As in Latin America, the low levels of financial inclusion, coupled with the increasing adoption of digital financial products and demographic growth are attracting firms to these two regions.
It's an alternate route for the internationalization process that’s so crucial for digital finance startups, which require scale in order to meet their profitability goals. And, while a LatAm-centered expansion continues to be the dynamic favored by many companies, larger fintechs are moving into emerging markets that have a low penetration of electronic payments and digital banking.
“There are deficits in the banking system and payment infrastructure in emerging markets. Many people are not banked and are excluded from the internet ecosystem. That’s the challenge,” Paula Villamarín, global communications manager for dLocal, told iupana. The Uruguay-based company is already present in 12 Asian countries and 10 African countries.
“Alternative payments grow at a much faster rate in countries where, be it for matters of trust or infrastructure, the banking system is not the population’s base but rather it’s these alternative payments,” says Villamarín.
Latin American heavyweights EBANX and Nubank have also shown interest in deploying their solutions outside of LatAm. EBANX began its expansion last year, while Nu injected US$45 million into the Indian neobank Jupiter in August 2021.
LatAm fintechs use their edge
Jonathan Whittle, co-founder and managing partner of Quona Capital, an investment firm that last year raised US$332 million a fund to finance solutions focused on emerging markets, agrees there is room for fintech solutions targeting Asia and Africa.
“These are large markets, with rapid technology adoption and low penetration of financial services, where fintechs have enormous potential to capture the market. Large fintechs in LatAm [are] several years ahead of local fintechs and feel comfortable in emerging markets,” Whittle says.
“It’s a natural step for them to explore opportunities where large fintechs from the United States or Europe have no focus for now,” he adds.
dLocal says its focus in 2023 and 2024 will be on Africa and Asia. These regions are home to some of the countries expected to have the fastest population growth in coming decades, according to projections from the Institute of Health Metrics and Evaluation: nations such as India, China, Nigeria, Pakistan, Indonesia, Ethiopia, Tanzania and Egypt.
“We’ll replicate in Africa and Asia everything we’ve done in years past. At the moment we’re not closing the window, but we will have Latin America on hold,” says Villamarín.
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Mobile money, the boom in Africa
Alternative payments are growing very quickly in these two regions, as they are in Latin America (something we explore in this article).
However, Quona’s Whittle says it’s important to take into account differences between the regions. LatAm is middle income on average, while in many Asian and African countries the income is lower. “What works in LatAm is not necessarily going to work in those regions,” he notes.
Brazilian payment company EBANX says that mobile money —whereby cash is transferred through text messages— is used widely in Africa, for example.
“Currently, 70% of the volume of mobile money transactions comes from Africa. Any payment operation in the region —and any global operator that wants to be there— needs to have a deep understanding of what mobile money is,” says Paula Bellizia, president of global payments at EBANX.
In East Africa alone, more than 296 million mobile money accounts were registered as of 2021, and transactions in the region totaled US$403 billion, compared with US$178 billion in 2020, according to Statista.
EBANX took into account consumption habits as well as penetration rates for smartphones and credit cards when it was preparing to expand into Africa, Bellizia says. The company first established a presence in South Africa, Kenya and Nigeria, which together account for more than 50% of the region's GDP and a third of its population.
“Perhaps the main difference is that, while in Latin America the rise of electronic commerce has driven digital payments, in Africa” it’s the other way around, she says.
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With one eye always on LatAm
Despite their growing global reach, paytechs continue to keep sight of developments in LatAm. “There are more Latin American companies looking to sell cross border. Maybe not to the United States or Africa, but from Mexico to Brazil or from Brazil to Argentina,” says dLocal’s Villamarín.
That’s why from very early on, the firm included Pix as a payment method within its offering to global companies seeking to sell their products in Brazil. Villamarín says that the role of central bank in promoting the adoption of Pix illustrates how important clear regulation is for the growth of payments and digital finance.
EBANX also sees plenty of room for expansion in Latin America.
E-commerce in the region is expected to grow by 25% annually until 2025, led by cross-border e-commerce, which is seen increasing 34% per year in the same period, says Bellizia.
“The potential of the digital economy in Latin America is directly related to increasing financial and digital inclusion and to a cultural change, in which the population is increasingly interested and willing to consume global products and services. And this happens through a diversified offer of payment methods,” she adds.