Strategy Note /

The key issues limiting the growth of emerging market fintechs

  • Funding access is the key growth constraint for EM fintechs, followed by regulation and competition from other fintechs

  • Nigeria fintechs are most exercised by funding; those in Vietnam see capital requirements as the main growth constraint

  • Main constraints by business line: funding (Digital lenders), regulation (Payments firms), competition (SaaS fintechs)

The key issues limiting the growth of emerging market fintechs
Rahul Shah
Rahul Shah

Head of Corporate & Thematic Research

Rohit Kumar
Rabail Adwani
Tellimer Research
11 May 2022
Published byTellimer Research

We have surveyed 215 fintechs across 14 emerging markets to identify the factors they believe are impeding their own growth. Based on our findings, the key constraints to the development of fintech firms include access to funding, regulation and competition from other fintechs.

We note that the main concerns vary by country. In Nigeria, funding/capital is the key barrier to growth. In Vietnam, regulation is the main problem, while competition among fintechs is high in Indonesia.

By business model, lending fintechs face the most funding constraints, while regulations are the biggest curb on growth for payments-focused fintechs, and competition is fiercest in software solutions.

Digging deeper into the regulatory constraints to growth, we find that stringent capital requirements are the main issue in Vietnam, Nigeria, and Russia. Data protection is also cited as a problem for Vietnam fintechs, while South African firms regard consumer protection as the main regulatory obstacle they face.

Key growth constraints and regulatory hurdles cited by our surveyed fintechs

Fintech firms’ biggest growth constraints

In broad terms, the biggest growth constraints fintechs believe they face relate to internal challenges and industry dynamics.

Digging deeper, the main issues are funding/ capital shortages, regulation, competition from other fintechs and the overall size of the market.

The biggest growth constraints faced by emerging market fintechs

We delve further into some of these topics below:

Access to funding/capital

Funding/capital is crucial for the success of fintech firms, both for early-stage companies that are investing in technology and developing new products and more established firms focused on acquiring customers and expanding geographically. Fintechs citing access to funding/capital as a growth constraint include Nownow (Payments, Nigeria), Konfio (Lending, Mexico), and Pier (Insurtech, Brazil).

The low interest rates and plentiful liquidity that have existed until very recently have created a favourable environment for innovative startups to raise capital. In 2021, venture capital funding transactions reached a record level, and the number of unicorn startups doubled, along with a two-fold yoy increase in fintech IPOs. But much of this investment flow has been directed at developed markets such as the US, the UK, Singapore and Israel.

With regards to emerging markets, sizeable economies like China, India, Brazil and Indonesia have tended to be more successful at attracting VC investment. However, most emerging markets have failed to profit as much as they could from the VC funding boom.

One way to quantify this issue is to compare VC investment flows with per capita income levels. In general, wealthier countries attract higher VC investment per head.

VC funding by market

On this basis, China and India have attracted more than their fair share of investment. But Saudi Arabia, the UAE and Thailand have failed to attract the VC investment the size of their economies warrants. In these latter markets, VC investors face more limited competition, which could help to drive superior investment returns.

VC funding surplus/ shortfall in emerging markets*


Fintechs deliver digital financial services to their clients in innovative ways, by leveraging the latest technologies. Often, they operate in the grey areas between regulated and unregulated activities. Through their activities, innovative fintechs may prompt changes to the regulatory landscape, sometimes due to the lobbying of consumer and industry groups. This regulatory creep may in turn force fintechs to adjust their business models. Moreover, as fintechs grow, they become more likely to attract the attention of regulators.

This regulatory uncertainty can make it difficult for fintechs to attract funding, or to plan their investment activities and business strategies. Fintechs that think regulations are a growth constraint include Nextpay (Payments, Vietnam), First Circle (Lending, Philippines), and Alipay (Payments, China).

With the imposition of more stringent regulations to protect consumers, China’s technology sector felt the regulatory heat last year, hampering renowned players like Alibaba, Tencent, ByteDance and Didi Global. Meanwhile, new regulations in the EdTech sector, a VC hotspot in China, have effectively converted it into a not-for-profit industry.

In March 2022, Paytm, which is a payment firm in India, was restrained from serving new consumers, due to an alleged breach of data-sharing and improper KYC documentation for customers. Customer data has also become subject to the increasing trend towards protectionism, with China and other markets preventing the cross-border transfer of information viewed as sensitive.

We shall dig deeper into fintechs’ regulatory concerns in a future report.

Competition from other fintechs

Fintech startups face many challenges. The universe of active fintechs is growing rapidly; according to Statista, the number of fintech startups worldwide surged to over 26,000 as of November 2021 versus around 12,000 at end-2019. We suspect the growth trajectory in emerging markets has been steeper still. Traditional incumbents are also actively developing digital products, either in-house or in partnership with fintechs.

These developments make life more difficult for fintechs in numerous ways; for example, through competition for talent and higher product development/customer acquisition costs. Fintechs highlighting competition from other fintechs as a key growth constraint include PalmPay (Payments, Nigeria), Lendo (Lending, Saudi Arabia), and Finhay (Investech, Vietnam).