There’s no doubt that digital payment adoption has accelerated in recent years, and as the global economy transitions from a “respond” to “recover” mindset, fintech platforms will be critical in supporting economic recovery following the financial setbacks produced by the pandemic. How will financial digitization make a difference?
Historically, the developing world has faced numerous challenges and obstacles to fully integrate into the global economy. Currently, more than 1.7 billion people don’t have access to a bank account. Additionally, depending on where they’re located, small and mid-sized enterprises—which provide employment to more than 60% of all workers—often struggle to get access to financial services.
Because they’re efficient, affordable, and accessible for new users to adopt, fintech services specializing in payments, mobile money and digital wallets are closing the gap in the developing world, allowing for greater global financial integration for regions previously cut off from it.
Contactless payments were quickly adopted as a solution for merchants complying with lockdowns and travel restrictions, but already governments and private businesses are seeing the value of financial digitization in bolstering the economy too.
In 2017, just 18% of adults in Madagascar had access to formal financial services, according to the World Bank. However, the pandemic spurred a dramatic increase in the adoption of digital financial services with the number of Malagasy adults using mobile money increasing from 277 to 645 per 1,000 adults between 2017 and 2020.
The past few years have also spurred tremendous innovation for fintech startups, especially in Africa, where the number of fintech startups tripled to 5,200 companies between 2020 and 2021, according to a McKinsey report. While these startups are sure to penetrate markets beyond the continent, the economic growth these companies generate at home is nothing short of astounding.
Because fintech services are more efficient and 80% cheaper compared to more traditional services, such as banks, the rapid adoption of fintech in Africa is growing at lightning speed. While cash is still used in about 90% of transactions made in Africa, McKinsey estimates that fintech revenues in the region could reach eight times their current value by 2025.
In Latin America, international investment in Latin American fintech companies is helping the region rebound from the economic downturn caused by policies made in response to the pandemic. According to a study published by the Inter-American Development Bank, IDB Invest, and Finnovista, the number of fintech platforms in Latin America grew by 112% from 2018 to 2021. Now, nearly a quarter of fintech platforms globally—22.6%—are Latin American and Caribbean.
As nations across the world work to recover from the financial setbacks created by the pandemic, it’s clear that the most efficient and affordable measures, like digital payments, will be favored above traditional services that require more time and cost. Wherever and however businesses and individuals conduct their transactions, it’s clear that the future is now.