Not Your Grandfather’s Bank Branch
What should financial services do? And how should they look like going forward as they try to serve more people?
Some presenters are the recent Money20/20 conference offered possible answers to those questions. In short: They’ll look very different from what we’re accustomed to in the United States and other developed countries, as Wired reported last week.
Several sessions at Money20/20—the world’s largest FinTech conference, held annually in Las Vegas—focused on how financial technology (FinTech) companies can expand their services in developing markets. While there was no one-size-fits-all solution, a common theme was technology substitution, which in turns enables leapfrogging from one generation of technology to the next.
Much like cell phones allowed many people in developing countries who hadn’t previously had land lines to become connected to the world, FinTech can help unbanked, or underbanked, populations access financial services in ways that look nothing like your neighborhood bank branch.
Moreover, greater need can spur faster adoption of new technologies. As Sergio Almaguer, CEO and cofounder of Yaydoo, a Mexico City-based B2B payments company, told Wired’s Helen Li, in developing markets, “Everything has to be built from scratch, and there is a high need for very simple tools.” Furthermore, Li reports:
“When you have something that is, let’s say bad, but not extremely bad, you lose this urge or this need to innovate,” adds Almaguer. He described this phenomenon where in developed markets, things already “kind of work”—innovation would just be two or three steps forward on top of an established system or service. But startups in emerging markets have to start from scratch or create new infrastructure. Almaguer explains that startups also then have to either contend with or seek support through legal changes by governments eager to modernize. “In the end, the innovators will react to those changes. Without even realizing, what they create is a place better than maybe anywhere else in the world.”
That kind of technological leapfrogging also has implications for antitrust policy, especially when it comes to defining the boundaries of a specific market. For example, in several countries in East Africa, the mobile banking company M-Pesa allows anyone with a cell phone to open accounts and make electronic payments, no bank account needed—in direct competition with banks.
In developed countries, mobile payments have taken on other forms, such as through the app Venmo and electronic platforms like E-Trade Financial. Yet, in the United States and European Union, antitrust authorities have yet to show any inclination to account for the presence of those alternatives when considering whether to approve bank mergers. Their corporate structures and business models may be completely different, but the services they offer substitute well for one another.
(Thanks to John Berlau and Ryan Young for their input for this post.)
For more on financial technology see here.
For more on antitrust see here.