Digital Disruptors in Emerging Markets

The payment system in India, the system that undergirds every financial transaction, we believe represents a significant opportunity. The Indian government is actively favoring electronic payments over cash in an effort to modernize the economy and improve tax collection. Alibaba has acquired a share of Paytm, the nation’s leading digital payments system. Digital payments, made with funds deposited in an app and paid out through QR codes supplied to merchants, bypass both brick-and-mortar banks and plastic credit cards. Alibaba developed the system in its early days at the turn of the century when the still-tiny Chinese middle class lacked access to either banks or credit cards, and integrity of the Alipay brand and the Alipay app’s ease of use powered the parent company’s growth into a financial colossus.

Opposing Alibaba’s bid for dominance in India are the developed world’s two leading payment processors, Visa and Mastercard, which have long had footprints in India. In contrast to the simplicity of digital payments, the card systems operate along a complex interlocking intermediary network. Complicating the matter further, the government has encouraged local competitors to enter the fray.

While competition is wide open for a share of a payments processing market that numbers over a billion potential consumers, the outcome may seem more cut-and-dried in other major emerging markets. The complexity of "plastic” constitutes a formidable barrier as payments get routed via an encoded strip on the consumer’s card from a customer’s bank, through the bank that issued the card, then bundled in a central facility and credited to the seller’s bank account, with each participant raking in a transaction fee along the way. Thus banks have a considerable incentive to go plastic. But even in an emerging market like Brazil, where banks enjoy a solid retail customer base, local digital disruptors like PagSeguro may find an opening. Adapting the Alipay model, they can onboard online customers without bank accounts but with digital access and sign up the micro-merchants and street vendors that thrive in emerging markets but have businesses too small to afford the costs and paperwork entailed in a formal banking relationship.

The Livestream Flood

The payments system is only one component for the impact technology is having on the daily life of those in emerging markets. Another trend is centered on livestreaming and the ever-growing eSports industry.

The number of livestream users is staggering—better than 90% of the 812 million China's mobile internet users use their devices for online messaging, 75% watch videos online, 70% shop online, nearly 60% play online video games, about the same percentage watch live video streams, and nearly 30% watch others play video games (see chart). In the emerging markets as a whole, a recent survey found that three out of five livestream viewers in the emerging markets spend an hour or more per session.1

Live Streaming is Big Business in China

Live streaming has created massive new industries, in the emerging markets before anywhere else in the world. Mobile games generated about three times more revenue last year, better than $19 billion, than all other apps combined. As with so many other high tech phenomena, the emerging markets, China in particular, have acted as the prime movers. The top-10 grossing iOS video games of 2018 came from two of China’s gaming platforms, Tencent, and NetEase.2

Video games have spun off yet another billion-dollar industry: eSports, video games as spectator sport. With a global fan base that now exceeds 500 million, eSports has attracted major consumer goods sponsors—Coca-Cola and T-Mobile among others. Tencent’s popular League of Legends signed a six-year deal with Disney's BAMTech subsidiary valued at $300 million in 2016. Not to be outdone, Facebook contracted with ESL (Electronic Sports League) to stream 5,500 hours of competition in the coming years.

The preceding is an excerpt from Emerging Markets: The World’s Innovation Lab. Read the full paper.

1 Source: CNNIC, as of December 2017

2 Source: Newzoo "Global eSports Market Report 2019"

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