Beyond Borders: Exploring the Dynamics of Emerging Markets

Exploring the dynamics of emerging markets means recognising the opportunities and challenges presented by these rapidly evolving economies – and adapting strategies to leverage their growth potential while mitigating risks.

But it’s important to remember that emerging markets are not a homogenous mass. What may work in one market may not be relevant to its near neighbour. That’s why it’s vital for payment players not to take a ‘one-size-fits-all’ approach. There will be challenges that have never been encountered in the mature, developed markets, but this can spur fintech players to more boldly innovate and explore new use cases that could tap into vast potential.

As technology continues to evolve at pace, we’re set to see even faster changes in the global payments landscape. What’s more, as yet underserved emerging markets now have a real opportunity to catch up and join the financial mainstream, it’s likely that many offerings will need to be localised to ensure they are at the forefront of the most exciting transformations.

The opportunity size – and differing market dynamics – at stake

Emerging and developing economies are home to 85% of the world’s population, or 6 billion people. Furthermore, almost 90% of the people under 30 live in emerging markets. By 2025, annual consumption in emerging markets will reach $30 trillion, according to McKinsey – the biggest growth opportunity in the history of capitalism.

Different emerging markets have their own distinctive growth patterns and development trajectories. The pace of change will depend on country-specific and macroeconomic factors, the make-up of various demographic groups, and the local and regional regulatory landscapes. But it’s safe to say that emerging markets are characterised by a lack of formalised banking structures – and that has left the field wide open for alternative financial providers and new technologies to enter. For example, according to the 2024 Worldpay Global Payments Report, account-to-account (A2A) localised payment methods are succeeding in emerging markets, as they receive strong government support to drive financial inclusion and promote digital payments.

In the push for financial inclusion, new technologies and innovations make it more economically viable to offer local currency, local payment methods, local accounts and peer-to-peer money transfer services to reach underserved populations, and leapfrog the lack of formal or technical infrastructure like legacy schemes, bank branch networks or broadband access in rural and hard-to-reach areas.

Africa is a continent divided by massive differences in technical infrastructure availability and access to affordable financial services. For example, in Nigeria, mobile phone penetration stands at over 90%, which has helped to improve its formal financial service penetration rate to 64% of adults as of 2023, compared to 56% in 2020. But poverty remains the main reason for financial exclusion.

The same can be said for Latin America and Asia. Although established markets like India and Brazil are forging ahead with instant payments, such as the phenomenally successful UPI and PIX systems respectively, they are still challenged by a low rate of formalised banking penetration. Around 80% of India’s population is still underserved.

Around half of the world’s population will use digital wallets by 2026, and millennials’ familiarity with technology means that by and large the under-30 demographics globally prefer mobile and online transactions, so payment players need to tailor their solutions to the demographic nuances of the markets they’re aiming for.

Payment providers have a vital role in emerging markets

With the right approach, payments providers can capitalise on the opportunities offered by emerging markets and contribute to their sustainable development and prosperity. For instance, remittances are a fundamental cog in the global payment ecosystem, and are a key instrument to drive greater financial inclusion. Enhancing and strengthening remittance flows will have profound impacts on the lives and prosperity of recipients, giving them greater purchasing power and the ability to contribute to their local – and national – economies.

But right now, many remittance flows are impeded by high foreign exchange costs, slow routing and clearing, and technical infrastructure obstacles that make them difficult to receive through formal bank accounts. The businesses that ease the flow of remittances and make them easier to access will benefit from an increase in transaction volumes and revenues too, enabling them to create and offer more services that can improve people’s lives. By making them faster, having localised offering, lower cost and more secure, senders and recipients can have greater confidence to make them more frequently.

The payments space, traditionally dominated by banks, has been shaken up by the entrance of non-bank and nimble fintech challengers, including retailers, telecom providers, tech companies and other disruptors staking a claim in emerging markets. While established banks may have an advantage in the trust they get from customers, they can be constrained by greater regulation, whereas challengers can innovate more quickly and experiment more freely with new payment technologies. We’re likely to see more collaboration between the two groups as a faster way to realise potential prospects in emerging markets – and unleash an exciting new era of innovation.

If you would like to discuss how you can reach underserved populations in emerging markets with dynamic payment services like PayFuture Technologies, get in touch with us today.