In our FinTech: The 2020’s post we discussed a number of key verticals we were focused on for the decade ahead which included Emerging Market FinTech. Since we published this back in December, the COVID-19 pandemic has led to an acceleration of a several trends which we also wrote about in May. We highlighted the acceleration of digital payments and movement away from cash due to concerns about cash being a disease carrier and the limited access / inability afforded to physical bank branches. We have seen a significant acceleration in Neo-Banks & P2P Wallet activity volume over the 1H2020 from portfolio companies, which we strongly believe is at least in part, due to these overarching macro tailwinds and indicative of metrics other companies are seeing in the space.

We’re clearly not alone in these observations & views. At this point it seems to be well understood that the impact of COVID-19 is disproportionately affecting underserved economies both domestically & internationally. For those ~1.7bn individuals that are unbanked and the hundreds of millions more that are underbanked this has been a particularly challenging time; wherein lies the opportunity for local entrepreneurs to solve real pain point.

Maelis Carraro the Catalyst Fund Director commented, “We believe we are facing a catalytic moment during which there is an opportunity to use technology to help low-income consumers and small businesses recover from the impact of COVID-19 and build greater financial resilience for the future.”

Colleen Briggs the Head of Financial Health & Community Development at JPM said, “The COVID-19 crisis has negatively impacted the health and financial stability of underserved workers and small businesses across the world. Helping ensure that people in hard-hit communities have access to FinTech tools that can improve their financial health is a key prerequisite for an inclusive economic recovery.”

This was also echoed by Kim Bromley the Head of Financial Services at DFID, “COVID-19 has highlighted Fintech’s vital role in widening access to financial services to the most vulnerable people. Catalyst Fund support will help FinTech companies improve their resilience to future crises enabling them to provide critical solutions to low-income customers through the COVID-19 crisis and beyond.”

Financial service firms account for ~15% of Global GDP, and in the US, there are ~$7.0 trillion of financial service market cap for public companies across key industries such as banking, capital markets, consumer finance, insurance, mortgage, and diversified financial services. Given the size & scale of these firms in the US, coupled with the regulatory approvals and oversight, we are predominantly focused on B2B enabling technologies that help to facilitate the role of incumbents; or those companies that facilitate “embedded finance.”

In Emerging Markets we take a very different approach. Emerging Markets have the right mix of macro tailwinds from demographics, to technological innovation, to economic growth, and limited existing infrastructure that they are ripe for disruption from FinTech firms. We are seeing innovation across online / mobile banking, payments, wealth management, and alternative lending platforms which are brining financial services to unbanked & underserved populations, while offering a digitally native and often time superior solution vs. incumbent service providers.

We believe there will be multiple $1.0bn+ outcomes over the coming years in these regions & as a FinTech investor even with a 100% domestic focus it will be prudent to have an understanding on these key developments ex-US.

What Venture Can Learn from Public Markets

Public equity investors resisted exposure to Emerging Markets for decades due to volatility caused by geopolitical uncertainties, liquidity constraints, corporate governance concerns, and lack of local domain expertise. The ARK Invest team has a great excerpt on this in their White Paper from May, Rethinking Asset Allocation: Why Innovation Deserves a Strategic Allocation in Investor Portfolios. In it they note that over time investors:

“Observed low correlations between and among the stock returns of the various developing nations, as well as growth rates that far surpassed those in the developed world. Investors concluded that broad-based exposure to developing markets offered enough diversification to minimize idiosyncratic risks and lower volatility, resulting in higher risk-adjusted return.

Launched in 1988, the MSCI Emerging Markets Index marked the beginning of a new investable sub-asset class for public equity portfolios. The index included only ten developing nations but enabled allocators to track the local equity markets of rapidly growing emerging nations.6 During the late eighties and early nineties, allocators that made a strategic decision to reallocate some of their global equity portfolio from developed markets to emerging markets enjoyed the benefits of increased relative returns.”

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Ark Investment Management LLC

The reason most Venture Funds have little to no EM exposure is similar to those reasons echoed by public market investors ~30 years ago including geopolitical uncertainties, corporate governance concerns, exit path, etc… While the Venture industry won’t have the benefit of broad-based exposure to offer enough diversification to minimize idiosyncratic risks; they are compensated to do the exact opposite of that, e.g., take idiosyncratic risks that are asymmetric, in the hope of finding those that enable outsized returns. The tailwinds for private companies are just the same, and for FinTech firms specifically we see these trends accelerating as a result of COVID-19.

Macro Backdrop

Historically individuals and small businesses in EM struggle with a lack of access to basic financial services. This leaves most people / businesses to rely predominantly on cash-based transactions which are subject to higher incidence of fraud & theft. For example Sergio Romero, Uber’s legal director in Mexico noted that over 50% of Uber rides country-wide are paid in cash. There is irony in the fact that riders are able to hail a car to their exact location using a smartphone, but subsequently need to transact in cash because ~60% of the population lacks a bank account. Cash-based transactions make it near impossible to build up credit which makes lending products sparse inclusive of credit cards, mortgages, student loans, etc….

Emerging markets are home to ~85% of the global population, and nearly 90% of people under 30 reside within them; yet they only produce ~40% of global economic output. Over the past decade EM economies have increased their share of global GDP by ~10%, and this number is expected to trend higher over the next 5–10 years as Emerging Markets are expected to continue to outpace DM’s as it pertains to growth.

As these countries exhibit economic growth this ultimately benefits consumer leading to unprecedented growth in the global “middle class,” and increased urbanization. A Brookings Institute Study found that ~140 million people are joining the middle class annually and believe that number can rise to ~170 million in the next several years. A growth in the middle class leads to greater accumulated wealth which requires the needs for financial services including savings accounts, insurance products, access to global equity markets, credit products, etc….

An oft-cited stat within FinTech circles is that globally ~1.7 billion adults remain unbanked without an account at a financial institution or through a mobile money provider. Despite the fact that it’s frequently cited doesn’t make it less true or less of an opportunity for innovation. This is particularly relevant as ~2/3 of the unbanked population own a mobile phone that could help provide access to financial services.

China has the world’s largest unbanked population with ~225 million adults, followed by India with ~190 million adults, Pakistan with 100 million adults, and Indonesia with 95 million adults. These four combined with Nigeria, Mexico, and Bangladesh are home to ~50% of the world’s unbanked population.

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We’re also starting to see governments make financial inclusion an integral part of their platforms. As countries globally attempt to spur economic activity once we ultimately reopen from the COVID-19 shutdowns financial inclusion should be at the top of their to-do list in those areas where rule of law is either missing, or punitive to the less wealthy.

Digital Connectivity

While large numbers of people remain unbanked technology continues to increase penetration within this cohort including mobile phones & Internet all of which has the ability to drive innovation around financials services.

Mobile technology has spread rapidly around the globe with an estimated 3.5bn smart phones & 5.2bn total mobile phones equating to ~45.0% / 67.1% of the world’s population. Statista predicts that by 2023 the number of mobile device users will increase to 7.33bn.

China & India in part due to their population are leading the way with 851mn & 346mn smartphone users respectively at 59.9% / 25.3% smartphone penetration. Brazil, Indonesia, Mexico, Vietnam, and the Philippines are all in the top 20. In EM countries while formal banks reach ~40% of the population, there is ~90% coverage for mobile phones.

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As you can see across EM economies smartphones, rather than feature phones tend to be at least as widespread if not more widespread. This allows financial inclusion to become a more attainable goal as it is significantly cheaper to reach smaller or underserved segments of the population.

In addition to mobile phone penetration Internet Penetration continues to increase globally. In 2005 ~16% of the world was connected to the Internet, in 2010 that number was 30%, today it’s closer to 55%. Emerging Markets have driven a significant portion of that growth with Internet Penetration going from 8% to 47% over that same time period.

If we look at this on a country by country basis you see a very similar trend to that of smart phone penetration with EM countries like China, India, Indonesia, Mexico, and Turkey all exhibiting rampant growth and in-line with some of their “DM” peers.

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The mobile phone & Internet penetration is particularly relevant due to the lack of existing infrastructure such a traditional bank branches and credit cards. For example, in China there are 12 commercial banks that are nationwide incorporated, 6 commercial banks that are state-owned and three policy banks, for a population of 1.4 billion. Compare that to ~5,177 banks and ~5,300 credit unions in the US for the ~330 million people. If we look at Africa, in countries like Nigeria, there are 8 commercial banks with International Authorization, and another 11 with National Authorization, in Ghana there are 24 banks, and in Kenya there are 41 banks. In parts of LatAm such as Mexico there are 32 banks, Argentina has 16 banks, and Brazil has 7.

This allows EM countries to more easily adopt new technologies skipping over the legacy bank branch to mobile money which is a trend that’s only been accelerating over the past 10 years.

In a GS Presentation by John Mahoney in Feb 2019 entitled The Rise of Chinese FinTech: Lessons for the United States they highlight this data comparing credit card penetration vs. smart phone penetration noting the opportunity for technology driven financial services.

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Source: Goldman Sachs

Fundraising / Deal Activity: These trends aren’t unique to FinTech; FinTech just happens to be a core area of focus for us and what we view as the largest opportunity (outside of the handful of consumer apps that will inevitably go viral). The WSJ recently reported that Sequoia has raised $3.7 billion for three new funds to invest in China, and $1.35 billion to invest in India; alongside $2.15 billion for U.S.-focused funds. This is becoming more common place as larger, sector-agnostic firms have built up partners & domain expertise ex-US at an accelerating pace.

If we look at deal activity you’ve seen a slight uptick across Africa, LatAm, and SE Asia over the past 5 years but they are still a fraction of US funding activity

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Source: Pitchbook

This despite the fact that those 3 regions have over 6.5x the population of the US, ~54% of the GDP (and significantly faster growth), 34% of the deals, and ~60% of capital raise (but that overstates it due to a handful of large deals in SE Asia).

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China as the Blueprint: We look at key areas of adoption across China before diving into areas of geographic & product interest for startups. While we believe many solutions will be locally built, we think founders will emulate best practices from both Western economies and other EM countries tailored to the specific needs of the region.

Chinese consumers have readily adopted a number of FinTech services such as online banking, money transfers, crowdfunding, lending, investing & insurance; but nothing compares to the digital payment revolution they’ve gone thru.

The Brooking Institute published a good paper entitled China’s Digital Payment Revolution which we think will be indicative of the transformation you see across a number of EM countries.

While America spent the past decade upgrading its bank-based magnetic striped cards with chips, China experienced a retail payment revolution. Leapfrogging the card-based system, two new payment systems have come to dominate person-to-person, retail, and many business transactions. China’s new system is built on digital wallets, QR codes (two-dimensional bar codes), and runs through their own big tech firms: Alipay running through Alibaba (China’s version of Amazon) and WeChat Pay running through Tencent (China’s version of Facebook). China’s system largely disintermediates banks from payment transactions, robbing banks of an important and long-standing source of revenue. It creates an alternative payment ecosystem with different incentives between merchants, consumers, and payment system providers. It challenges the long-standing placement of payments on the side of banking as opposed to commerce. In doing so, this system creates new incentives that could realign existing business models and relationships between merchants, banks, and technology providers.”

While many thought that UnionPay would develop into the dominant payment system in China, it was the rise of Alipay and WeChat Pay which transformed the payment system. Over 90% of people in China’s largest cities use WeChat Pay and Alipay as their primary payment method, with cash second, and card-based debit/credit a distant third.

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Mobile payments in China have reached over $41 trillion (277 trillion yuan) annually; with 53% occurring on Alipay and 39% on WeChat Pay. This payment system evolved into a framework based on non-bank payment platforms & QR codes; which is in sharp contrast to the Western, bank-centric card-based model. We think this is playbook for other emerging economies to follow as they build their own payments ecosystems.

Outside of payments the focus is on a mixture of 1) Credit / Lending Products 2) Wealth Management 3) Insurance and 4) Digital Banking. There is a large & significantly under-penetrated population for traditional financial service products that a mixture of Internet Giants, Incumbents, and Start-Ups / Challengers are going after. The GS Presentation does a good job highlighting those below:

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While other EM countries won’t follow the China playbook in lockstep it’s helpful to see what’s occurred there over the past 10 years to glean insight into what may occur in these other regions over the next 10 years.

Geographic Areas of Interest: As we look at the world outside the US, geographically we are most focused on 1) Sub-Saharan Africa 2) LatAm and 3) SE Asia. We’ll touch on each from a macro perspective before diving into products.

Sub-Saharan Africa

Sub-Saharan Africa is home to the world’s largest free trade area, youngest labor force, and the 1.2 billion-person market seems to be going in only one direction over the next 15–20 years. It’s estimated that nearly ~1/2 of the world’s population will be in Africa in the next 20 years, yet it remains the most expensive place in the world to send money. It’s hard to believe that Kenya kicked off the digital payment ecosystem back in 2005 with a beta version of M-Pesa and the public launch in 2007. As it pertains to financial inclusion only ~20% of the population has a bank account compared to 92% in advanced economies, and 38% in “non-advanced” economies per the IMF. Underinvestment, poor infrastructure, and comparatively low levels of financial literacy have contributed to the region being underbanked.

According to the World Bank ~66% of adults in Sub-Saharan Africa are “unbanked” yet there are over 600 million Africans who currently use mobile phones. 21% of adults in the region having a mobile money account. This correlates with GSMA supply-side data on mobile money, which shows that Sub-Saharan Africa plays host to almost half of all mobile money registered accounts i.e. 396 million — of which 37% are active on a 90-day basis. Mobile money has underpinned a change in the delivery of financial services and as a result the region is a leader in mobile money innovation, adoption, and usage.

A Brookings Institute study found that the world’s 10 fastest growing cities, between 2018 and 2035, will all be in Africa, and 21 of the 30 fastest growing cities will be there. Nigeria alone is expected to add 189 million urban dwellers between 2018 & 2050. This urbanization trend is critical as those are the ones leading the push towards financial services. In Africa FinTech isn’t disrupting incumbents but instead leveraging learnings gleaned elsewhere to build a financial service industry from the ground up. There’s significant whitespace for product innovation across digital wallets, mobile money, bill pay, payment processing, lending, InsurTech, brokerage functionality, and wealth management.

The IMF had a helpful note on FinTech in Sub-Saharan African Countries in which they discuss the opportunity that FinTech companies have for fostering financial inclusion while improving efficiency across the sector. They highlight that while we’ve started to see innovation in payments (analogous to China) FinTech facilitates financial inclusion beyond payments such as marketplace/peer-to-peer consumer lending, Real Estate / Equity Crowdfunding, Business Lending, Marketplace Business Lending, and Microfinance opportunities.

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TechCrunch: Africa’s Top 5 VC Markets in 2019

LatAM

Over the past 5 years’ investments in LatAm startups are up ~5x and as some of these first generation companies mature you’re seeing significant growth rounds for the first time. As in most EM regions FinTech is particularly relevant due to the incumbent infrastructure (or lack thereof) and general constraints with existing regulated entities & technological solutions.

In LatAm similar to Africa, ~60–70% of people remains unbanked, yet ~65% of the population using a smartphone. Perhaps more impressively it’s predicted that by 2022 nearly 90% of all Internet connection in LatAm will be made via mobile devices.

The barriers to entry for banking are high in most countries where you need some combination of a proof of job, citizenship (sometimes with certain duration), and other paperwork. These accounts are riddled with hidden fees and often times discriminate explicitly against income levels. A 2016 report for the Centre for Global Development found that LatAm countries have lower financial inclusion levels for two main reasons:

· Weaker rule of law make it so banks can take advantage of customers; meaning there is low trust in banking institutions in the region

· Insufficient competition in the industry means bank services are expensive & cumbersome.

The below data is from CGDEV, Trading Economics, Reuters, and The Global Economy; while slightly dated still is indicative of the general levels of banking / credit penetration In some of the largest countries in LatAM:

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SE Asia

The Association of South-East Nations (“ASEAN”) as a single entity would represent the third largest market in the world after China & India, with the world’s third largest labor force (630mn people), and ½ of the population is under the age of 30. DB estimates that ASEAN is expected to become the world’s fourth largest economy by 2030 and highlights the fact that it has dramatically outpaced the rest of the world on GDP per capita growth since the late 1970s with average annual real gains in excess of 5%. ASEAN is the world’s third-largest recipient of foreign direct investment (FDI) with gross exports approaching ~$1.0 trillion. They have an estimated ~330 million internet users (or the Size of the entire US population). Despite all of this in SE Asia only 47% of individuals in the region have bank accounts, while less than 1/3 of local SMEs have access to credit.

Take the Philippines, which is the 10th fastest growing economy in the world and the fastest in the region. Their total population is 103 million, with a median age of 23.4 years old and 1.1 million people entering the labor force each year. Despite the size & growth of the country 77.4% of the citizens remain unbanked despite Internet Penetration at 67% and smartphone penetration at ~45%. Historically this region was one of the worlds’ most cash & paper-based economies, but they are quickly becoming one of the most advanced with instant payment systems being rolled out. ACI Worldwide recently published a report on the concerned effort of real-time payments in the region highlighting:

“Southeast Asian countries are making significant strides in payments modernization, with nearly every major country in the region having robust domestic real-time payments infrastructure in place. Despite the lack of uniform regulations and disparate economic priorities across the region, it’s clear that market forces — driven by the needs of businesses and consumers — will propel Southeast Asia towards the realization of a multi-country real-time network..The emerging ecosystem promises significant benefits and will greatly support growth and economic prosperity in the broader region.”

COVID-19 and the ramifications of the pandemic are only accelerating these trends throughout the balance of the region.

As evident by the VC funding data above FinTech investments in SE Asia have more than doubled over the past 5 years, with investments across all the relevant sectors including Digital Banking, Lending, Payments, AI/ML/Big Data, PFM, Asset Management, SMB, and Insure Tech. We continue to think the region is ripe with opportunities.

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CSIS: GDP Growth & Projected Growth Rates for SE Asia

Product Areas of Interest: The group over at Catalyst Fund managed by BFA Global, has put together a list of the “Top 100” names for inclusive FinTech Companies in Emerging Markets. They identify companies in SSA, LatAm, Asia, and “Global” across Personal Finance / Savings, Merchant Services, Tools for Financial Institutions, Insurance, Money Transfer, and “Pay as you Go” This is much better than anything we would have ever put together so leaving it below as a solid market map:

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Source: Catalyst Fund

The opportunity for startups is incredibly expansive and they have the ability to emulate best practices globally, while bringing domain expertise and iterating on the product at the local level. Companies like AliPay, PayPal, Robinhood, Square, Stripe, Shopify, WeChat, etc… all show what’s possible at sufficient scale and have gone through their own product iteration over time. Below is a few key areas we’re looking at and some startups that have caught our eye. If you’re building in any of the above geographies in any of the below areas or if you feel like we missed something let us know!

Digital Banking: As alluded to above given the lack of physical bank branches, coupled with the smartphone penetration in these regions digitally native banks are of particular interest to us. In the US we talk about the “Direct Deposit Account” become the central hub thru which other services can be built upon and the stickiest part of the client relationship. While some companies such as ClickSwitch are making this easier we think in EM countries natively digital banks can become the “one stop shop” for financial service needs. Some notable

· Albo (Mexico)- Albo was one of the first Digital Banks in Mexico and raised a $26.5mn Series A round in December of last year. They are focused on P2P transfers as well as real-time money movement.

· Kuda (Africa)- Kuda is the first digital-only bank in Nigeria with a standalone license granted from the Nigerian Central Bank. They have built a full-stack banking solution from scratch, connecting directly to Nigeria’ Central Switch- which is a SWIFT-like system that facilitates bank communications.

· Nubank (Brazil)- Nubank is the largest FinTech company in LatAm launching initially with an international credit card, a digital account, and adding on a personal loan product. With 20mn+ clients it now boasts one of the largest user bases globally.

· Timo (Vietnam)- Timo was the first digitally native bank launched in Vietnam in a partnership with VPBank. The user base is into the mid-hundreds of thousands as of an interview ~12 months ago. They offer users the ability to open a term deposit, manage accounts, make transfers, and payments largely for free.

· Uala (Argentina)- A personal financial management mobile app in Argentina, offering a pre-paid Mastercard. Argentina had ~50% banking penetration vs. 92% mobile phone penetration so it was a natural fit. They raised $150mn round at the end of last year led by Tencent and Softbank which resulted in a close relationship with the “WeChat” platform.

Brokerage: As we see growth in GDP, urbanization, and a burgeoning middle class we expect to see a focus on asset / wealth management. The lowest hanging fruit is providing access to equity markets both domestically and internationally (including the US). We think platforms like WeChat / AliPay are prime to follow in Square’s footsteps to offer US equity exposure (if the gov’t would allow it) but these Digital Banks / firms should look to also offer this.

· Bamboo (Nigeria)- The opportunity for equity trading in Africa remains wide open but Bamboo was one of the first companies to come to market with an app that allows Nigerians to buy & trade US equities. We would expect to see some of the large P2P payment companies emulate Square and roll this out as well in the coming months / years.

· eToro (Global)- eToro has 11 million users across 140 countries and has its sights set on SE Asia due to the lack of local competition. In an interview last fall the team said they expect Asia to comprise ~30% of the 2019 revenue and noted expansion plans in Malaysia, Vietnam, the Philippines, and Thailand.

· Flink (Mexico)- Billed by some as the “Robinhood of Mexico” Flink recently announced a brokerage product with US-Based DriveWealth. They started as one of the leading neo-banks with a focus on college students / recent graduates. Alongside Albo they are one of a handful of companies in the region to seemingly have a relationship with Mastercard for the card issuance. Despite the original banking product that has strong traction, the equity product seems well positioned to be a core part of their offering with a waitlist of several hundred thousand users!

· Toro (Brazil)- Toro is a brokerage platform is Brazil that had ~140,000 clients in 3Q of last year the last time they publicly disclosed this metric. They highlight that just 0.5% of Brazilians invest in equities but given the low level of the Selic Base rate that # is trending higher and should at least approach the 5% in EM and over time the 30% in the US.

Crypto Trading: While not opining on the investment merits of crypto (although we did recently write up views on BTC specifically here) there is significant interest in trading crypto globally as evident by the volume exchanges so as Huobi, OkEx, and Binance have. LocalBitcoins is a P2P exchange framework globally for typically OTC transactions in areas where BTC exchanges are not present (e.g., Africa, Russia, LatAm, etc…). While volume peaked in 2017 and $120mn/month it’s consistently been in the $40mn-$60mn weekly volume over the past 3+ years. Given the manually intensive nature, potential counterparty risk, you have to imagine organic demand is well in excess of that with the right companies.

· Bitso (Mexico)- Bitso is a LatAm-focused global Bitcoin exchange that operates MXN & ARS markets with support for instant deposit & withdrawal through Mexico’s SPEI banking system. They claim to capture ~2% of the remittance market from the US to Mexico which is $35bn/year. Their goal in late Feb was to take that to 20% by YE.

· Luno (Gloabl)- Luno published a report alongside Arcane Research entitled The State of Crypto In Africa in which they detail the growing interest. While they have 4 million customers across 40 countries they are doubling down on Africa.

· PDAX (Philippines)- A local Philippines exchange backed by the largest futures trading venue globally (Bitmex) they offer BTC trading directly against the Philippine Peso (PHP). They are regulated by the Bangko Sentral ng Pilipinas (BSP) and seem to have plans to extend beyond crypto into equity & commodity offers as well.

Insurance: Insurance penetration Is incredibly low in areas such as SE Asia at 2% / Africa at 2.8% / LatAm at 3.1% compared to develop markets at 8%. As more wealth is created in these regions these #s should begin to grow into the high single-digit / low double-digit. Analogous to some of the global trends we’re witnessing in InsurTech we believe these products are best delivered via software through “embedded finance.”

· PolicyPal (Singapore)- PolicyPal is an insurance marketplace, bringing together dozens of partners including big names in the industry such as AIG, Singapore Life, and HSBC. Through the network of providers, consumers can purchase a full range of policies such as personal injury, travel, motor, and life insurance and pay premiums with credit or debit cards. PolicyPal also provides a marketplace for customers to buy, sell, and exchange existing endowment policies.

· Super.Mx (Mexico)- This team is offering parametric insurance which we believe is an interesting model to explore in EM not just for things such as Flood, EarthQuakes, and Pandemics; but also for usage in Life / Health Insurance. Based in Mexico City despite being relatively new on the scene it looks like they were able to work alongside large insurers such as Munich Re.

Lending: There’s a big opportunity to offer micro credit in many areas of EM as well as secured loan products. We believe these will be delivered for consumers via Neobank options and for businesses via traditional business software.

· Branch (Africa)- Branch uses the borrowers’ phones to create a credit score offering loans with easy repayment options for users.

· Creditas (Brazil)- Creditas provides secured consumer loans at some of the most competitive rates collateralized by things such as home equity and autos. Creditas raised a $230mn Series D round last year to help grow internationally and expand their product portfolio to include payroll, home, and auto loans.

Payments: As these countries are in the middle of the transition from being heavily dependent upon cash to digital payments we think this continues to be one of the top wedges into financial services more broadly.

· AliPay / WeChat (China)- We alluded to them above but the largest digital payments in the world, and with V/MA some of the largest payment companies globally; coupled with social media / commerce and other asset & wealth management products.

· Chipper Cash (Africa)- ChipperCash looks like it’s becoming one of the fastest growing FinTech companies in Africa, raising a $13.8mn Series A last month. Chipper offers mobile-based, no fee, P2P payment in 7 countries including Ghana, Uganda, Nigeria, Tanzania, Rwanda, South Africa, and Kenya. In a TechCrunch article the CEO said they are over 1.5mn users and doing $100mn+ / month in volume. They seem to be following Square’s playbook here and have launched Chipper Checkout, a merchant-focused, fee-based payment model.

· Momo (Vietnam)- Momo raised a $100mn Series C round early last year to continue to take on digital payments in Vietnam. The country has nearly 100mn people ¼ of whom are under the age of 25. They are reportedly the country’s largest mobile wallet company with 10.0mn+ downloads.

Remittance: According to the World Bank Group there’s an estimated ~266mn migrants in the world, many of whom engage in remittance. Global remittance volume reached a record $554bn in 2019, and while it’s expected to decline this year due to COVID-19 this is likely cyclical not structural. One of the original “FinTech” problems prior to the industry being referred to as such was remittance or the process of transferring money abroad looking to do so at reduced fees & quicker times.

· SimaPay (UK)- SimbaPay is a UK-based digital money transfer service serving Kenya, Uganda, Nigeria, and Ghana delivering money via existing mobile money wallets and its SImbaPay App.

· Voyager (Philippines)- Voyager was started by Telecom firm PLDT and received $175mn in funding from Tencent & KKR for a minority position. They offer a range of services including a prepaid wallet, digital payment options for retail, and notably a remittance program.

SME Banking / Financial Services: In many EM markets SME’s are heavily dependent upon a cash-based marketplace; yet research shows they represent ~99% of all companies across LatAm employing ~70% of the workforce.

· Credijusto (Mexico)- Credijusto provides asset-backed loans & equipment leases to SMEs. having raised a successful $40mn Series B last year while receiving a $100mn credit facility from CS. They highlight that SMEs make up 99% of businesses in Mexico and make up 74% of the total employment. Despite being such a dominant player these companies receive “15% of outstanding credit” as banks reject “80% of loan applications.”

· First Circle (Philippines)- Provider of short term loans to SMEs throughout the Philippines, they offer collateral-free working capital & trade finance opportunities. They raised a $25mn round in late ’18.

· Flutterwave (Africa)- A cloud-based end-to-end financial platform to simplify payment infrastructure options covering all aspects from processing, providing payment gateway API to managing risk & settlement. Flutterwave launched an SME ecommerce Portal earlier this year in 15 African Countries.

Other Areas: The above is not mean to be an exhaustive list of areas / companies we’re tracking but instead representative of some of the early proof points of FinTech success through the various EM countries. We’re focused on all areas of financial services but believe starting with payments / banking, moving towards SME payments / banking, democratizing access to credit, insurance, and then ultimately asset / wealth management, and beyond its an appropriate path to introduce & grow products in these regions.

Bottom Line: When you look at the sheer numbers of established players such as AliChat (900mn users) & WeChat Pay (1.1bn users), the scale of “EM FinTech 1.0” companies such as NuBank (50mn users), the speed at which startups can grow such as Chipper Cash (1.5mn users <2 years), Flink (mid-six figure waitlist in < 3 months), there’s an incredible opportunity for entrepreneurs to create significant enterprise value, while solving real problems across EM.

If there are any companies / areas you like that we missed let us know. If you’re a founder tackling a problem in EM countries reach out.

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