Customer base, financial inclusion and resilience
One of the report’s most important findings relates to the customer base of these platforms and their potential contribution to financial inclusion. A large proportion of fintech customers are new customers
and customers from groups that in many countries have been unattended to by financial institutions.
This is not just something that affects low-income households and vulnerable collectives but also SMEs.
As a general idea, low-income customers make up 55% of customers at a global level, but this figure rises to 73% when considering just EMDEs. “This may indicate that fintechs positively contribute to financial inclusion”, claims the report.
This contribution to financial inclusion appears to go hand in hand with firms’ overall resilience. And this is no coincidence. In the last few years, fintech companies have faced significant operational challenges and increased risk
, particularly in emerging economies. Some of the most common challenges include:
- High levels of unsuccessful transactions
- Platform downtime
- Increase in liquidity risks
- Currency volatility
- Regulatory risks.
Fintechs also reported increases in all costs
, except fixed costs. In this area, there were two interesting trends:
- Fintechs have been actively recruiting new employees in line with their growth, in a market that requires employees with relevant technical skills that are not always available in all jurisdictions.
- Fintechs have spent a large proportion of their budget on research and development, whilst the reduction of fixed costs appears to reflect a reduction in office costs.
Despite all these operational challenges and increased expenses, fintechs believe that the sector is “relatively resistant”, with overall increases in revenue and turnover.
Firms also reported higher capital raising activities compared to the forecasts at the beginning of the pandemic, with higher valuations in EMDEs, which may indicate investor interest in leveraging the untapped potential and opportunities provided by EMDEs”.
The executive summary also addresses the changes undertaken by fintechs, which mainly include securing their platforms and preventing fraud. However, other changes, such as reducing commissions and fees, have been largely discontinued. Furthermore, despite the current political agenda on the topic, only a small proportion of companies claim to have introduced sustainability products (environmental, social and corporate governance).
Lastly, the report addresses the various regulatory and economic support mechanisms, which is an area in which advanced economics have seen much better results than EMDEs.
These are the main talking points of this WEF report. However, the report itself is so large that we will return to it again in future posts.