David Penn, Finovate Analyst
Our weekly column, Finovate Global, aggregates fintech news from developing economies around the globe. Here, we’ll take a look at some of the biggest fintech trends from three regions in particular: Central and Eastern Europe (CEE), Latin America, and the Middle East and Northern Africa (MENA). The goal is to highlight the ways in which countries in different parts of the world are leveraging financial technology to improve the financial lives of their citizens as well as promote economic development and modernization.
For years, the story of fintech innovation in Central and Eastern Europe was a story of digital transformation in the wake of countries emerging from the shadow of Soviet-style communism. This has enabled banks across the region to take advantage of not just newer technologies like mobile and cloud-based banking, but also technologies like cryptocurrencies and the blockchain.
One such CEE-area firm that is doing interesting work with blockchain technology is Poland’s Alior Bank. Earlier this year, the institution announced that it would use a blockchain network as an electronic notary to remotely and transparently verify the integrity of bank documents. This summer, Alior Bank sponsored a blockchain-related hackathon (called a blockathon) and offered a challenge to build a decentralized digital identity solution that would support the use of smart contract technology.
More recently, Poland’s largest bank, PKO Bank Polski, announced that it was teaming up with U.K.’s Coinfirm to improve customer data security by providing blockchain-issued paperwork – specifically changes to product regulations - to its account holders. Interestingly, the bank sees this embrace of bleeding edge technology as just the most logical next step of its digital transformation journey.
“Blockchain has great potential to increase the competitiveness of the Polish banking sector,” PKO Bank Polski VP of the Management Board, Adam Marciniak explained. “PKO Bank Polski (is) successfully implement(ing) a strategy focused on digitization, and the full implementation of the blockchain-based solution is the next step on the path chosen by us, which strengthens our position as a technological leader in Polish banking.”
Our Theme Cloud of recent CEE-area fintech headlines shows both the region’s emphasis on cloud and mobile banking as well as its pursuit of newer technologies like the blockchain and cryptocurrencies.
Five Central and Eastern European Fintechs to Watch
In Latin America, like much of the developing world, there is a growing interest in leveraging financial technology to provide banking services to the underbanked. Fintech analyst Chris Skinner suggests that part of this drive has to do with the relationship between Latin American governments and their financial sectors, which tends to be resistant to “new entrants and innovation.” As such, he noted, 40% of fintechs in some of the more advanced economies of Latin America (in Argentina, Brazil, Chile, Colombia, and Mexico) are focused on the unbanked and the underbanked.
There are many ways fintechs can help serve the underbanked and providing credit and financing on good terms is high on the list. Columbia Fintech noted that only 11% of Latin Americans have access to credit from the traditional financial sector. Companies like Kueski and Konfio in Mexico, Cumplo in Chile, Creditas in Brazil, and Afluenta in Argentina are among those firms that are using crowdsourcing and marketplace lending to help individuals and SMEs in their respective countries secure affordable financing.
But the region’s biggest fintech news in the second half of 2018 is undoubtedly the fintech law passed by Mexico. The goal of the new legislation is to drive fintech innovation by clarifying “grey areas” in financial regulations, supporting trends like Open Banking and open APIs, and providing a regulatory sandbox program for fintech startups. The law is based on the principles of financial inclusion, consumer protection, financial stability, competition, and the prevention of money laundering. Further, the legislation seeks to enable firms to leverage new technologies to improve investment and financing – including via crowdfunding platforms - as well as the use of electronic payments and authorized cryptocurrencies.
From providing financing to small businesses to the growing effort to bring credit opportunities to the region’s un- and underbanked, our Theme Cloud of recent fintech headlines from Latin America reveals lending as a source of fintech innovation in the area.
“It is expected that, in the short term, the remaining LATAM countries will make a qualitative leap, and define their regulatory framework which will develop innovation throughout the region and allow the financial sector to evolve,” said Miami, Florida-based Above and Beyond Tech CEO Jorge Ruiz in an editorial supportive of the Mexican fintech legislation. “Despite some resistance from traditional banking, the industry is moving towards a more efficient business model of interconnected systems leveraging Financial Institution-Fintech partnerships. In Latin America, as an emerging market, financial inclusion is possibly the greatest benefit to emerge from these changes.”
Five Latin American Fintechs to Watch
There are many things that characterize the rise and spread of financial technology in the MENA region: the role of cross-border commerce and the need for efficient transnational payment and remittance services, a growing interest in blockchain technology, the key role of Islamic and Sharia-compliant banking … But if there is one factor that makes the MENA region seem relatively unique compared to others, it may be the pro-active – almost activist – role governments and government-supported agencies play in driving and shaping fintech innovation in their regions.
In general, banks in the MENA region have put their money where their fintech aspirations are. Fintech News Middle East notes that FIs like Emirates NBD have committed AED 1 billion ($272 million) over the next three years to drive its own digital transformation. And it’s not just a matter of money. In Bahrain last year, 11 regional banks joined the world’s first shariah-complaint consortium. The goal of the organization will be to develop 15 new fintech solutions within five years.
Add to this the role of governments and government-sponsored “special economic zones” in the Middle East are playing in the advancement of fintech. The exceptional development of the fintech ecosystem in the UAE, for example, has been credited in part to ambitious initiatives and generous support of fintech startups on the part of the public sector. Entities like the Abu Dhabi Global Market (ADGM) and the Dubai International Financial Center (DIFC) provide the UAE’s rapidly growing fintech ecosystem with regulatory and structural support, as well as a business-friendly economic climate that enables fintech startups to develop their solutions in partnership with major financial institutions.
Other nations in the area are attempting, in their own way and scale, to do similar things for their own nascent fintech industries. This summer, Iraq’s Central Bank announced a collaboration with Mastercard, and Saudi Arabia approved its first pair of fintech licenses authorizing two firms – Manafa Capital and Scopeer – to offer crowdfunding investment services.
Many of the themes that drive fintech innovation in other emerging markets are present in the MENA region, but the Middle East and North Africa also provides unique opportunities for fintechs that develop Islamic-focused and Shariah-compliant solutions, as our MENA fintech Theme Cloud above shows._
"The Ministry of Finance continues to support and encourage innovation, and (to) provide the right environment in which it can flourish,” said UAE Minister of State for Financial Affairs, Obaid bin Humaid Al Tayer earlier this year. “Our efforts sit within the framework of the national innovation strategy, contributing to the UAE Vision 2021. We support the efforts to see the UAE government recognised as the world’s most innovative and we continue to nurture innovation by adopting innovative business mechanisms and funding innovators in various fields."
Five Middle Eastern/North African Fintechs to Watch
References:
https://www.tecnologia.press http://media.pkobp.pl https://thefinanser.com https://www.colombiafintech.co http://fintechnews.ae https://www.zawya.com https://finovate.com https://www.sharjah24.ae