Strategy Note /

How the pandemic has changed the retail financial services landscape

  • Indonesia fintechs made the largest market share gains in the pandemic; those in South Africa should see further gains

  • Fintechs picked up most share in personal loans and international remittances; more gains are likely in business loans

  • Traditional firms should lose more market share in South Africa and Kenya but gain in Brazil via insurance products

How the pandemic has changed the retail financial services landscape
Rahul Shah
Rahul Shah

Head of Financials Equity Research

Rohit Kumar
Rabail Adwani
Tellimer Research
31 May 2022
Published by

Our detailed consumer surveys across seven emerging markets, conducted several months into the pandemic and more recently, help to shed light on how this episode has driven changes in the usage of retail financial services. Our surveys also highlight how consumer expectations have changed.

During the pandemic, fintechs have increased their presence in all our surveyed markets, most notably in Indonesia and South Africa. Traditional financial institutions have experienced the biggest erosion in market share in Indonesia while financial exclusion has declined the most in South Africa.

At the product level, fintech gains have been most pronounced in personal/vehicle loans and international remittances. Traditional financial institutions have lost most share in savings/fixed accounts and credit/debit payments, while financial inclusion has improved most for personal/vehicle loans.

In terms of consumers’ expectations, the biggest improvements for fintechs have been in Kenya and for business/property loans. For traditional firms, consumers see better potential in Brazil and for current accounts, but a deterioration in Kenya and for life/health insurance.

Disappointingly, consumers feel less positive than before about the prospects for tackling financial exclusion, particularly in Mexico and for personal/vehicle loans.

Fintechs and informal channels have increased their presence

The aggregate results from our surveys indicate that fintechs have elevated their market presence by 6ppts during the pandemic, while informal channels have seen a 4ppt uplift. In contrast, traditional financial institutions have seen a 6ppt decline in share, while financial exclusion has declined by 4ppts. Nevertheless, traditional firms remain the largest supplier of financial services.

Note that our survey results are unweighted. On a volume-weighted basis, we think the market share of traditional financial institutions would be much higher than shown below, but the directional trends would likely be the same.

EM retail financial services market share

Current positioning: Traditional firms are most dominant in South Africa; fintechs have the largest presence in Indonesia

Currently, traditional financial institutions have the highest market share in South Africa and Mexico. Fintechs are popular in India and Indonesia. Informal channels are least material in South Africa. Financial exclusion is most notable in Brazil.

Retail financial services market share

Indonesia and South Africa fintechs gained the most market share in the pandemic

Drilling down to our survey results at the country level, we find that fintechs have made solid inroads in Indonesia (29ppt gain) and South Africa (15ppt gain) through the pandemic. These gains were driven principally by savings/fixed accounts and current accounts (Indonesia), and current accounts plus mobile payments (South Africa).

Traditional financial institutions have seen market share declines in all our surveyed markets, except for Brazil, where this sector has made gains through addressing financial exclusion, notably in credit/debit card payments and mutual fund/equity investment, and in Kenya. Traditional firms lost most market share in Indonesia (a whopping 25ppt decline, driven by savings/fixed and current accounts) and India (a 13ppt decline, with credit/debit card payments and savings/fixed accounts most affected).

Informal channels have made modest gains across the board, notably in India, where an 8ppt increase in unweighted market share has been driven by mutual fund/equity investment and domestic money transfer. Lockdowns have likely reduced consumers' access to formal channels.

Financial exclusion declined most in South Africa (9ppt decline); in this market, access to mobile payments and business/property loans improved most. 

Pandemic-driven changes in retail financial services market share

Traditional firms lead in life/health insurance, fintechs are most entrenched in mobile payments

Traditional financial institutions have the highest market share in life/health insurance and credit/debit card payments. Fintechs dominate in mobile payment services. Informal channels are popular for current accounts. Financial exclusion is considerable for business/property loans and international remittances.

EM retail financial services market shares

Personal/vehicle loans and international remittances have been the key drivers of fintech gains

Diving deeper into our survey results at the product level, we see that personal/vehicle loans (11ppt gain) and international remittances (10ppt gain) have been key drivers of fintechs' pandemic share gains. These market share gains were particularly notable in Indonesia and South Africa.

Traditional financial institutions have experienced a decline in all 11 surveyed products, with savings/fixed accounts (9ppt decline) and credit/debit card payments (9ppt decline) most affected, notably in Indonesia and India.

Informal channels have posted modest gains across the products, notably for mutual fund/equity investment (6ppt gain) and savings/fixed accounts (6ppt gain), particularly in India and Brazil.

Financial exclusion has declined across all products, with the most notable move in personal/vehicle loans (12ppt decline), especially in Indonesia and Mexico.

Pandemic-driven market share changes

The data above looks at how consumption of financial products has changed during the pandemic. Below, we look at how consumer expectations regadring their usage of financial products have changed during this period.

Future consumption expectations have shifted further away from traditional firms

In both our surveys, we asked consumers to estimate how their consumption of financial services would likely change over the coming three years. Summarised results of both surveys are presented below.

At the aggregate level, consumers no longer expect to increase their usage of traditional financial institutions. In the early days of the pandemic, a modest increase was projected. The use of fintechs is still expected to grow, but by slightly less than before.

While the aggregate results of both surveys are broadly similar, they do mask some significant country- and product-specific changes, which we will highlight shortly. Our separate study of pandemic-induced behavioural changes provides some additional context. For example, consumers are now more comfortable with digital payments and e-commerce than visiting stores. These findings are consistent with the latest survey results highlighted above, which reveal a decreased preference for brick-and-mortar financial services.

EM consumers' market share change expectations

The biggest changes in industry structure can be expected in Kenya and South Africa

During the pandemic, consumers have downgraded their expected use of traditional financial institutions, most notably in Kenya (a 9ppt swing) and South Africa (7ppts). The key products driving this change in view are personal/vehicle loans and life/health insurance (Kenya), and life/health insurance and savings/fixed accounts (South Africa). The one exception to this general trend is in Brazil, where consumers have boosted their expected use of traditional firms. Life/health and general insurance have driven this more positive view.

Interestingly, fintechs have not been universal beneficiaries of this decline in traditional financial institution usage expectations. For example, fintech usage expectations have declined by 7ppts in Mexico, driven by international remittances and savings/fixed accounts.

Indeed, one of the biggest surprises from our expectations survey is that financial inclusion is expected to improve more slowly than before in several of our surveyed markets, notably Mexico. Key products driving this country’s less positive view in this area include mobile payments and personal/vehicle loans.

There are no major changes in usage expectations for informal channels.

Pandemic-driven changes to EM consumers' financial services usage expectations

Usage expectations for traditional firms have been downgraded most in life/health insurance

Through the pandemic, emerging market consumers have lowered their usage expectations for traditional financial institutions, particularly for life/health insurance (7ppt decline) and personal/vehicle loans (5ppt decline), notably in South Africa and Kenya.

There have been modest changes in how much consumer expect to use of fintechs, with an upgrade in business/property loans (3ppt increase) and a downgrade in international remittances (4ppt decline). Kenya and Mexico, respectively, have driven these changes.

Expectations regarding the usage of informal channels received a boost in life/health insurance (6ppt increase), mainly in China. Financial exclusion expectations are worse for personal/vehicle loans (by 6ppts), notably in China.

Pandemic-driven changes to EM consumers' financial service usage expectations

Related reading

How emerging market consumers expect the financial services landscape to change

The emerging markets where fintechs are most likely to gain market share

How EM retail financial services are changing and the key growth drivers