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Digital finance could add $3.7 trillion to emerging economies, report says

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We always knew digital finance could revolutionize emerging economies — we just didn’t know how much. 

A new report just quantified the potential: $3.7 trillion. 

Increasing the availability and use of financial technologies in emerging economies could create around $3.7 trillion in growth by 2025, the McKinsey Global Institute said in a report released Wednesday. The report is the first to attempt to measure the potential of financial technology for the 2 billion people worldwide who are left out of the financial mainstream, without access to savings or credit. 

Two-thirds of that increase would be a direct result of digital payments, with people who currently have access only to cash entering financial systems to both receive and make payments. The $3.7 trillion bump is 6 percent higher than a “business-as-usual” scenario, McKinsey researchers said. 

It’s not just emerging countries that stand to benefit. Widespread adoption of digital technologies like mobile payments, digital savings accounts and access to credit and loans could increase GDPs of middle-income economies by 4 percent each, while lower-income countries could see as much as a 12 percent increase. 

“Digital tools allow us to reach people left out of financial services,” said Michael Schlein, president and CEO at Accion, a global microfinance and fintech non-profit. “What’s radically changing are disruptive new digital tools. All of a sudden far distances that used to be insurmountable and transaction sizes that were prohibitively small are no longer.”

The new tools could be life-changing for a huge portion of the world’s population, Schlein said. More than half of the 1.6 billion people who McKinsey researchers said can be reached by these technologies are women. And in addition to the individuals outside the financial mainstream, 200 million businesses also stand to benefit from access to financial systems. 

“In a highly financially inclusive environment, you have ATMs, access to credit and debit, you can borrow money for school or to start a business and your expenses happen monthly,” Schlein said. “But 2 billion people live in poverty and lack access. If there’s a farmer in rural India, she’s paid once or twice a year at the time of harvest, but she lacks a safe place to save. It takes her hours to make a utility payment. She lives in an area that has monsoons or droughts, but she can’t get insurance.” 

The reason it’s suddenly possible to provide access to those resources to a new population is simple: Mobile phones. In 2014, nearly 80 percent of adults in emerging economies had a mobile phone, but only 55 percent had financial accounts, the report said. 

Fintech would also bring 95 million new jobs, $4.2 trillion in new deposits and $2.1 trillion in new credit to emerging economies. The technologies could eliminate $110 billion in government “leakage,” or corruption and graft, by replacing cash transactions with digital ones. 

Ethiopia, India and Nigeria are some of the countries with the most potential, the report said. But even middle-income countries like Brazil and China could still add 4 or 5 percent to their GDP through these technologies. 

The $3.7 trillion the world stands to gain is equivalent to the size of Germany’s economy and bigger than Africa’s economies combined. The United States, for comparison, has a GDP of almost $17 trillion. 

While it’s certain digital finance will have some impact on emerging economies, there are steps governments, regulators and businesses need to take to realize the $3.7 trillion potential. 

Leaders need to build strong mobile and digital infrastructure, a dynamic business environment for financial services and digital finance products that are better than what unbanked people worldwide are currently using. 

“Digital finance offers a transformational solution, and one that could be implemented rapidly and without the need for major investment of costly additional infrastructure,” the report said. 

Source: https://mashable.com/2016/09/22/fintech-emerging-economies-mckinsey/

Fintech

A founders guide to recession planning for startups

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We are living through one of the nation’s longest periods of economic growth. Unfortunately, the good times can’t last forever. A recession is likely on the horizon, even if we can’t pinpoint exactly when. Founders can’t afford to wait until the midst of a downturn to figure out their game plans; that would be like initiating swim lessons only after getting dumped in the open ocean.

When recession inevitably strikes, it will be many founders’ — and even many VCs’ — first experiences navigating a downturn. Every startup executive needs a recession playbook. The time to start building it is now.

While recessions make running any business tough, they don’t necessitate doom. I co-founded two separate startups just before downturns struck, yet I successfully navigated one through the 2000 dot-com bust and the second through the 2008 financial crisis. Both companies not only survived but thrived. One went public and the second was acquired by Mastercard.

I hope my lessons learned prove helpful to building your own recession game plan.

Read more: https://techcrunch.com/2020/01/24/a-founders-guide-to-recession-planning-for-startups/

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Revolut partners with Flagstone to offer savings vaults in the UK

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Fintech startup Revolut lets you earn interest on your savings thanks to a new feature called savings vaults. That feature is currently only available to users living in the U.K. and paying taxes in the U.K.

The company has partnered with Flagstone for that feature. For now, the feature is limited to Revolut customers with a Metal subscription (£12.99 per month or £116 per year). But Revolut says that it will be available to Revolut Premium and Standard customers in the near future.

Savings vaults work pretty much like normal vaults. You can create sub-accounts in the Revolut app to put some money aside. And Revolut offers you multiple ways to save. You can round up all your card transactions to the nearest pound and save spare change in a vault.

You also can set up weekly or monthly transactions from your main account to a vault. And, of course, you can transfer money manually whenever you want.

Metal customers in the U.K. can now turn normal vaults into savings vaults. The only difference is that you’re going to earn interest — Revolut pays that interest daily. You can take money from your savings vault whenever you want.

Revolut promises 1.35% AER interest rate up to a certain limit. If you put a huge sum of money in your savings vault, you’ll get a lower interest rate above the limit. Your money is protected by the FSCS up to a value of £85,000 for eligible customers.

Read more: https://techcrunch.com/2020/01/23/revolut-partners-with-flagstone-to-offer-savings-vaults-in-the-uk/

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True digitalisation of the B2B payments space is only just hitting its stride –…

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By Andres Ricaurte, Senior Vice President and Global Head of Payments, Mphasis

In the past few years, as fintechs have increasingly come into play on the global stage, not only have they shaken up the way in which traditional business is done – but they also shone a light on the need for significant innovation in the payments space.

For banks and other financial services providers, global payments revenues were $1.9 trillion in 2018, of which half were B2B. The sector represents a significant growth opportunity and is attracting major attention from emerging digital players. One thing is clear – banks and technology players are no longer separate entities but two interchangeable sides of the same coin.

As payment digitalisation continues to take place, how can providers ensure that they adopt technological advancements in 2020 to address some of the industry’s most challenging pain points and create unique angles to stay ahead of the curve?

Planting the seeds for success

Looking back over 2019, we saw B2B payments continue to move towards modernisation, particularly as businesses began to look at their end-to-end processes more holistically, utilise data more effectively, and replace their old systems with more nimble digital solutions.

One of the major trends has been the merging of accounts payable and accounts receivable data, feeding into a growing requirement from customers for a higher level of visibility and control to drive better business decisions. As a result, providers must start taking a wider view that encompasses both of these critical processes, to deliver more meaningful insights and help businesses optimise what have typically been two separate sides of the same coin.

Certainly there have been some teething issues to resolve, such as inconsistent tools and processes for businesses to share information with their buyers and suppliers, as well as associated privacy and cyber security issues that arise from the adoption of more open data frameworks.

While some progress has been made, particularly through the creation of ‘closed-loop’ buyer-supplier networks and ecosystems, there is significant room for improvement. Software and financial services providers alike are finding their feet in terms of capitalising on data to create truly intelligent and context-aware B2B payment solutions.

What other key trends will 2020 bring?

In the year ahead, I anticipate that AI and machine learning will play a huge part in shaping the future of B2B payments. As businesses continue to digitalise payments, invoicing and other trade-related processes, richer and larger data sets will increasingly become available. These technologies will pave the way for real-time data analytics and actionable insights. They will also help drive operational efficiencies through cutting down on the cumbersome (and error-prone) manual labour traditionally used to perform functions like cash flow management and forecasting. 

Additionally, SaaS adoption will gain even greater momentum, especially in the areas of treasury, accounting, order to cash, and procure to pay, which will change how corporates consume financial services and choose payment providers.

We will also see major disruption in how employees pay for day-to-day expenses thanks to the rapid adoption of B2B mobile capabilities, new payments form factors and innovative configurations for expense accounts. One of the knock-on effects is that traditional cards and expense reports will start becoming obsolete.

Last but in no way least, digital currencies will remain on the worldwide agenda. Leading financial services institutions and governments alike are evaluating and testing the pros and cons of blockchain technologies in re-designing the money supply chain. Consequently, it’s likely that new use cases for payments and settlements will not just appear, but begin to see early stages of market adoption.

Overall, while progress in payment digitalisation will be different across sectors, geographies and segments, embracing a digital-first, data-centric approach across all aspects of B2B trade and commerce is a must-have for businesses looking to future-proof their operations.

Source: https://www.fintechconnect.com/paytech/articles/true-digitalisation-of-the-b2b-payments-space-is-only-just-hitting-its-stride-what-can-we-expect-this-yea

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