The Global Innovation Supply Chain: Sourcing New Fintech Ideas From The Rest Of The World

In Silicon Valley, we often fall trap to insular thinking within our bubble. Innovation was believed to be uni-directional. Ideas emanated from Silicon Valley and spread out to the most nascent startup ecosystems around the world.

No longer.

Fintech is the perfect example. Solutions to many of the world’s biggest challenges, including to serve 1.5 billion people that are unbanked, are increasingly coming from everywhere, and being improved as ideas evolve around the world.

I will explore four examples of this Innovation Supply Chain.

1.    Payments

In the U.S., hordes of startups, alongside some of the largest players in the industry, including Apple, Square, Facebook and Google have looked to spur and scale digital payments. Billions have been invested. And yet, the vast majority of payments in the U.S. remain cash and card based. That’s 21 years since PayPal first launched in 1998.

Global innovators have leapfrogged these traditional models.

Take QR codes for instance. Pioneered in Japan for supply chain tracking, it was adopted by technology companies in China, like Ant and Tencent for payment networks. This has in turn motivated replication elsewhere. PayTM in India for example has over 400 million users and 60 million merchants, and QR codes is core to the strategy. Mexico’s Mercado Pago recently enabled QR codes payments with merchants. In a poetic full circle, PayTM is currently making inroads in Japan with potential to expand to other advanced economies.

We are seeing the same thing in mobile banking. Kenya’s Safaricom pioneered mobile banking on ‘dumb’ phones – using a USSD and SMS interface. Today 96% of Kenyan households have an M-Pesa account. M-Pesa has spurred replication across the emerging markets. There are over 250 mobile banking deployments globally with over 850 million registered accounts.

2.    Super-apps

No discussion about global innovation inspirations would be complete without discussing super-apps. Pioneered by the leading technology platforms in China, super-apps cover a range of services. WeChat for instance, centered on its chat platform, offers a thriving payment network and a range of services, either directly or through a range of apps in the ecosystem.

Financial services are becoming key. For example, Ant launched a wealth management platform and today is the largest mutual fund in the world. A third of China invested in the fund. Credit and insurance are also sold through the platform.

We are seeing this replicated in South East Asia. Go-Jek and Grab are each building out their own super-app services. Go-jek offers over 20 unique services, ranging from meal deliveries, groceries, doctors, and even massages. The underlying core is their own payment networks. Similarly, we’re seeing early signs in Latin America as well.

Remarkably, this is coming back to the U.S. Uber has been growing its range of services including of course food and more recently financial services. Just last week, Uber announced it would launch a full fledged super-app of its own.

3.    New identity and underwriting models

One of the biggest barriers to access financial services, spanning savings, insurance, credit and payments, is the ability to be identified and onboarded effectively.

In the U.S. applying for a new financial service requires showing an official ID and proof of address. This poses a major issue for other parts of the world where over 1 billion people lack official ID and over 4 billion don’t have a formal street address.

To solve for this, global innovators are pioneering new approaches.

India for instance launched Aadhar, a biometric identity scheme that covers over 1.2 people. Aadhar has also spawned the India Stack - a range of API based solutions, including a payments interface to all the country’s bank accounts, a digital records platform, and a consent layer. Entrepreneurs are leveraging this digital infrastructure to create de novo models in India. If Aadhar succeeds, I expect we will see similar models emerge in many other markets.

In the same vein, most of the world doesn’t have a functioning credit scoring infrastructure. Innovators are using alternative data like location, behavioral characteristics, spending analysis, and so forth to facilitate underwriting. We are seeing local champions emerge in certain markets like Safaricom’s M-Swari, Indonesia’s FinAccel and Mexico’s Kueski. Silicon Valley startups like Branch and Tala are building across many emerging markets from the get-go.*

4.    Regulation

For these models to work, regulation must follow. Blindly copying regulatory models in the West will not be adapted to the local reality. For example, if opening an account in the U.S. requires an ID card and official address, how could we simply adopt this regulation in markets without comparable ID or address infrastructure.

Regulators around the emerging markets are learning from each other. Organizations, like the Alliance for Financial Inclusion, brings together regulators across the global South to share lessons and best practices to regulate fintech and financial innovations. The stars of the show are the best in class peers in emerging markets. To effectively regulate mobile banking, we should talk to experts from Kenya. To understand identity, innovators from India are helpful in understanding the nuances of implementing a new successful system.

Parting thoughts

As these innovations scale around the world, they continue to evolve and hopefully improve. Solving the financial inclusion challenge, and in my view, capturing this incredible opportunity, requires us to understand and look for solutions that are working around the world and learning from those that don’t.

With thoughtful analysis and consideration, the solution can be found through the innovation supply chain.

What do you think: What are your favorite examples of innovations inspired in emerging markets and replicated elsewhere? What needs to happen for this to increase?