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Digital Financial Services 2017

Challenges and Opportunities for Emerging Market Banks

A digital transformation is taking place in the financial servicesindustry,with a host of non-bank innovators offering both customer facing and back office financial technology products and services. This transformation includes emerging marketeconomies, and in many placesoffers a viable digital alternative to traditional banks, whichhave left significant populations underbanked. This note explores the challenges and opportunities that financial technologyinnovations present for banks in these nations.

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The digital transformation that has upended industries from retailandmedia to transport and business-to-business commerceis now sweepingthefinancial servicesindustry. This was inevitable, as ubiquitous computing power, pervasive connectivity, mass data storage, and advanced analytical toolscan easily and efficiently be applied to financial services. After all, moneywas already extensively (though not exclusively) created, used, stored, processed, and delivered electronically.

Immediacyand personalization havebecome the normfor consumer goods and services.Consumers have rapidly become accustomed to making purchases with a touch of their fingerwherever they may be, receivingtailored recommendations,choosingcustomized products, and enjoying delivery of almost any item directly to their front door. Businesses failing to adapt quickly to these technological developments canfail dramatically, and many have already done so, including Tower Records, Borders Books, BlockbusterVideo, and countlesstravel agents and brick-and-mortar retailers. Consumers’ new expectations applyto financial services as well.

Technology has transformed business-to-business and within-business interactions, too, enabling reconfiguration of design, production, marketing, delivery, and servicefunctions throughdistributed supply chains, freelancedesign, outsourced manufacturing,and contract warehousing and delivery. These reconfigurations aremediated by online marketplaces and distributors,and assisted by back-end support operations and data analysis that together drive better risk assessment, faster fulfillmentand more efficient customer service.

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