Before we get into fintech companies, let us begin this article by taking a quick history lesson.
In the late 1930s, airplanes were the latest in reconnaissance, a far cheaper and faster way to get intelligence than deploying scouts. Airplanes allowed the British Empire’s forces to defend Singapore by keeping an eye on the wide swathes and populations of Malaya without ever having to set foot on the ground.
Their reports were filled with details about how Malaya was thick with “impassable” forest. Without an army of seasoned tropical jungle fighters (which the Japanese were not thought to be), an attack on Singapore from the Malayan peninsula would be impossible. They concluded from their aerial examination that the invasion of Singapore would almost certainly be via sea, and so the cannons should be pointed out in anticipation of the Japanese navy.
But as history would have it, the Japanese army invaded from the north, via Malaya, catching the British by surprise. The Japanese had already occupied half of Singapore by the time the British readied their forces.
The British commanders directed their cannons on the heartlands of Singapore, indiscriminately bombarding the Japanese advance and imperial subjects, but it was too late. With minimal trouble, the Japanese then conquered the island, subjecting Singapore to one of its most brutal episodes in history.
What went wrong?
They used the latest technology – they were able to get intelligence faster and cheaper, see more than ever before. Why didn’t it work?
While airplanes can provide the big picture – the forest – they can completely disregard the reality on the ground, the trees. The dense forest cover of Malaya was actually rubber plantations with walking paths beneath the wide canopy or sparse jungle with traversable trails. The lightly equipped Japanese soldiers were able to march and ride bicycles through the woodland comfortably.
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Since the British were completely unaware of the on-the-ground reality, the Japanese were able to quickly push through Malaya into Singapore territory.
The next billion
Western tech companies today are examining emerging markets and drawing some bold big picture conclusions. The emerging middle class in developing countries such as India, Pakistan, Brazil, and Nigeria are certainly similar in terms of proportion, affluence and growth.
Even the challenges they encounter may be similar, but the solutions for each country, and possibly even within each country, will be very different. Google uses the term the next billion users (NBU) for the segment of users who came online for the first time between 2015 and now.
But far from being a homogenous mass, tech companies learned that they have to tailor products to the specific requirements and preferences of the subsets within the NBU population.
Businesses thrive when they can address a product market. That is one in which a single mass-producible product meets the needs of the majority of customers. Often you can only guess that you’re in a product market and try to push it out to see whether anyone buys it.
When you’re addressing an incredibly diverse market such as the next billion, you have to find the common denominator that you can turn into a product– not culture, language or market size. It’s money.
The cannons facing South
Fintech is where the big guys can really shine. They can partner with governments and banks, often the largest and most legible institutions from “the airplane” and work with them to deploy on the ground.
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However, fintech, in its most common form, digital payments, is a solution looking for a problem for the next billion. People like cash! There are significant societal problems that result from cash, but it is beneficial to many folks.
So, why are all these companies and governments still trying to push for it?
They see the population from the top-down. They see a world full of potential Chinas – a country where nearly 40 per cent of GDP flows with no visibility to the government at all. That terrifies many governments and they want a handle on it.
It also terrifies VISA and Mastercard. And who can forget the banks? They want visibility as well, and they’re now in a race to get it. But these products are having a tough time proving sustainability, because the fundamentals have little to do with the ground realities and customer problems of countries or markets where NBU (next billion users) live.
China’s fintech succeeded because the Chinese financial ecosystem is so impoverished. The average person cannot hope to get more than a 1 per cent return on their investments within China. Real estate is an oft-traded commodity for greater wealth, but for those who don’t have the capital to purchase real estate?
You’re basically screwed. In such an environment, Alibaba and Tencent came in to offer investment accounts, which eventually became high-yield checking accounts everyone used to buy everything.
The draw towards fintech is simply not present in more mature capitalist economies like India, where the average middle-class individual has a variety of financial instruments available to them. Consumer fintech is a mislead for many NBU countries.
The nimble infantry
In contrast to the big guys, smaller players such as BukuWarung and KhataBook and OKCredit have made a killing focusing purely on MSMEs. Where the big guys had difficulty deploying a one-size-fits-all solution, the little guys went and chased things on the ground with real merchants and built businesses that are at their core incredible value-creating machines.
This, to me, is the future of the NBU – since the markets themselves are distinct and fragmented, the solutions to them will be as well. At some point in the future, there might be a winner in the fintech NBU space that unites all of them, but for now, my money is on the companies that started merchant-first, with that careful attention given to their feet-on-the-street teams. I truly believe in places like southeast Asia, it’s the little guy’s game.
NBU markets are united by a few other issues: data is lacking, both in terms of cellular data and market data, literacy is scattershot. In many NBU countries the sheer diversity of languages blows away anything the West has going on.
This is mostly because Western nation-building projects often included a language homogenisation phase, such as the Vergonha in France.
All of these problems will get solved in diverse ways: India has Jio, which completely flipped the data market in the country. Indonesia has GoJek which offers everything from massages to food delivery.
There will not be one technological solution built in California that fits all and scales across the globe the way Instagram and Facebook did.
That world is now gone, the reality is that the territory that looks so uniform and impenetrable from up above, is very navigable down on the ground. The future belongs to those who keep their feet firmly planted.
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