Strategy Note /

Digital payments: Opportunities in EM fintech's dominant sector

  • Payments is the largest segment within EM fintech; it is a key gateway product for both underbanked and affluent users

  • Tech investment, geographical expansion, and broadening the product range are the top strategies for payments firms

  • Targeted innovations include digital banking and chatbots. Market dynamics and regulations are major growth constraints

Digital payments: Opportunities in EM fintech's dominant sector
Rahul Shah
Rahul Shah

Head of Corporate & Thematic Research

Rohit Kumar
Rohit Kumar

Global Financials/Thematics

Tellimer Research
7 January 2021
Published byTellimer Research

This 12-page report, part of our series on the risks and opportunities in the emerging markets fintech space, focuses on digital payments firms. Our work draws on the results of our detailed proprietary surveys of 29 payments companies and 700 consumers in seven emerging markets (Brazil, China, Indonesia, India, Kenya, Mexico, South Africa) allied to desk research of around 475 payments fintechs.

Our key findings

  • Payments is the largest segment within the EM fintech universe, accounting for 29% of all firms (and ranging from 38% in Indonesia to 25% in China).

  • The top values that payments fintechs deliver to their customers are product quality, security and transaction speed.

  • The most important factors driving these firms’ success to date are innovation, product quality and targeting unbanked customers.

  • Payments fintechs currently have around 10 percentage points higher market share than fintechs in other product areas.

  • However, market share gains for payments firms over the next three years are expected to be less than half of those delivered in other products; it is a more mature fintech sector.

  • Top strategies for payments fintechs include technology investment, geographical expansion, and growing product ranges.

  • Heavily targeted innovations include digital banking, chatbots/virtual assistants and cloud technology.

  • Market dynamics and regulations (notably data protection and deposit insurance) are the major constraints to growth faced by payments fintechs.

  • Innovative payments firms identified in our study include Cellulant (Kenya, augmented reality-powered try-out experience) and Uangku (Indonesia, money-back guarantee in case of online fraud).

The digital payments ecosystem in selected emerging markets

Source: Tellimer Research


We examine the payments fintech landscape in seven large emerging markets, including the drivers of firms’ success to date, their future strategies, targeted innovations, key growth constraints, and the impact that payments fintechs have on their customers. Our work is complemented by the results of our consumer survey in these same seven countries; we ascertain their current service provider preferences, assess their future expectations and determine the implications for payments fintechs. Lastly, we highlight some interesting innovations from selected payment firms.

Payments is the largest segment within the EM fintech mix, accounting for about 29% of the total fintech firm universe. By country, Indonesia has the highest weighting of payments firms (38%), while China ranks last (25%); in general, we would expect the relative importance of payments fintechs to diminish as individual firms and overall ecosystems diversify. According to payments fintechs, the top values they deliver to their customers are product quality, security and transaction speed. The most important factors driving these firms’ success to date include innovation, product quality and targeting unbanked clients.

Fintechs currently have a higher market share in payments when compared to other financial services products. However, based on our consumer survey, this fintech segment is likely to experience smaller market share gains than other fintech products, such as lending.

Key strategies that payments fintechs are adopting over the next three years include technology investment, geographical expansion, and increasing their product range. Their most heavily targeted innovations are digital banking, chatbots/virtual assistants and cloud technology. Selected innovative payments firms we are highlighting include Cellulant (Kenya, augmented reality-powered try-out experience) and Uangku (Indonesia, money-back guarantee in case of online fraud).

The most relevant constraining factors for payments fintechs are overall market dynamics, plus regulations. Considering the latter, key pinch points include rules relating to data protection and deposit insurance.

Indonesia has the highest weighting of payments fintechs

Payments is the largest segment within the EM fintech mix, accounting for 29% of all firms. By country, Indonesia has the highest weight of payments fintechs at 38%, while China has the lowest (25%). Our analysis indicates that while payments can be a good gateway product for customers to come under the fintech umbrella, adoption of other products rises more quickly as the fintech ecosystem develops. China is an interesting case study in this regard. It has the deepest and most established pool of fintech firms in the emerging world. Indeed, it is the clear global leader when it comes to digital payments volumes. Yet its proportion of payments fintechs is the lowest of all the markets we surveyed. There are two factors at work here. Firstly, the payments industry has a strong network effect, meaning that it tends to consolidate around a small number of dominant players (such as Ant Group’s Alipay and WeChat Pay). Secondly, once customers have access to a digital wallet, it opens the door to a wide variety of use cases that other fintech firms have been able to develop. Recent developments relating to greater intrusion of Chinese regulators could also hold lessons for other markets; as fintechs grow they are likely to face increased scrutiny and become subject to more stringent anti-monopoly measures.

Weighting of payments fintechs by country

The customer value-proposition: Quality, security and speed

According to payments fintechs, the top values they deliver to their customers are product quality, security and transaction speed. Relative to other fintechs, payments firms place more importance on security and less on delivering convenience.

Product quality is a broad term that includes factors like ease-of-use, product innovation, seamless execution and speed of service. This may explain why it is mentioned as one of the top values by both fintechs and consumers, not only in the payments space but in other segments as well. Some payments firms highlighting this as their key value proposition include Cellulant (Kenya) and Clip (Mexico).

Security: Cybersecurity is a key concern for the digital financial services industry and requires continuous investment to protect consumer data. Fintechs that cite security as their key customer value include PingPong (China) and Dapp (Mexico).

Faster approvals: Payments companies can bypass the legacy systems used by incumbents that require human interaction. They may also be less constrained by manual compliance checks. We think fintechs will need to keep progressing forward in this area as incumbents are also working to up their game. Openpay (Mexico) and SnapScan (South Africa) are among the payments fintechs that mention fast approvals as a key value they provide to their customers.

Payments fintechs' value proposition

Key success factors: Innovation, product quality and targeting the unbanked

The top three success factors cited by payments fintechs are innovation, product quality and targeting unbanked customers. Compared to other fintech sub-sectors, payments firms seem to benefit more from distribution networks/ partnerships, but less from funding access.

Innovation in service offerings enables payments companies to reach their customers in more cost-effective ways. It also helps fintechs become more relevant to their customers, for example by offering them greater convenience and/or a better user experience. Payments fintechs that cite innovation as their key success driver include Ovo (Indonesia) and Yoco (South Africa).

Product quality: As discussed earlier, this is a broad term including a variety of factors. Since incumbents are also actively innovating, payments fintechs need to deliver quality services to be able to compete effectively. Some payments firms that think the quality of their product has been a key driver of their success to date include Openpay (Mexico) and Gojek (Indonesia).

Targeting unbanked customers: A key area of opportunity for payments fintechs has been financially underserved populations. These customers in the past have been forced to use cash, which can be unsafe and inconvenient (for example, transferring at long distances). Some payments fintechs that think serving the unbanked customer has been a key success driver include PayFast (South Africa) and Yeahka (China).

Key success factors

Payments firms’ strategic plans: Technology investment, new countries and products

The top 3 strategies that payments fintechs are deploying over the next three years are technology investment, expanding into new countries, and introducing new products. Compared to the other fintech segments, payments fintechs are less keen on entering new customer segments and more focused on geographical expansion.

Technology investment: Technology like Machine Learning and Artificial Intelligence can improve the speed, cost and quality with which services are delivered to consumers. M-Cash (Indonesia) and WeChat Pay (China) are among the payments fintechs planning more technology investment.

Expanding into new countries: Payments fintechs that have succeeded domestically and see strong opportunities in other markets are actively considering expanding their geographic footprints. This goal can be achieved in various ways, such as through strategic partnerships or launching own-branded services. Payments firms citing this strategy include Stone (Brazil) and Billdesk (India).

Introducing new products: Payments fintechs tend to expand their service offerings to new products, like lending or investment, when they achieve a certain scale. Firms planning to launch new products include Zoona (South Africa) and Pine Labs (India).

Strategic priorities

Payments fintechs' innovations: Digital banking, chatbots and cloud technology

Considering their innovation plans over the next three years, payments fintechs are most focused on digital banking, chatbots/virtual assistants and cloud technology. Compared to fintechs in other sectors, payments companies are more focused on digital banking and less on artificial intelligence.

Digital banking encompasses the full suite of products offered by traditional banks, but via digital channels. By adopting this approach, payments fintechs will aim to develop an integrated suite of products like investments and lending. Payments fintechs with digital banking in their innovation plans include Ovo (Indonesia) and KinerjaPay (Indonesia).

Chatbots and virtual assistants help improve the customer experience by automating customer service/education and at the same time allow fintechs to reduce their operating costs by limiting the staffing needs for handling customer queries. Fintechs with plans in this area include Prime Fidelity (Brazil) and Yoco (South Africa).

Cloud technology: Payments fintechs use cloud technology to store and protect consumer data and to host services, which helps to reduce both operating costs and operating risk. Eko India Financial Services (India) and Conductor Tecnologia (Brazil) are among the payments fintechs planning to utilise more cloud technology in their businesses.

Targeted innovations

Payments firms will gain some share from traditional institutions and serve more unbanked clients

We asked consumers which kinds of providers were meeting their current financial services needs for payments products, and which ones they expected to use in three years. We use this data to estimate current and likely shifts in share of wallet for different types of firms.

Currently, fintechs have a 36% share of the payments sector, which is well above the 24% average share fintechs have in other products. Looking ahead, payments fintechs are likely to gain 3ppts market share over the next three years, largely from formal financial institutions and by serving more financially-excluded customers. However, this 3ppts gain is much lower than the 7ppts average gain expected in other products, suggesting that the payments space may be closer to reaching maturity than other areas of fintech. The highest market share gains are expected in lending and insurtech.

To avoid our questions being too intrusive, note that our consumer survey did not ask for quantitive information (such as size of balance); we think formal financial institutions would have a much higher share if our survey results were volume-weighted.

Payments providers' market shares

Key constraints to growth: market dynamics and regulation

Overall market size/ growth and regulations are the biggest growth constraints faced by payments fintechs. Compared to fintechs in other sectors, regulations and competition from traditional financial institutions are bigger challenges for payments companies, while funding access is less of an issue.

Size and growth of the market: It can be difficult for industry leaders to outgrow the overall market, particularly as the number of competing fintechs rises. We think market size is impacted by customer awareness, which is still limited in some emerging markets. Ant Group/ Alipay (China) and Clip (Mexico) are among the payments fintechs that cite market dynamics as a concern.

Regulation: Payments companies’ operations differ considerably from those of banks and other formal financial institutions. The regulatory environment is continuously evolving. Regulatory oversight also tends to rise as payments firms grow larger. Due to these factors, fintechs are often subject to considerable regulatory uncertainty. Payment fintechs that think regulations are a constraint to their growth include Mlinzi (Kenya) and Pay Ok (Indonesia).

Key constraints to growth

Payments regulatory hurdles: Data protection requirement and deposit insurance

According to our survey, data protection and deposit insurance rules are the key regulatory hurdles that payments fintechs face. Relative to other sectors, data protection is more of an issue for payments companies, while capital requirement is less of a concern.

Data protection requirements: One way that payments fintechs can generate a competitive advantage is through the collection and utilisation of customer data. Data protection regulations play a key role in determining the extent to which these companies can obtain and use such information, and the processes they must follow to protect it. Payments fintechs citing data protection regulations as a hurdle to their growth include Pesapal (Kenya) and SnapScan (South Africa).

Deposit insurance: Since digital wallet accounts are one of the most frequently used financial products for low-income customers, they play a key financial inclusion role in emerging markets. This is drawing the attention of local regulators, who are understandably concerned about protecting customers’ balances. Affected fintechs include Gojek (Indonesia), and WeChat Pay(China).

Key regulatory hurdles

Payments fintechs’ innovative practices

In the table below we highlight some innovative practices by payments fintechs based on our desk research:

Payments fintechs' innovative practices