Strategy Note /

The main growth constraints facing emerging market fintechs

  • Access to funding/capital, regulation and competition from other fintechs are the key factors limiting fintech growth

  • Philippines fintechs are most exposed to competition, hiring talent is tough in Mexico, covid remains an issue in China

  • Regulation hampers payments firms, incumbent competitors hold back investechs, blockchain fintechs struggle for funding

The main growth constraints facing emerging market fintechs
Rahul Shah
Rahul Shah

Head of Financials Equity Research

Rohit Kumar
Rabail Adwani
Tellimer Research
15 June 2022
Published by

The main factors limiting fintechs’ growth in emerging markets are lack of access to funding/capital, regulation and competition from other fintechs. We discuss these issues here, based on our detailed proprietary survey of 215 fintechs across 14 emerging markets.

The key limiting factors vary by country. For example, in the Philippines, competition is the key brake on growth. In Mexico, the availability of talent is a challenge. Fintechs find regulations tough in Brazil, while in China covid restrictions are hampering firms’ development.

We also look at the main growth limiters by fintech product segment. Payments firms are most hampered by regulation, funding access is holding back blockchain-focused fintechs, market size limits fintech software firms, while insurtechs are most exposed to competition from incumbent firms.

The biggest growth limiters vary by market…

Philippines: Competition among fintechs, traditional financial institutions, and the informal sector is the main challenge for Philippines fintechs, along with market size and regulations. Firms citing these obstacles include BeepToPay (Payments) and Cloudstaff (Fintech software solutions).

Indonesia: Competition and industry dynamics limit the growth of fintechs in Indonesia, in particular the rivalry between fintechs and the overall size of the market. It is hard for firms to grow faster than the industry given the rising number of fintech firms. Firms experiencing these issues include KoinWorks (Lending).

China: Fintechs in China regard environmental constraints as the key challenge to growth, mainly due to Covid-19. Competition among fintechs is also intense. Firms quoting these challenges include Alipay (Payments).

India: Industry dynamics and internal challenges are prominent in India, owing to the size of the market, talent scarcity, and a lack of funding. Meanwhile, there is considerable competition between fintechs, principally because of financial exclusion – over 205mn adults do not have bank accounts. Fintechs citing these constraints include CashFree (Payments) and PayMate (Payments).

Russia: Internal challenges owing to funding, plus industry dynamics due to the growth and size of the market, are growth limiters for fintechs in Russia. Fintechs citing these as growth hurdles include Loanberry (Lending).

Nigeria: Access to funding is the most significant hurdle to fintech growth in Nigeria. Despite the country attracting the highest volume of tech startup funding in Africa, investment volumes are insufficient to allow fintechs to fully exploit the opportunities presented by the biggest economy in Africa. Firms that regard funding as an issue include PayHippo (Lending).

Brazil: Funding access and regulations are the key limiters to fintech growth in Brazil. Fintechs citing these challenges include Vindi (Payments).

Mexico: Fintechs in Mexico consider internal challenges as brakes on growth, particularly funding access and talent scarcity. Fintechs citing these issues include Konfio (Lending).

Growth constraints faced by emerging market fintechs

…and by product segment

We highlight below how the growth constraints fintechs face differ according to their primary product focus.

Insurtech: Competition from traditional financial institutions, funding access, and regulations pose the biggest challenges to growth for insurtech firms. Firms citing these growth constraints include Naked Insurance (South Africa).

Payments: Regulation (eg minimum capital requirements) is the biggest growth constraint for payments fintechs, followed by funding access, competition from other fintechs, and the size of the market. When payment fintechs achieve scale, they may face a more stringent regulatory environment than before. Firms highlighting these growth constraints include AlRaedah Finance (Saudi Arabia) and JazzCash (Pakistan).

Blockchain: Access to funding, competition, and regulation are the main growth obstacles for blockchain firms. The risks tied to cryptocurrencies prompted unfavourable regulatory actions in some markets last year (e.g. Nigeria), raising concerns for venture capital investors. Firms citing these issues as growth constraints include Bitshopp (Brazil) and Bitsoko (Kenya).

Fintech software solutions: Funding access, competition from fintechs, and the size of the market are the main growth challenges faced by fintech software solution firms. These firms invest to enhance the user experience, boost operational efficiency, and improve customer acquisition rates. Fintechs citing these growth challenges include Finoramic (India).

Lending: Funding/capital access and regulations are the top growth challenges faced by lending fintechs. Lending firms require funding to disburse credit, while strict laws often protect consumers. Firms citing these growth constraints include Neon (Brazil) and PayHippo (Nigeria).

Investech: Distribution capacity and funding access are the key challenges encountered by Investechs. Regulation and market convention may require these firms to maintain some physical infrastructure. Investechs regarding these as growth constraints include Wahed (Saudi Arabia) and Bareksa (Indonesia).

Growth constraints faced by emerging market fintechs