China’s success in financial technology inspires legions of EM fintech hopefuls worldwide, spurring them to frenzied product expansion. Private and public market investors consider EM fintech an assured tale of disruption, while traditional bankers view the gathering storm with fear and loathing. A headier concoction has rarely been found–hundreds of millions of under-banked consumers, tens of millions of under-serviced merchants, and plentiful capital to grease the over-throw of a sclerotic financial system. China stands as the shining mast of this advancing force. As the fintech narrative goes, regulators are standing by, part ignorant, part clueless, and at times even eager partners in the revolution. What can possibly go wrong?

Our travels in emerging markets have made us acutely aware of the vast opportunity this sector presents, but have also made us cognizant of the unique contextual factors that bode more sober and situational evaluation of all the investment opportunities. The success of fintech in China has provided enthusiasm to investors and companies around the world but applying a “China template” to all fintech circumstances in EM is overly simplistic. Variations in three broad factors make us question the conventional false analogs between China and EM fintech today:

  • Catalysts: The driving force of fintech adoption comes from transactional use cases, which differ in intensity and characteristics across EM. For example, ecommerce penetration in many EM countries–such as India and Brazil—is much lower than it is in China. Elsewhere, ride hailing and food delivery, rather than ecommerce, are the more common catalysts, such as in SE Asia.
  • Regulatory response: Regulators are stirring to taking action everywhere, with diverse agendas. In China, for example, interest income in escrow accounts was recently eliminated. In India, the United Payments Interface (UPI) weakens the walled gardens fintech platforms aspire to create. In Brazil, regulators want a centralized market for receivables, potentially changing pricing dynamics in a unique and lucrative business segment that fintech companies currently enjoy.
  • Competitive intensity: Fintech is no longer the surprise no one saw coming. The China story is well known to challengers and incumbents alike. This implies a longer competitive tussle in many parts of EM, and a more agile response from incumbent banks, as rival platforms vie for supremacy.

But first, China.

China’s fintech explosion – will there be another like it?