Strategy Note /
Global

Fintechs’ top strategies for the next three years

  • EM fintechs’ strategic priorities are tech investment, introducing new products and accessing new customer segments

  • Fintechs are more focused on technology and fund-raising than incumbents, which are broadening their product suites

  • Fintech unicorns focus on fund-raising. Chinese firms target cost-efficiency, Indian ones aim for footprint expansion

Fintechs’ top strategies for the next three years
Rohit Kumar
Rohit Kumar

Global Financials/Thematics

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Rahul Shah
Rahul Shah

Head of Corporate & Thematic Research

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Tellimer Research
4 January 2021
Published byTellimer Research

In this 9-page report, we look at the key strategic priorities for emerging market fintechs and incumbents as they map out their plans for the next three years. We also separately analyse fintech unicorns, and highlight key differences in their approach versus the broader fintech population. Our findings are based on the results of proprietary surveys that collected detailed responses from 101 fintechs and 50 incumbent firms across seven emerging markets (Brazil, China, India, Indonesia, Kenya, Mexico, South Africa).

Summary of our key findings

  • Investing in technology is the main strategic priority for fintechs. Technology helps drive value for these firms by differentiating their offering, reducing customer acquisition costs, speeding up processes, or improving risk management.

  • Other areas of strategic focus include introducing new products, entering new customer segments and expanding geographically.

  • Payment fintechs plan on technology investment and geographical expansion while lending fintechs are more focused on targeting new customer segments.

  • By country, Chinese fintechs are more focused on increasing operational efficiency, Indian fintechs are looking to expand into new markets.

  • Incumbents regard new product offerings as their key strategic priority, followed by entering new customer segments and countries.

  • By sector, incumbent banks target new customer segments while telcos and technology companies focus more on expanding their product range.

  • Comparing the survey responses from fintechs and incumbents, fintechs are more focused on technology investment and fund-raising, while incumbents are more inclined towards expanding their product portfolios.

  • Unicorn fintechs differentiate themselves from less valuable peers through their greater focus on fund raising and operational efficiency.

Strategies of some leading surveyed companies

Source: Tellimer Research

Overview

For emerging market fintechs, their top strategy priority is investing in technology; this helps them improve their products and become more relevant to their customers. Other important strategies include introducing new products, entering new customer segments, and expanding geographically.

By product, payment fintechs plan to invest in technology and expand geographically. Lending fintechs target new customer segments while insurtechs prefer to focus on enhancing management expertise. By country, Brazilian fintechs are most intent on entering into strategic partnerships; Chinese fintechs plan to increase operational efficiency; Indian fintechs are looking to expand into new markets; while Indonesian fintechs target to introduce new products.

Turning our attention to incumbents, they cite introducing new products as their top strategy, followed by entering new customer segments and countries. By country, incumbents in Brazil, India and Mexico prioritise geographical expansion the most while those in China, Indonesia and Kenya plan to introduce new products. By incumbent sector, banks tend to target new customer segments while telcos and technology companies focus more on expanding their product range.

On a relative basis, fintechs are more focused on technology investment and fund-raising, while incumbents are more targeted on product expansion. Based on the results of our separate consumer survey, to be able to better repel fintech new entrants, incumbents should focus on making their existing product suite more convenient and affordable.

Comparing unicorn fintechs with their less loftily-valued peers highlights some interesting contrasts. Unicorns are much more focused on fund-raising and boosting operational efficiency, while non-unicorns prioritise entering new customer segments and enhancing management expertise.

Fintechs’ top plans: Technology investment, expanding products, customers, and geographies

Technology investment. Technology, such as Machine Learning and Artificial Intelligence, can improve the speed, cost and quality with which services are delivered to consumers. For example, South African investech firm Wealth Migrate is adopting blockchain technology to enhance investor security. Other companies planning to invest in technology include Zerodha (India, investech) and Gojek (Indonesia, payments).

Introducing new products/services can help fintechs grow their share of wallet with existing customers, and attract new clients. For example, South African payments fintech, Yoco, has launched a new Yoco Go Card machine that accepts contactless card payments. Other fintechs citing this strategy include Ovo (Indonesia, payments), Konfio (Mexico, lending), and Yeahka (China, payments).

Entering new customer segments helps fintechs to diversify their revenue bases and capture more business from existing customers. This strategy is more common in markets with weak fintech profitability (like Mexico and Indonesia). Entering new market segments can help build scale and generate a faster path to profitability. Fintechs citing this strategy include Klar (Mexico, lending), SnapScan (South Africa, payments), and KoinWorks (Indonesia, lending).

Expanding into new countries is cited most by fintechs in India and South Africa. We think this makes sense for South Africa, as it is the most established fintech base in Africa. For Indian firms, cut-throat competition on their home turf could leave them looking enviously at other Asian markets. The goal of international expansion can be achieved through strategic partnerships (for example, Ant Group partnering with the likes of Easypaisa in Pakistan or bKash in Bangladesh) or fintechs launching their own-branded services (for example, South African lending fintech, JUMO, plans to expand to Nigeria, India, and Bangladesh). Other fintech firms looking to expand their footprints include Tala (Kenya, lending), Stone (Brazil, payments), and Zoona (payments, South Africa).

Fintechs' plans for next 3 years

By product, payment fintechs plan to invest in technology and expand geographically. Lending fintechs expect to target new customer segments while insurtechs will focus on enhancing management expertise. Technology investment and new product offerings are the priorities for investechs, while blockchain firms plan to improve operational efficiency and management expertise.

Fintech plans by product

By country, Brazilian fintechs are most intent on entering into strategic partnerships – for example, Orama (investech) and Pier (insurtech). This may be a way for them to scale-up in a market where funding access is weaker than elsewhere. Chinese fintechs, such as WeChat Pay and Duobaoyu Insurance, plan to focus on boosting operational efficiency and management expertise. Indian and Kenyan fintechs, like Faircent (India, lending) and Tala (Kenya, lending)  are looking to expand into new markets. Indonesian and South African companies, such as Ovo (Indonesia, payments)  and JUMO (S Africa, lending) plan to introduce new products. Mexican fintechs, for example Kueski (lending) and Klar (lending) are prioritising new customer segments.

Fintech plans by country

Incumbents’ plans: New products, customer segments and geographies

Turning to listed incumbents, such as Kenya’s Co-operative Bank and Telkom Indonesia, the top priority is expanding their product range. Other important plans include entering new customer segments (as highlighted by Santander (Mexico, for example) and geographical expansion (eg India’s Bharti Airtel).

By country, incumbents in Brazil, India and Mexico target geographical expansion the most while those in China, Indonesia and Kenya plan to introduce new products. Fintechs in Mexico prioritise entering new customer segments.

By incumbent sector, banks tend to target new customer segments while telcos and technology companies plan to introduce new products.

Incumbents' plans for next 3 years

Comparing strategies of fintechs and incumbents

On a relative basis, fintechs are more focused on technology investment and fund-raising for the next three years. For incumbents, expanding products and service offerings are more important than for fintechs; this can allow incumbents to increase their share of wallet with existing customers, and raise the switching costs for any customers that are enticed by fintech upstarts.

Fintechs versus incumbents on future plans

Strategies of fintech unicorns: Fund raising and operational efficiency

Fintech unicorns, defined as firms with >US$1bn valuations, typically identify different strategies relative to their less valuable peers. They are more focused on fund-raising and operational efficiency. In contrast, non-unicorns prioritise entering new customer segments and enhancing management expertise.

Some non-unicorn fintechs that are focusing on the same strategies as their unicorn peers include Clip (Mexico, payments), Moripesh (Kenya, investech), Pravaler (Brazil, lending) and Razorpay (India, payments). Some unicorns that are following a different strategic path from their unicorn peers include Gojek and Akulaku (both investing in tech and expanding product range).

Unicorns versus non-unicorns on fintech strategies