The $1 Trillion bet - Growing online banking in emerging markets
The following pointers are based on my experience growing GoPay (the fintech arm of GoJek) in Indonesia. GoPay has consistently been ranked as the #1 digital payments wallet in Indonesia since 2018.
Banking activities in emerging markets are moving online at an unprecedented rate. CV19 has accelerated this rate manifold. Online banking is opening doors for financial inclusion and helping bring the bottom of the pyramid out of poverty.
- Widespread inclusion could increase the GDP of all emerging economies by 6%, or USD 3.7 trillion, by 2025, and lead to the creation of 95 million jobs [Link]
- Banking individuals in emerging markets is a $200billion opportunity [Link] - my hypothesis is that the yearly impact can be 5X because of Covid
- Two billion adults worldwide are unbanked and some of the lowest rates of financial penetration are in emerging markets [Link]
Following are the top 5 things to keep in mind for grabbing a share of the $ trillion opportunity:
1. Remove/Ease any barriers to trial
Problem/Opportunity
Emerging markets have high barriers, thanks to strict financial regulation, creating barriers to trial for the users. For instance, take KYC (Know your customer) requirement for availing financial services in most emerging countries. The entire process is mired with complexity for companies and users, making it expensive and time-consuming.
Solution
- Tackle this issue as a priority. Onboarding experiences can create a lasting first impression
- Give users information about why certain things are needed. Users are increasingly becoming data conscious, and the transparent you are, the better
- Have a quick approval process in place to engage users as quickly as possible. Capitalise on the day of sign-up
- Work with the regulators to ease the requirements wherever possible. This might sound hard, but I have seen logic going a long way
Benefit
Using your product should be as easy as the tap of a button. The ease of trialling will drive user perception, engagement, and future purchase behaviour (domino effect), creating a huge upside if done correctly.
Case in point - While I was writing this article, Mastercard invested in Signzy, helping validate this point. [News]
2. Focus heavily on capturing and utilizing consumer data (in aggregate) - literally master data science/analytics
Problem/Opportunity
Leverage consumer data for decision making. Traditional banks assess their lending/investment decisions based on archaic principles. With so many different variables, it is no longer justified to follow a one-size-fits-all policy. Instead, it is important to personalise offerings based on user demographics, financial behaviours and attitudes.
Solution
Automate your decision making through algorithms/data science models. This isn’t an easy feat to achieve by any means. In essence, gather as much data (in aggregate) as possible, find relevant patterns to build your decision model, experiment, measure and scale. Data is really the fuel here!
Benefit
Automation can help improve the quality, pace, and ___ of decision making in order to achieve economies of scale. There isn’t much room for sub-standard decision making here (a bunch of bad decisions can pile up and spell doom).
Case in point - Here is what Kabbage’s COO thought was back in the day [News]. Kabbage is now owned by American Express.
“At our very core, the focus has always been on automation and technology,” Petralia says. “We ask the same exact questions that the banks ask, but we use data in a different way to get there faster.”
3. Help users manage their expenses/budget
Problem/Opportunity
Let’s face it, people wouldn’t unnecessarily borrow money if they have enough money or can control their spending. Hence, users have an invariable need of not just availing online lending, but also
- having better visibility on their expenses
- managing their budget
These needs are most powerful amongst the students and blue-collar workers, as they aren’t financially independent and tech-savvy, respectively.
Solution
Use expense and budget management features as a hook to draw users into online lending. Fun fact - At GoPay, we used to send a monthly expense overview email and it had 6X the click rate of our email benchmarks. Needless to say, our users loved the feature.
Benefit
Expense and budget management tools (in this particular order) can drastically improve user trust, retention, engagement, and happiness. Remember, lending to happy users would have a higher upside than exploiting uninformed users (over a long-term).
4. Help users with insurance, investment and saving options
Problem/Opportunity
Getting insurance and investing money in bonds, stocks, commodities etc. is often laden with document processing, hidden/exorbitant fees, lengthy and unclear terms and conditions, and general lack of education in the market around investments. The experience is usually disconnected and deprioritised from other banking operations.
Solution
Integrate insurance and investment functions with the expense and budget management verticals. Make investing money a delightful experience (personalised bouquet on reaching goals?) rather than an overwhelming one. These high ticket size product offerings are needed to round up the powerful quad of borrowing, budgeting, insuring and investing (BBII).
Benefit
Insuring and investing are additional hooks to get to know your users better. Users investment behaviour can reveal a lot about their financial health, preferences, risk averseness, future goals etc. This information can help build a more robust user persona for cross-offering other banking services (lending/savings), along with the potential for capturing a recurring % of user spending.
Case in point - another attempt to capture the portable benefits space by Mastercard through investment in Stride. [News]
5. Take/maintain the lead in capturing both B2C and B2B businesses — not either/or
Problem/Opportunity
Imagine if as a consumer, you prefer one bank for consumer banking, while you prefer another bank for business banking. This notion is common in emerging markets, and there are valid (historical) reasons on why this is the case. I am putting up an argument on how financial services players are missing out on immense potential by bifurcating their business models for targeting B2B and B2C independently.
Solution
Combine the B2C and B2B offerings in a creative way. Requirements for the same customer from two different perspectives are going to be unique, but most infrastructure, human resources, strategies, and product offerings can be offered synergetically.
Benefit
Imagine the pros of capturing user data both as a consumer and as a business.
- a longer credit history that can be leveraged to make banking decisions
- higher user engagement
- higher switching cost/lower user attrition rate
- bigger loan book leading to a higher valuation
That is it, those were the 5 most important points for capturing the online banking services in emerging markets. These learnings are potentially applicable in more developed markets as well.
If you liked reading the above, do clap, so it keeps me motivated. What else would you do to grow a digital wallet? Tell me in the comments section.
Cheers.
