My Presentations

Recently, I had the privilege of presenting to a select group of institutional investors from leading private equity firms and hedge funds, all actively deploying capital in emerging markets. Their mandate was clear: help us navigate the complex landscape of fintech investment opportunities and understand how to value these businesses properly.

The session revealed something I've long observed: even sophisticated investors struggle with fintech valuations in emerging markets because they're applying developed market frameworks to fundamentally different ecosystems. Here's what I shared with them.

The Infrastructure Gap Creates the Opportunity

I started by challenging a core assumption. In developed markets, payments infrastructure evolved over decades through banks and card schemes—essentially consortiums of international banks issuing cards to creditworthy individuals. This bank-centric model works when you have high banking penetration and established credit histories.

Emerging markets never had this luxury, and that's precisely why the opportunity exists. These are predominantly cash economies, often dollarized, where banks play a peripheral role at best. The winning fintech players aren't trying to replicate Western infrastructure—they're bypassing it entirely through digital wallets, e-money issuers, and direct-to-consumer platforms.

The technology stack is surprisingly straightforward: B2B payment infrastructure connecting the formal financial system, digital wallets enabling P2P transactions, and cross-border capabilities that are revolutionizing remittances. The complexity isn't in the technology—it's in the execution and market-specific adaptation.

Follow the Money: Where Returns Actually Materialize

When I asked the group where they thought the biggest opportunity was, most said payments. They're half right. The largest addressable market is indeed in B2C and B2B payments—that's where the volume is. But the highest ROI? That's in remittances, lending, and insurance products.

This matters for investment strategy. If you're backing a digital wallet play, the real question isn't just user acquisition—it's how quickly they can layer in higher-margin products. A payments-only platform is a commodity business with razor-thin margins. A financial services marketplace is a completely different investment thesis.

The demand side breaks into two clear segments. First, the unbanked and "cardless"—the financial inclusion story everyone loves. Second, and often overlooked, is the underbanked population that has a bank account but can't access credit cards, mortgages, or basic insurance products. This second segment often has higher spending power and lower acquisition costs.

Why Traditional Banks Aren't the Enemy

One investor asked whether banks would crush these fintech upstarts once they got serious about digital. My answer surprised them: collaboration, not competition, is the dominant model.

Here's why. Banks in emerging markets still control the regulatory infrastructure and connections to global capital markets. They have the balance sheet but lack the distribution and technology. Fintech players have the opposite problem—great customer relationships and technology but no balance sheet depth.

The winning model? Banks use fintechs as aggregators for B2C services, particularly in micro-lending. The fintech owns the customer relationship and manages risk assessment through alternative data, while the bank provides the capital and regulatory umbrella. Some banks are even licensing core IP from fintechs rather than building in-house.

The Next Wave: What Smart Money Is Backing

I shared my thesis on where the market is heading over the next five to ten years. Three trends deserve capital allocation:

Marketplaces for financial services that bundle credit, savings, insurance, and transfers into a single customer relationship. The unit economics are dramatically better than single-product platforms, and customer lifetime value scales exponentially.

Modular open platforms—multi-service PSPs, gateways, and API-driven infrastructure plays. These are the picks-and-shovels businesses that enable everyone else. Less sexy than consumer brands, but often better risk-adjusted returns.

Enabling technologies that unlock everything else: AI and ML for compliance and risk management, blockchain for cross-border settlement, and digital identity infrastructure. These are often overlooked because they're not consumer-facing, but they solve critical bottlenecks.

How to Identify Winners (And Avoid Disasters)

This is where the conversation got tactical. I walked them through my three-layer framework for due diligence.

Start with context analysis. Macroeconomics matter—GDP growth, inflation, currency stability. Demographics are critical—youth bulge, urbanization rates, smartphone penetration. Legal system structure (common law versus civil law) dramatically affects contract enforcement and regulatory flexibility. Skip this step and you'll miss why the same business model works in Kenya but fails in Brazil.

Understand the business model core. Is this B2C, B2B, or P2P? That determines everything about unit economics and scalability. B2B businesses have longer sales cycles but better retention. B2C has faster growth but higher churn. P2P platforms have network effects but face chicken-and-egg problems at launch.

Pressure-test scalability. What have they actually achieved relative to their funding stage? Seed-stage companies should prove product-market fit. Series A should show repeatable customer acquisition. Series B and beyond should demonstrate operational leverage. Be brutally honest about whether the business model has genuine IP value or is just good execution in a first-mover market.

Valuation: Art and Science Combined

The most common question was about valuation methodologies. My answer disappointed some of them: there is no standard approach because context dominates.

For existing digital wallets, I focus on these quantitative KPIs: number of users in absolute terms and as a percentage of the addressable population, total transaction volume and average transaction size, average margin per user (not just per transaction), customer acquisition cost with clear cohort retention data, and growth rate with evidence it's sustainable.

But the valuation methodology itself depends entirely on transaction context. Is this an investment round or an acquisition? What stake—controlling or minority? Is the buyer strategic or financial? What are the realistic exit options?

I showed them why DCF alone fails—you're modeling cash flows for businesses that might pivot their entire model in 18 months. Why comparable multiples alone fail—there aren't enough truly comparable transactions, and the ones that exist have wildly different strategic contexts. Why asset-based valuation alone fails—the real value is in the network effects and customer relationships, not the technology stack.

The answer is triangulation across all three methods, then layering in premiums and discounts for risk (regulatory, execution, market), liquidity (can you exit this position?), and scarcity (is this the only asset like this available?).

Real World Example: The EasyPaisa Case

I concluded with a case study that made everything concrete: Ant Group's 2018 investment in Telenor Microfinance Bank (EasyPaisa) in Pakistan.

The numbers: $184.5 million investment at a $225.5 million pre-money valuation for a 45% stake. Late-stage financing by a strategic investor.

The context that mattered: Pakistan had only 17% banking penetration and barely 1% credit card penetration. Hard cash represented 35% of circulating money. Common law legal system providing better contract enforcement than regional peers. EasyPaisa was a financial services platform (B2C) with established distribution through mobile operators.

The valuation balanced DCF projections on a rapidly growing user base, multiples from both local listed comparables and adjacent transactions in similar markets, and asset-based analysis considering platform replacement cost, existing partnerships, and regulatory setup.

The exit options were credible: potential takeover by Ant, IPO in local or regional markets, or sale to another strategic. That optionality justified a premium to pure DCF valuation.

What This Means for Capital Allocators

The investors left with a framework, not a formula. Emerging market fintech requires domain expertise in both technology and local market dynamics. The winners will be investors who can move quickly on opportunities when they arise, understand that valuation is contextual rather than formulaic, and have the patience to ride through regulatory uncertainty and market volatility.

For those willing to do the work, the opportunity set is extraordinary. We're witnessing the financialization of billions of people who were previously outside the formal economy. The returns available to investors who get this right aren't just attractive—they're generational.

=========================================

Daniela Sozzi advises institutional investors on fintech strategy and valuations. For speaking engagements or advisory work, connect on LinkedIn.