With the first quarter of 2023 almost a wrap and many developed markets stuck in the latest crisis — collapsing banks — a lot of the smart money is focusing where the trouble isn’t, which is emerging markets from Latin America to Eastern Europe, the Middle East and Africa (EEMEA).
What that in mind, PYMNTS’ Karen Webster hosted a recent On the Agenda discussion focusing on the view from emerging markets, joined by leading executives including Mastercard Executive Vice President, Market Development, EEMEA Amnah Ajmal, Adidas Director of Digital Payments Marko Ivanovic and PayU CEO Mario Shiliashki.
A slight sense of gallows humor underpinned the discussion as the panel marveled at a fourth consecutive year starting with calamity, making emerging markets look even more promising.
Ivanovic said Adidas’s view is that “emerging markets are growing compared to other markets,” as he detailed work Adidas and PayU have done together in the Latam region especially, with groundbreaking projects like getting Adidas integrated with Brazil’s Pix real-time payments rail.
Saying “we call them high-growth markets for a reason,” Shiliashki gave a nod to the work with Adidas and noted that Latin America “continues to grow strongly despite some of the meltdowns globally,” as well as moves in markets from Central America to Egypt, Ghana, South Africa, Nigeria and Kenya. This is all against a “slowdown” the PSP is seeing in Europe.
“Dare I predict anything?” he joked. “The past three months have really toyed with any kind of predictions.” Although he did add that a PayU study of many of these markets reveal they are “underpenetrated” in terms of digital commerce and inclusion of cash-based consumers.
Mastercard’s Ajmal echoed those sentiments, saying that in the EEMEA region she supervises, “I see a lot of optimism. Consumers have a lot more openness to embrace new technologies.”
Ajmal pointed to Mastercard research finding that in EEMEA, 95% of the consumers are considering using new technologies and payments including biometrics, digital wallets, digital currencies, and QR code payments.
“Consumers are embracing those new technologies and the merchants are making sure that they’re having those seamless payment experiences to scale their business,” Ajmal said. ‘Those are the trends that I would say are most in demand.”
A key difference in regions including Latam and EEMEA is the continued heavy use of cash, making the innovations of payments companies finding ways to convert cash to digital and bringing those consumers into digital commerce ecosystems a priority for all panelists.
Brazil’s Pix national real-time payments system came up several times as an exemplar of the type of advanced activity happening in regions not historically seen as payment innovators.
“In pretty much every country we offer some kind of cash-based payment method that is either a voucher system or something similar,” Shiliashki said. “We see offering the ability for people to pay for e-commerce transactions with some sort of cash payment as reaching out to the unbanked and underbanked population that still want to shop online.”
Building on those relatively new foundations, Ivanovic said Adidas is leaning into membership programs and loyalty while working to leverage local payment systems to improve conversions, as Adidas did together with PayU on Pix in Brazil. But was thoughtful to say that emerging markets are not just about bringing all the payments tech bells and whistles.
“As a merchant, you want to offer the best customer experience and the customer choice,” he said. “The payment method option is one thing, but the other thing is also the journey and the whole experience part. It’s not just adding payment methods. It’s how we interact with our customers. That’s super important for Adidas as well.”
That’s a given, and the panel agreed that technology is creating more digital on-ramps for the unbanked and underbanked, slowly but surely increasing penetration of digital wallets, and even open banking, which in turn allows for account-to-account (A2A) transfers and more.
This activity is benefitting small and medium-sized businesses (SMBs) in emerging markets as well, which Shiliashki called “another big sector that is generally been either forgotten or unfairly treated by the established banking institutions in many countries.” To that end, PayU is creating working capital access for businesses in emerging markets in 2023.
On that front, Ajmal added that Mastercard is observing more telecoms in EEMEA now starting to offer financial services — a trend that’s been slowly building for some time — saying “now you see a lot of institutions whose core business is not banking, but they have realized that their core business is commoditizing and their barriers to entry are low. In fact, they have a benefit in that they do not have legacy infrastructure, so they can enter financial services.”
She illustrated by noting that 90% of SMBs in EEMEA do have bank accounts, but only 10% have access to credit. “But these new players coming in and exchanging that data — which is not a traditional financial institution way of underwriting — I think the access to capital for SMEs is a big, huge, massive opportunity for us that technology can enable,” she said.
She continued that the shift away from traditional underwriting being enabled by some established players like Mastercard and fintechs like PayU is making services like buy now pay later to be offered in emerging markets.
“Wherever buy now pay later is scaling … in a lot of our markets like the UAE, South Africa … it’s where the consumer experience is intuitive, and omnichannel means it’s not very different when I go to a store versus my device. I could start my purchase on the phone, move it to my laptop, and finish it in a physical environment,” she said.
That moved the discussion to data and personalization, which is another that payments innovation is delivering better offers and ultimately more sales for merchants in these regions.
Adidas is enabling much of that through its app. Ivanovic said, “You can have your offline cash payment method even in the app. The data that we store in the app gives us the opportunity really to communicate with the consumer. If you have the app and you’re entering a store, the app is recognizing that. You get a message. Some of them we even send offers to. If you have a voucher in your wallet, you go to the cashier [and] redeem the voucher.”
While the panelists agreed that payment security and anti-fraud measures need to be front-and-center as new emerging markets advance and more consumers move into digital ecosystems, Ajmal said a new mindset is required to serve whole continents of new customers.
“The way things were done doesn’t necessarily mean they have to be done this way because our consumers are changing their expectations,” she said. “Driving partnerships and a change in mindset, I think those are the two key things that we would focus on this year.”
Shiliashki concurred, saying PSPs, merchants, and card rails must “drive towards that mind shift that Amnah talks about, particularly about doing things in a different fashion. The way we underwrite, the way others underwrite, and the data we use to underwrite so that we can bring more people into the financial systems. I guess the word I would use to describe the future is opportunity. There’s plenty of it, especially in [emerging] markets.”
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