Expanding into new territories: the benefits and challenges for fintechs

The decision to pursue expansion as a strategic imperative often depends on the specific circumstances and goals of a business. Generally, expansion is considered at different stages of a business's lifecycle, but it is more commonly associated with the growth phase of a business lifecycle.Whether viewed as a testament to their resilience or a marker of their commitment, this drive towards exploration of new territories remains at the heart of the sector's ethos.

New territories represent more than just geographical locations. They are turning points for financial institutions—an adventurous journey rich with both benefits and challenges.

In this article, we aim to peel back the layers of this multifaceted landscape. We will delve into the critical decision-making processes that precede ventures into unexplored markets.

Embracing the new: why should businesses expand their horizons?

Staking a claim in a new territory is akin to embarking on an adventure. It's an exciting journey filled with unknowns and opportunities. For fintechs, this process brings with it a host of advantages. Let's take a look at these potential windfalls that await banks brave enough to make their mark beyond familiar frontiers.

1. Diverse markets, and diverse revenue streams

Going global means penetrating diverse markets and reaching out to new customer bases. It's a chance to embrace variety, to learn about unique customer needs and demands. This not only opens up the possibility for a more assorted clientele but also allows companies to shield themselves against economic downturns in specific regions. The outcome? A richer, more varied flow of revenue streams.

2. Making a mark on the world stage

Expansions offer businesses the opportunity to become a part of the global market scene. It's not just about being internationally known; it's about strengthening the trust and credibility among consumers worldwide. A strong presence in various regions can be a fintech's competitive edge, solidifying its position as a reliable financial partner across the globe.

3. Tapping into emerging trends and innovations

New territories often serve as the birthplace of fresh trends and financial innovations. By dipping their toes into these waters, companies have an opportunity to be in the thick of these developments. This enables them to integrate novelties into their current offerings, staying relevant in the evolving financial services landscape.

4. Navigating favourable regulations and forming strategic alliances

Expanding horizons also means experiencing a variety of regulatory environments. Businesses can leverage this to their advantage, selecting territories with more conducive regulations to enhance operational efficiency. Plus, going international often leads to forming alliances with local entities, a stepping stone for mutual growth and a handy guide to traversing complex regulatory landscapes.

Stories of success: fintechs that ventured beyond

What's the best way to understand the rewards and pitfalls of expanding into new territories than through real-life examples? Here, we share stories of three different fintechs who dared to venture beyond their roots and found immense success.

• KCB Bank: another inspiring example comes from Kenya. KCB Bank hasn't just remained content with being a leading lender in its home market. In December 2022, they made a bold move by acquiring Trust Merchant Bank (TMB) in the Democratic Republic of Congo (DRC). This expansion, valued at a cool $113 million, speaks volumes about KCB Bank's ambitious vision for growth beyond its borders.
• M-Pesa: a mobile phone-based money transfer and micro-financing service that has revolutionised the way people make and receive payments in Africa. Launched in Kenya in 2007, M-Pesa has since expanded to Tanzania, Mozambique, DRC, Lesotho, Ghana, Egypt, Afghanistan, South Africa, and Ethiopia. With over 51 million customers across these countries, M-Pesa has become a vital part of the financial landscape in Africa.
• TransferWise: TransferWise addresses the high fees and poor exchange rates charged by banks for international money transfers using a peer-to-peer model that matches currency exchangers at the mid-market rate with low fees. Its disruptive business model, user base, partnerships, and cost-saving benefits have contributed to its success as a fintech startup, providing customers with a more affordable and transparent way to transfer money internationally.

For fintechs planning to dip their toes into new waters, understanding and adhering to banking regulations play a huge role. Every country has its own unique set of rules, and these can vary quite extensively. It’s essential that financial service providers are fully compliant with all relevant regulations in their target markets. This requires an in-depth understanding of various legislative frameworks, ensuring that every move aligns with the legalities of new territories.

Laying the groundwork with market research

It's said that knowledge is power, and in the finance industry, this knowledge often comes from thorough market research. Companies aiming to expand must have a firm grasp of local customer needs, preferences, and the general competitive landscape. And the only way to achieve this is through comprehensive market research. By understanding the intricacies of new markets, financial services companies can make informed decisions, tailor their services accordingly, and stand a better chance of thriving in unfamiliar terrains.

Understanding local economic and political climates

The economic and political environments of a region can greatly influence a fintech's operations in a new territory. The stability of local economies, rates of inflation, taxation regimes, and the political climate can all impact a bank's strategy for expansion and operations. Therefore, it is crucial to have a deep understanding of these factors to ensure a successful entrance into a new market.

Creating custom solutions for local needs

One size certainly doesn't fit all. Especially when it comes to financial services. Companies must ensure that their products and services are tailored to the unique needs of local customers. This could mean adapting existing offerings or even creating entirely new ones to suit local preferences. By weaving local culture, habits, and preferences into their offerings, fintechs can secure a solid foothold in their new territories.

Ripple uses the blockchain infrastructure of Bitcoin for cross-border fund transfers, Ripple demonstrates the effectiveness of leveraging existing technologies and partnering with established players in new markets. Fintechs can learn from Ripple's approach: clearly identifying the problems they aim to solve, adapting their solutions based on market feedback and regulatory changes, and collaborating with local financial institutions to facilitate cross-border transactions.

This strategic approach not only helps financial services companies overcome regulatory hurdles but also enables them to gain a strong foothold in new markets, ultimately increasing their chances of success in expansion efforts.