption rate is 87%. Close behind are Russia and South
Africa, both with 82% adoption.”
E&Y Global Financial Adoption Index, 2019
Source: Ernst & Young Global Financial Adoption Index. 2019.
Evolution of Adopted Financial Services
2015 - 2019

11. Thereisavarietyof verticalsbeingdisruptedbydigitization
Payment and international transfer companies were some of the first fintech verticals, followed by online lending.
Source: Fintech Trends Report. IDB. 2018.
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12. LET’S KEEP TALKING!
Pablo E.Verra
pablo_verra@hotmail.com