Fintech is going to be the key disruptor for Emerging Market financial services in 2021 and beyond, with financial technology presenting compelling long-term opportunities to generate alpha, due to factors such as digital innovation, Covid-19 and more.
Jupiter Asset Management has launched its latest white paper titled “The Innovations Disrupting Financial Services in Emerging Markets” in response to the shifting financial services dynamics in the Middle East. In the paper, Jupiter identifies which Fintech trends have had the greatest impact in the last year, and investigates how they are playing a role in evolving the financial services sector. It’s an exciting time for Fintech, with new entrants afforded the opportunity to create compelling products for consumers while challenging the status quo and influencing incumbent financial institutions.
In the Middle East, Jupiter’s Financial Innovation team believes that compelling opportunities exist for investors to increase their exposure to Fintech due to six main themes: the transition to a cashless society, e-commerce, emergence of super apps, financial inclusion, digital banking, and digital currencies. In MENA, financial inclusion has existed in the background as a challenge and opportunity for financial institutions for some time. The rise in Fintech innovation has created opportunities for the development of third-party, bespoke solutions and products that cater exactly to consumer requirements. Companies and platforms are now emerging with the ability to adequately capture larger proportions of untapped capital, which has long been underpenetrated by financial institutions.
Jupiter’s team believes that the shifts in behaviour and the acceleration in financial innovation brought about by the pandemic, are sustainable in the medium-term, with plenty of room for new and exciting platforms and systems to emerge. Established institutions, who realise the importance of technology and the role that it plays (and will continue to play) in the financial services ecosystem, will be best equipped to manage future disruption and reap rewards, with others quickly falling behind.
“Technology is at the heart of structural change in financial services, in both developed and Emerging Markets. Banks have dramatically changed the way they deliver products and services as they strive to meet customers’ ever-changing needs. However, lower barriers to entry mean that a flood of new Fintech players is entering the market, offering a wide range of innovative products and services and posing a serious threat to the established industry,” said Guy de Blonay, Fund Manager, Financial Innovation at Jupiter Asset Management.
“The growth of Fintech as an industry in its own right is accelerating in the Middle East, and the reason is two-fold. Firstly, the lack of legacy infrastructure gives Emerging Markets the agility to adapt to new and exciting technological advances, making them easier to integrate on a blanket basis. Second, major economies in the region, such as the UAE and Saudi Arabia, are currently mid-phase in their national transformation programmes, which hold within them supportive regulatory plans and projects to support Fintech innovation,” de Blonay continued.
“We see Fintech as an enabler of post-pandemic recovery, with exciting long-term opportunities for the sector. One risk that should not be overlooked, however, is the fact that technology stocks may be negatively impacted should we see a durable increase in interest rates. Overall, we retain a positive outlook on emerging sub-segments including cashless transactions, AI, online lending, crypto and digital currencies.,” added Antoine Hucher, Equities Analyst, Financial Innovation at Jupiter Asset Management.
A cashless society is no longer a thing of science fiction – it is quickly becoming a reality through the increased adoption of cashless payments and supportive e-commerce market dynamics. Such dynamics have given impetus for non-bank lenders to emerge and incumbents and governments to take digital and cryptocurrencies more seriously. By way of example, Saudi Arabia’s Vision 2030 has officially committed to achieving 70% cashless payments for all transactions upon completion of the programme, a significant shift in consumer behaviour that will likely continue to evolve further should the rate of financial technology innovation maintain its current trajectory.
One of the most significant drivers for Fintech growth across Emerging Markets is the demands and needs of consumers. According to Jupiter, retail audiences are compounding with macroeconomic trends to create a gap between institutional offerings and consumer demand, paving the way for more innovation, and disruption, in the financial services sector.