Digital connectivity: how developing countries are closing the tech gap

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- It's known as banking the unbanked. Marginalized groups such as women and the poor in emerging markets suddenly are gaining access to financial services because of technology. Take a look at this chart.

This chart shows how, in India, the gap has gotten smaller in just a few short years. Here to discuss this trend and what it means for emerging market investors is Christian Medeiros, Associate Portfolio Manager, TD Asset Management. Christian, describe how this gap has narrowed.

- So if you think about an economy like India as a similar size to an economy like China, in terms of population-- but they've been a perennial underperformer, so much unfulfilled promise. Some of this is blamed on inefficiencies such as corruption, a large bureaucracy, or an informal cash economy.

But what we're going to talk about today is technology and these digitization trends-- they're going to wipe away a lot of inefficiency over time and, we think, level the playing field for citizens across the country.

- So walk us through this chart, what are we seeing here?

CHRISTIAN MEDEIROS: So this is a chart that covers digital infrastructure in India. These are foundational technologies that will really set the pace for innovation over the next decade. The first line, the line in green, are mobile subscriptions in the country.

Nearly everybody has a mobile phone. And India has among the cheapest mobile data costs and the most mobile data usage. Everybody is connected.

Second, is Aadhaar, which is a digital identity system. Just imagine, within a span of a couple short years, the Indian government rolled out this digital identity system to 99% of population.

They collected photographs, fingerprints, and personal information for over a billion people. Everyone has an identity.

ANTHONY OKOLIE: And what is UPI and why is it so important?

CHRISTIAN MEDEIROS: So you can think of UPI a little bit like Interac e-Transfer but available on all your favorite applications and also accepted at a growing number of merchants, both online and offline.

It's had astronomical growth over the past year and now has three times more transactions volume than debit in the country. We think that this is a really, really important trend because you're giving everyone in the country the ability to transact, and you're really opening up the financial system.

ANTHONY OKOLIE: So why is it important that we not overlook emerging markets when we're talking about new technologies?

CHRISTIAN MEDEIROS: So emerging markets-- if you think about the last decade, we maybe think about the trillions of dollars created by China or US and their tech companies. But these two countries only cover 30% of the world's population.

We thought going into the next decade, why don't we think about the other 70% of the world's population and what opportunities we could find there?

And we really believe there's a strong, strong chance for them to replicate the success that China had in adopting new technologies and sparking new innovation.

- Is it a drawback that these economies lag the developed markets when it comes to new technology?

- That might be true today, but if we were having this conversation 10, 15 years ago, you'd be asking the same thing about China.

But clearly they're able to adopt the cutting edge technologies of the day and then leapfrog to new technologies of their own. We think that it's fully possible that other emerging markets will follow that same trajectory in this decade.

- So from an investor standpoint, what are some of key trends that you guys are watching?

CHRISTIAN MEDEIROS: Mm-hmm. So I think one thing to really point out in terms of how impressive this opportunity is, is that Google, which operates one of the largest e-Wallets in India-- they recently wrote to the Federal Reserve and they cited UPI as a prime example of a cutting edge technology that the Fed should replicate when they're building out new payment architecture for the United States.

If we think about other dominant ways of paying in North America, we might think of Visa, MasterCard, something we all have in our own pockets. But they're going to face competition in some emerging markets with new technologies like UPI.

And this competition could maybe result in less of a growth trajectory than we may have once expected in emerging markets.

- So they may face a challenge in terms of their business model.

- Yeah, it could be an incremental competition.

- And what are some of the other things that you're watching as well?

- So I think what's really a good testament to how big this opportunity is, is the number of global champions all vying for a share of this growing pie.

You have Google, Amazon, Facebook, even Walmart from the US champions competing in India. From Chinese champions you have Alibaba and Tencent. Then you also have very impressive domestic companies and startups that are all trying to build on top of this digital infrastructure.

We're invested in some of these large global champions but it's still early days, and so we're looking for more and more pure play opportunities within India itself.

- Christian, thank you very much for your time.

- Thank you.

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