Monetizing the Model

Does the developing world offer a profitable business model? Yes! Practitioners in markets across the globe show they are able to monetize the strong growth of mobile and data traffic. This is a key factor at a time when revenues in the developed world from more traditional channels are squeezed. In financial services, added productivity issues and a sluggish economy lure attention elsewhere to growth opportunities. None other than Bill Gates affirms the financial success of serving emerging economies. Companies pioneering mobile banking find it profitable to serve the poor because “the marginal cost of processing a digital transaction is near zero. And because so many people in developing countries have mobile phones—more than 70 percent of adults in many countries are subscribers now—the volume of transactions can be very high. By making small commissions on millions and millions of transactions, mobile money providers can make a profit serving poor customers.”

Here’s an illustration. Financial opportunity is highlighted when forward-thinking giants like MasterCard are approaching unbanked areas of the globe. As all is going virtual, digital, and biometric, MasterCard describes itself as a “technology” company. Under Ajay Banga’s leadership, the firm is innovating with facial-recognition software, mobile payments systems, touchless transactions, and a new take on the digital wallet, all of which will address issues of fraud prevention, cybersecurity, data governance, and security. During our interview, Subu Musti, vice president of mobile solutions, digital payments at MasterCard, and an authority on financial inclusion, corroborates Gates’ assertions about the enormity of the opportunity and common sense economics of sound business practices:

Obviously there is some level of risk involved with the fact that you want to launch products in an underserved market. But, if the product is a hit, then you will be rewarded. The more comprehensive the user experience that you can provide, the higher your chances. You just have to deliver a very differentiated service, highly localized, very customized to their particular situation with all their nuances taken into account. And, you need big data to get these insights.

For commercial success, building infrastructure, and creating the exceptional, differentiated experience customers in emerging markets anticipate, Subu emphasizes mobilizing key operational factors:

• Programming and software

• Infrastructure

• DevOps

Programming and development teams will be highly motivated to create compelling applications and products that have a value-add for the consumer and bring revenue back to headquarters. The infrastructure ecosystem piece offers economies of scale, reduces costs, and will provide additional incentive. Per Subu, “It is usually preferable to include local parties and support the indigenous country to build trust.” The role of DevOps is in bringing cost factors down and providing an efficient, agile implementation. He cautions, “Everything needs to be automated and seamless so that human capital is not involved in regular system maintenance and updating.”

Radically Improved Customer Experience

Since the Hadoop Distributed File System (HDFS) and MapReduce frameworks were first developed about a decade ago, there have been numerous open source initiatives, many of which are now part of the Apache Software Foundation projects. Additional software packages can now be installed on top or alongside of these (Hive, Pig, Spark, Sqoop, and others). Open source fostered new product design, business processes, legal structures, speed of execution, and clusters of new software languages (i.e., Ruby, Kafka, PHP, Python, and so on) through collaboration, education, and source code sharing. Today, we can see the same dynamic rate of innovation in the adoption of application programming interfaces (APIs), which are becoming key drivers for the data and mobile economy and the creation of new services in numerous industries. These build out from open source based on strong foundations of collaboration and data sharing. Financial has been slow to adopt open source, but less so with using APIs. Once an app is published on iOS and Android, it reaches millions of users, bypassing the need to build new infrastructure.

In an ever more connected world, APIs allow firms with huge legacy systems to muscle their way into competitive advantage by becoming more flexible and more digital. APIs are the sandbox for developers to exercise creativity in designing new user experiences through highly interconnected technology architectures, entering new consumer markets with greater speed. From a consumer’s perspective, the benefit is more choice, more personalized services, and better integrated and more localized services.

In a nutshell, the API is a way for developers to access services and resources from other pieces of software code that they did not write. For fintech, APIs are a tool for survival and relevance in the mobile and smartphone universe. APIs unite financial services, banking, and fintech firms in the creation of breathtaking apps to access the vast data supply stocked at financial firms and the ingenuity of other products with speed and agility using the following building blocks:

• Integrating content from partners

• Creating new lines of business

• Developing new revenue streams

• Extending product offerings by using data in new ways

• Offering consumers fast access to products with a first-mover advantage

• Getting developers up to speed and delivering quickly

Leading the way in API “microservices” is forward-thinking MasterCard. Explains Subu Musti, “Every organization, including ours, places heavy emphasis on APIs and how to promote their capabilities in microservices so customers can then consume our APIs. We create compelling experiences for the consumer.” This expanded use of APIs lays the groundwork for enormous interconnected, interoperable networks that facilitate access, and revolutionize speed, ease, and connectivity, ultimately accelerating financial inclusion. The social betterment aspect is obvious.

The use of APIs by banks, in partnership with fintech firms, is becoming increasingly common given that APIs drive speed and cost-effectiveness in entering new markets. Coupled with cloud services, APIs enable startups to quickly scale up without heavy investment in hardware. Thus, they can economically meet peak demand. They are the gateways that aggregate epayments, etransfers, and ewallets into a single platform that customers can use whenever they want. Currently under development is a global Open Banking Standard that would set the framework for taking banks, their customers, and regulators into a truly 21st-century connected digital economy, resolving issues of security and consumer protection as data sharing increases and removing any lingering doubt about the benefits of sharing models.

With open source technology iteration and the compound effect of open source and API adoption, fintech emerges as having the potential to completely redefine financial services.