How emerging markets are rewriting the online payments play book

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Starting a new business in an emerging market has always been a daunting task with endless challenges greeting the entrepreneur at every turn. Having a great idea is one thing, but arranging for the proper licenses and the necessary capital funding can be formidable obstacles. Location issues are extremely important since waterways and roads may not support your needs for transporting your goods to market or receiving raw materials in the first place. Electricity is another consideration, as well, but have you ever thought to study the local payment system in your area of commerce?

Emerging markets today are re-writing the textbooks on how to conduct business, due in large part to innovations afforded by technology, especially those advances in the telecommunications arena. High-income markets have thrived in part from highly developed infrastructure that may be beyond the reach of most markets, but cell phone technology is facilitating a multitude of new ways to bypass the previous standards so prevalent in traditionally developed markets.

Using the internet to boost retail sales is almost unheard of in many developing parts of the world. Some type of payment card connected to a bank account at a financial institution is a prerequisite. As studies have confirmed, only about half of adults on a worldwide basis have such an account, and in regions like Sub-Saharan Africa, that figure can be as low as 24%. This figure is an average, but if you are in an urban setting, the figure could easily rise to 38%. The significance is that new mobile technology is literally changing the landscape for payments and speeding up the turnover of money.

Smartphones, those with an advanced operating system that allows for Internet access and for software applications that can nearly automate any process known to man, are the catalysts for change and innovation. These new phone apps can encrypt and decrypt personal information in seconds and provide easy access to your account instantly for verification purposes. Mobile payments are the wave of the future, and even more so in emerging markets.

While most transactions in developing markets are handled in cash, the change to electronics is happening rapidly. The time to get acquainted with having a merchant account is now for several key reasons. Merchant locations that offer more ways to pay nearly always attract more customers that are willing to spend more during their visit, to return and spend again, and then to tell their friends about it. Expanding your customer base leads to more profits, but this scenario depends on being near to where potential cardholders congregate — urban shopping areas, tourist attractions, hotels, and transportation hubs.

In the digital world, the innovations are coming at an even quicker pace. Electronic money facilitators are growing beyond their developed markets of origin. In this genre, names like PayPal, WebMoney, Payoneer, cashU, and Hub Culture’s Ven may be the familiar ones today. MPesa has already made a name for itself in Kenya in the mobile payments arena.

Applications of cryptography have also given rise to what are being called crypto-currencies, the largest and most successful to date being Bitcoin (“BTC”). In this scheme, electronic Bitcoins actually replace local currency, making cross-border transactions in the cyber-world more secure and independent from central bank manipulation. Many developed markets are concerned, but founders are looking to emerging markets as their greatest opportunity.

When gauging the direction of market forces and their potential impact on your business model, be sure to factor in an analysis of the local payment system and how it is evolving. Success equates to being prepared when opportunities come your way.

Tom Cleveland


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