AFRICA BANKING
THE ENORMOUS OPPORTUNITY IN EMERGING MARKET FINANCE
For banks looking to capitalise on the next major strategic growth opportunity, emerging markets have proven to be an excellent area to invest in; most forecasts suggest they will continue to outstrip G8 economies predictions over the course of the next few years. One of the sectors that has been credited with bolstering emerging market growth is digital financial services. There already exists a host of well-known examples of how new approaches to finance have allowed banks and other financial service providers to serve customers in new, innovative and commercially attractive ways. The most notable example is mobile money, which has taken hold in many emerging markets: in some countries, over half of the adult population use such services.
While some of these pioneering products have been highly valuable to end users and profitable for the institutions providing them, they still only serve a relatively small portion of the market. In fact, the range of products and services available has often been limited, with many focussed on a handful of use cases such as consumer-toconsumer payments and airtime recharge. This neglects a large and arguably more profitable section of the market: SMEs. Merchants, especially small businesses, are a key segment in all economies, but have been underserved by developments in digital financial services to date. According to the World Bank, formal SMEs contribute up to 45 per cent of total employment and up to 33 per cent of national income (GDP) in emerging countries with numbers significantly higher when informal SMEs are taken in account. With the successful establishment of consumer-focussed services, the
market for financial services for SMEs is prime for explosion, presenting sizeable opportunities to banks. When considering, for example, the number of merchant payments an individual makes in one day compared with consumer-to-consumer transactions, it becomes self-evident what the enormous potential of the market is. At a macro level, the banking revenue from SMEs in emerging markets in 2010 alone totalled $150bn, which McKinsey expected to increase by 2015 to over $350bn. Products like digital payment acceptance and supplier payments (such as for the fast moving consumer goods sector) are two areas that are projected to grow exponentially over the next decade. As digital services grow this will lay the foundation for more advanced products and services to small businesses. These will include business orientated digital lending, savings and insurance products. Issue 3
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