It was in the year 2008 when Satoshi Nakamoto published his Bitcoin white paper in a mailing list, accompanied by the words: “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”

In simple words, Bitcoin is a transaction system that doesn’t need a third party to settle payments. The Bitcoin infrastructure itself serves as the settler. The infrastructure has built in means to prevent fraud and to save the transaction history immutably. With this approach the transaction cost can be lowered substantially while a stable service availability gives people in countries with dire economic situations means of conducting business.

Just two months after Nakamotos publication the first Bitcoin block has been mined which marked the beginning of a new technology boom that has been growing since those first days into a trillion USD finance sector just recently in January 2021 according to coinmarcetcap.com.

This source as well shows data that the Bitcoin network still enjoys the largest fellowship in terms of market cap with 700 bn USD. The newer technologies Ethereum and the associated Binance Coin are placed 2nd with a combined 170 bn. USD. The third place is held by Cardano with 30 bn USD. The source states that there are currently over 8,000 Cryptocurrencies resp. Blockchains available, each with different purposes and communities which tells us that the Blockchain and Cryptocurrency technologies may help the people all over the world to solve certain small and big problems.

But how exactly can the Blockchain technology help the payment industry in the Emerging Markets? This article gives some food for thought.

Characteristics and problems of Emerging Markets

The main countries that are covered by the term Emerging Markets are Brazil, Russia, India, China and South Africa. Based on the definition other countries can be counted as Emerging Market as well.

They have in common a high market volatility that is a result of political instability and supply-demand-cliffs from natural catastrophes. Investors are cautious when it comes to start investment projects in those countries while at the same time these countries have a high growth potential due to being behind the curve on many developments in the first world. Therefore, Emerging Market governments tend to support industrialization and quick economic growth with their policies. The goal is to achieve lower unemployment rates, higher income per capita, higher investment volumes and better infrastructure. The income per capita is lower than in first world countries due to the dependence on low-margin agricultural activity.

When it comes to the financial industry we see that the people in these countries are underbanked. That means they don’t have access to enough financial services to meet their demands. Most often people don’t even have any possibility to bank which leaves them behind when it comes to support them building their future.

On top of that often there is an unstable political climate that hampers the reliability of the law framework when conducting business. Currently, especially Russia and South Africa are an example for such negative effects.

Due to the outlined reasons there is a high cost of remittance and financial services. The low financial inclusion and lack of policies lead to many people having no credit history and give them no possibility to prove many things they are or have done in their life, e.g. proof of identity, of ownership (property), of educational degree or of their work history.

This in turn leads to them not having any possibility to borrow money for buying property or growing their businesses. To tackle those problems many experts claim that Blockchains might be a solution.

What is a Blockchain?

A Blockchain is like a story that comprises multiple books. When you start reading the 2nd book you don’t understand the story because you don’t know the key information that book one provides. When you remove one of the books the story is incomplete and all books become useless. The Blockchain technology makes sure that all books are available in the correct order and that the continuation of the story always takes place at the end. This is the key behind the elegance of a Blockchain – it is a distributed set of transaction books that can be interfaced via the internet and removes the need to have a centralized institution for a certain part of life that manages the transactions, like a bank for payments, an insurance for insurance claims etc.

Blockchain technology is about to solve this problems

Banks can use a Blockchain to improve the efficiency and lower the fees of their systems with real-time funds transfers that are done cross-border. With massively lower cost the micro payment business models will rise to help out people with small loans. Furthermore, with smartphone-based transactions on a Blockchain the people can get digital identities that are immutable and directly linked to their existence. This in turn supports their financial inclusion with starting a track record of activities.

According to pwc’s publication about the payment transformation in the Emerging Markets the areas of banking that will be disrupted the soonest within the next five years are consumer banking with 80 % and payments transfers with 60 % probability.

We remain to see this exciting technology unfold and partner with companies to implement Blockchains where sensible. Please contact us, if you want to fuel your business in South America with our payment solutions.

Over the last decade more and more Fintech companies have been pushing into the markets to either disrupt or complement the services of traditional finance companies. BBVA Research found out that especially directly after the financial crisis in 2008 these newcomers have been recepted as a very welcome change to the status quo with more positive than negative coverage. In Europe the number of banks declined by 25% and the number of their branches by 20% from 2008 to 2018. And between 5.000 and 12.000 (depends on strictness of definition) Fintech companies have been founded in the same timespan. But how does the media think today? Is Fintech the good or the evil? Let’s explore.

New ways of handling money are positive

We can say that Fintech companies stand for a paradigm shift when it comes to handling money. These new companies change every aspect of it, e.g. personal finance, mobile payments, credit scoring, loan services or investments. In the media the new solutions provided by Fintech companies are regarded as easier to use and often cheaper than comparable solutions of traditional competitors. But traditional finance has learned that a focus on innovation is crucial for staying competitive. Many big banks are either partnering with Fintech start-ups or found their own start-ups as an innovation incubator. Therefore, in the media there have often been stories of either an industry giant launching a new product that eliminates small competitors or the small company rivaling the big players. Nowadays the media focuses more on the partnerships. Another point that is linked to that is, that over the past years the Fintech sector got ever more niche-driven with start-ups providing solutions for every yet so small problem in the finance world. We see more collaborations of big with small or vice versa, showing us that there exists more often than not a symbiotic relationship between traditional and new companies.

Due to these scenarios the market participants see more and more solutions to their existing financial questions and overall the innovation war that is currently going on can be regarded as very positive.

Big vs. small

Many companies like PayRetailers have just begun their race to the top. We are in business since four years and our quick growth shows the market need for our solutions. But we are not alone in the Fintech space and many other companies that have been founded earlier than us already reached the sizes of some big traditional finance companies in their respective markets.

With the growth there comes responsibility and sticking to certain principles. According to the SIFMA Insights report about the evolution of the Fintech narrative there are 7 important areas:

1. Client experience: Usability of services becomes important for financial services as well
2. Technology expenditures: From optimistic to realistic over time
3. Deployment: Hurdles considered first
4. Goal: Transforming legacy systems to modern ones
5. Regtech: Technology innovations are necessary
6. Cybersecurity: Became one of the most important areas
7. Data: Preprocessing and cleanup are the key

Whereas in the beginning the narrative has been “everything new is better and will change the world for good”, “Fintechs will displace incumbents” and “machines will replace humans” over the past decade the mood changed towards being more realistic: “Many solutions hold potential, but deployment takes long”, “it’s hard to change heavily regulated areas” and “human workforce evolves”. The role of Regtech has been downplayed in the beginning but it in itself is a legacy system and needs to be tackled. Nowadays it’s hampering the quick introduction of new processes and often the creation of entirely new regulations follows the technological innovation, instead of just altering existing ones like in the past.

In 2019 BBVA Research has done an analysis regarding the perception of Fintech in the media and social networks. They’ve found out the following things:

• Fintech has a more positive connotation than general financial services.
• Regulation and economics are the most covered topics in the Fintech-space since 2015.
• Blockchain is the hottest topic when it comes to Insurtech, general banking and payments.
• The public thinks of Fintech companies as start-ups, not as financial actors in the traditional sense.

Overall we can conclude that the perception of Fintech in the media today is more positive than negative. This is especially good for companies like us at PayRetailers that grow in the payment service provider sector of the big Fintech space. While regulation and blockchain are very special topics, we already have exposure to both areas as well and are in the process of implementing such technologies into our product suite. Our special setup with lots of partnerships with traditional financial companies like banks or agencies, gives an advantage in the consumer perception as being an established business. This is one of our big advantages over competitors.