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Smartphones have sparked a demand for digital financial services (DFS), particularly among millennials. With 6.92 billion smartphone users worldwide, the number doubled in less than a decade. The COVID-19 pandemic further propelled this transformation, pushing consumers toward digital payments, leaving traditional cash and physical cards aside. In their place, contactless, card-not-present (CNP), and NFC have taken center stage, reshaping digital payments into personal finance management (PFM) solutions.
What’s happening on the market
Mobile money has emerged as the torchbearer of innovation. Currently, over 850 million registered mobile money accounts span 90 countries, facilitating daily transactions exceeding USD $1.3 billion. Use cases for digital financial services vary by region, reflecting diverse global needs.
In Europe and US, DFS offers unparalleled convenience, consolidating diverse payment methods into unified platforms. Conversely, the Asia Pacific region has seamlessly integrated digital wallets into super apps (e.g. WeChat, Alipay), revolutionising everyday transactions.
Whereas in emerging markets, DFS offers a lifeline to banking access for previously unbanked individuals. The number of adults holding mobile money accounts increased dramatically and Africa leads the way. This region also serves as a blueprint, showcasing how these accounts can serve as a foundation for advanced financial services like digital lending and insurance.
Four drivers of digital financial services
The strategies fueling the DFS implementation are many and can be summarised in those few:
Firstly, mobile technology implementation. High mobile phone penetration served are basis for the initial wave of DFS services. Simultaneously, the development of new business models for mobile money, including e-money issuance and extensive agent networks, played pivotal roles. For example, M-Pesa, Kenya, which empowered the unbanked to store, send, and receive money inexpensively through smartphones.
Secondly, Open APIs have become powerful tools for exchanging consumer data and instructions. These are most effective when supported by digital IDs, facilitating interactions between financial and non-financial entities, enabling secure user consent for data sharing and streamlining KYC onboarding for account opening and financial transactions.
Thirdly, platform ecosystems, encompassing e-commerce and transportation services, pushed DFS agenda further. For example, companies like Alibaba, Grab, Rappi and Gojek harnessed their vast user bases and economies of scale to expand services through their own super apps.
Lastly, DFS providers extend the money transfer operator model for cross-border transfers, connecting with local payment infrastructures, banks, and e-money providers on both ends. These providers embrace a strategic approach that offers core services tailored to specific customer needs. These core services are built on virtual IBAN accounts designed to support multi-currency transactions, making currency exchange and cross-border bank transfers seamless.
Becoming a part of the DFS revolution no longer demands the construction of an entire infrastructure from scratch for EMI or fintech. Instead, it’s about forging partnerships with the right provider who offer white-labeled solutions. Flexibility is key, obtained through utilising orchestration and integration platforms, ensuring swift integration of third-party services. There are three primary approaches distinguished for non-bank entrants to join DFS agenda:
- Partnership with a white-label technology provider – collaborating with a provider of technologies enables EMI, fintechs or non-bank entities to enter the DFS arena seamlessly, issuing cards, introducing eKYC, own digital app, remittances, integration into marketplaces or perform lifestyle payments, such as digital ticketing or food orders.
- Specialised licensing – some regulators have introduced specialised licensing categories, allowing non-bank companies, such as telcos, to establish subsidiaries or stand-alone entities to provide DFS services.
- Licensing to non-financial organisations – some companies offer mobile money services without the need for a separate legal entity dedicated solely to financial services.
What does the future hold?
The digital financial revolution is in full swing, driven by smartphone adoption, evolving consumer behaviours, and innovative strategies. Looking ahead, we can anticipate the continued evolution of digital wallets and the integration of Instant Payments as pivotal components of the global super apps concept.
Through its cutting-edge SmartVista platform, BPC offers an innovative core processing solution that is cloud-native and equipped with a highly flexible integration and orchestration layer. The solution seamlessly integrates with an expanding network of industry-leading third-party providers, including BIN Sponsors, Banking-as-a-Service (BaaS) providers, eKYC solutions, card manufacturers, and others, empowering to deliver unique and innovative digital solutions that cater to market demands.
Peter Theunis is SVP Europe at BPC