Emerging Market FinTechs Poised to Drive Innovation and Inclusion in 2024

In 2023, the FinTech landscape experienced a transformative surge of innovations, reshaping financial technology from its core. These advancements, spanning cutting-edge technologies and the evolution of business models, have ignited a pivotal shift that goes beyond mere functionality, altering how financial services are accessed and utilized.

In a recent interview with PYMNTS, Jori Pearsall, chief business officer at Tala, discussed this wave of innovation, particularly highlighting its resonance in emerging markets like Southeast Asia. He pointed to the recent milestone of digital payments surpassing 50% of transactions in the region, signaling a departure from cash dominance.

This shift, he said, presents a promising opportunity for FinTech firms, which can leverage the burgeoning mobile adoption trend to unlock access to a vast audience in the upcoming year.

Pearsall also highlighted the digital lending gap in Mexico — it stands at a mere 18% against an 80% mobile penetration rate — as another significant growth potential for FinTech companies to leapfrog into mobile-based financial services, a trend mirrored across Latin American countries.

India, another market brimming with potential, has made remarkable strides in digital infrastructure, Pearsall said, citing initiatives like the Unified Payments Interface (UPI) as a driving force behind the ubiquity of digital transactions in the country.

However, despite high bank account penetration, nearly 80% of India’s population remains financially underserved, presenting a compelling landscape for FinTech players to bridge the gap. “When you have this kind of melting pot of strong technical solutions and a large, underserved audience, you’ll see a lot of tech-savvy players trying to dive in in the year to come to close that gap,” Pearsall said.

Bank-FinTech Collaborations

Acknowledging the challenging macro environment going into 2024, Pearsall emphasized a shift toward more partnerships between FinTech startups and established incumbents, with both sides leveraging their strengths for mutual benefit.

For FinTech firms increasingly focusing on belt-tightening amid mounting pressure from investors to pivot from growth to profitability, Pearsall’s view is that collaborations with incumbents will become increasingly critical, not just in sustaining business models but also in enhancing customer value propositions.

“We have FinTechs that are more nimble, flexible and can bring solutions to market more quickly, but at the same time, gone are the days of abundant cheap venture capital dollars,” Pearsall said.

On the other hand, a tighter macro climate generally translates to more constrained budgets for incumbents’ in-house teams, which in turn puts internal research and development (R&D) on the back burner. In this scenario, partnerships with FinTechs will become the avenue to foster innovation, he said, adding that this mutual recognition will drive both established incumbents and burgeoning FinTechs toward a shared pursuit of collaborative initiatives.

Despite having built a robust in-house solution for its services, Tala, too, recognizes the value in these partnerships, Pearsall said. In fact, these collaborations remain pivotal to the firm’s growth, enabling access to new audience segments and facilitating the swift and cost-effective expansion of service offerings for end consumers.

As he noted: “When there’s this pressure toward partnerships, ultimately the customer value proposition should get stronger. And when the customer value proposition gets stronger, good things tend to happen.”

AI and ML Transform Lending

Artificial Intelligence (AI) and machine learning (ML) have emerged as game-changers in the FinTech landscape, and particularly in the emerging market lending space, Pearson said, echoing similar insights shared by Tala Chief Technology and Product Officer Kelly Uphoff in a separate PYMNTS interview.

Across these markets, the complexities of providing real-time, personalized decision-making across diverse languages and cultures pose considerable challenges, especially given the limited data available and often minimal or even nonexistent formal credit histories.

“Sometimes, there’s not even much of an identity history, [however], with the latest advancements in AI and ML, [lending] is getting better, faster, easier,” he said. Pointing to AI-driven platforms like Metaflow, he said these tools have transformed the underwriting process, enabling the swift delivery of personalized decisions in near real time.

Beyond lending, Pearsall said AI and ML advancements promise elevated customer service experiences in the coming year, enabling faster and more personalized responses, which will be critical in catering to millions of emerging markets “coming online and accessing these services digitally for the first time.”

Overall, as 2024 unfolds, the FinTech space is bracing for accelerated advancements driven by collaborative endeavors, evolving regulations, and AI-powered innovations. These driving forces are set to usher in progressive changes for millions of underserved populations while opening new avenues for inclusive access across the global financial landscape.