FinTech the key disruptor for Emerging Market financial services in 2021 and beyond

  • For investors, financial technology presents compelling long-term opportunities to generate alpha in Emerging Markets
  • Digital innovation is the greatest threat to incumbent financial institutions who fail to allocate sufficient investment to technology
  • Covid-19 a catalyst for shifting consumer behaviours and changing attitudes to financial services

Dubai, United Arab Emirates:  Jupiter Asset Management has launched its latest white paper titled “The innovations disrupting financial services in Emerging Markets” in response to shifting dynamics of financial services in the Middle East. In the paper, Jupiter identifies which FinTech trends have had the greatest impact in the last year and investigates how they are playing a role in evolving the financial services sector. FinTech is currently in an exciting phase, with new entrants afforded the opportunity to create compelling products for consumers while challenging the status quo and influencing incumbent financial institutions. 

In the Middle East, Jupiter’s Financial Innovation team believes that compelling opportunities exist for investors to increase their exposure to FinTech due to six main themes: the transition to a cashless society, e-commerce, emergence of super apps, financial inclusion, digital banking, and digital currencies. In MENA, financial inclusion has existed in the background as a challenge and opportunity for financial institutions for some time. The rise in FinTech innovation has created opportunities for the development of third-party, bespoke solutions and products that cater exactly to consumer requirements. Companies and platforms are now emerging that can adequately capture larger proportions of untapped capital, which has long been underpenetrated by financial institutions. 

Jupiter’s team believes that the shifts in behaviour and the acceleration in financial innovation brought about by the pandemic, are sustainable in the medium-term, with plenty of room for new and exciting platforms and systems to emerge. Established institutions who realise the importance of technology and the role it plays, and will continue to play, in the financial services ecosystem, will be best equipped to manage future disruption and reap rewards, with others quickly falling behind. 

Technology is at the heart of structural change in financial services, in both developed and Emerging Markets. Banks have dramatically changed the way they deliver products and services as they strive to meet customers’ ever-changing needs. However, lower barriers to entry mean that a flood of new FinTech players is entering the market, offering a wide range of innovative products and services and posing a serious threat to the established industry,” said Guy de Blonay, Fund Manager, Financial Innovation at Jupiter Asset Management.

The growth of FinTech as an industry in its own right is accelerating in the Middle East, and the reason is two-fold. Firstly, the lack of legacy infrastructure gives Emerging Markets the agility to adapt to new and exciting technological advances, making them easier to integrate on a blanket basis. Second, major economies in the region, such as the UAE and Saudi Arabia, are currently mid-phase in their national transformation programmes, which hold within them supportive regulatory plans and projects to support FinTech innovation,” de Blonay continued. 

“We see FinTech as an enabler of post-pandemic recovery, with exciting long-term opportunities for the sector. One risk that should not be overlooked, however, is the fact that technology stocks may be negatively impacted should we see a durable increase in interest rates. Overall, we retain a positive outlook on emerging sub-segments including cashless transactions, AI, online lending, crypto and digital currencies.,” added Antoine Hucher, Equities Analyst, Financial Innovation at Jupiter Asset Management. 

A cashless society is no longer a far-off fantasy, and is quickly becoming a reality through increased adoption of cashless payments and supportive e-commerce market dynamics. Such dynamics have given impetus for non-bank lenders to emerge and incumbents and governments to take digital and cryptocurrencies more seriously. By way of example, Saudi Arabia’s Vision 2030 has officially committed to achieving 70% cashless payments for all transactions upon completion of the programme, a significant shift in consumer behaviour that will likely continue to evolve further should the rate of financial technology innovation maintain its current trajectory. 

One of the most significant drivers for FinTech growth across Emerging Markets is the demands and needs of consumers. According to Jupiter, retail audiences are compounding with macroeconomic trends to create a gap between institutional offerings and consumer demand, paving the way for more innovation, and disruption, in the financial services sector. 

About Jupiter:

Jupiter is a specialist, high conviction, active asset manager committed to making a positive difference for our clients by helping them achieve their long-term investment objectives. From our origins in 1985, Jupiter now offers a range of actively managed strategies available to UK and international clients including equities, fixed income, multi-asset and alternatives. Jupiter is a constituent member of the FTSE 250 Index, and has assets under management of £58.7bn /$80.3bn /€65.7bn as at 31/12/2020.

Independence of thought and individual accountability define us. Our fund managers follow their convictions and seek those investment opportunities that they believe will ensure the best outcome for our clients. They do this through fundamental analysis and research, a clear investment process and risk management framework, with a focus on good stewardship. 

We believe that asset managers have a critical leadership role to play in helping to resolve some of the greatest challenges facing the world. In this spirit, we are proud of our long-established credentials in the fields of ESG and sustainable investment, and of our ongoing commitment to specialism and innovation in these areas. Jupiter is a constituent member of the FTSE4Good Index, and a signatory on a number of key initiatives such as the UN Principles for Responsible Investment.

Jupiter’s values and responsible business practices are aligned with the principles of the UN Global Compact and the 2020 UK Stewardship Code. Having engaged with the Financial Reporting Council (FRC) on the implementation of the 2020 UK Stewardship Code, we support this reinvigorated framework and have undertaken further investor outreach with the FRC and the Investment Association (IA). We are proud of the A+ score for strategy and governance we obtained in the latest assessment of our activities under the Principles for Responsible Investment (PRI). We also maintained our ‘A’ status under the PRI principles for our equities strategies and improved our ranking to an ‘A’ in fixed income. We are a member of the Investor Forum (IF), the UK body which helps facilitate collective engagement with companies, with Jupiter’s Edward Bonham Carter on the Board of Directors. Jupiter Chief Executive Andrew Formica is a Board member of the IA and a member of the UK Government’s Asset Management Taskforce, which represents the interests of our industry in key decision-making forums.