Via Mastercard, an interesting report on frontier markets:

The frontiers of civilization as traditionally characterized – like the Wild West or Arctic poles – occupy a position not unlike that of the global economy’s frontier markets today: not only do they inspire excitement and symbolize novelty, they also represent a wealth of unexplored opportunity.

Frontier markets like Sierra Leone, Myanmar, Qatar, Croatia and Bangladesh are generally considered an extension of current emerging markets; in reality they are at an earlier stage of political, financial, and economic development. For example, their stock markets are smaller and less liquid than their emerging market counterparts. While this may entail greater risk, it can also create more profitable investment opportunities with high long term returns.

Over the last five years frontier markets have had a higher economic growth rate than either developed or emerging markets – and have the potential to continue to outpace both. While they represent only 0.7 percent of global equity market capitalization, they proportionally account for a much greater share of world economic output – 6 percent of global GDP.

One driver of such economic growth is the fast-growing, young populations in frontier markets that fuel competitive labor forces. The percentage of working-aged people in markets like Vietnam, Bangladesh and Pakistan is rising rapidly. In other markets such as Bahrain and Kuwait, vast natural resources are the main factors behind the great economic potential. Zambian economist Dambisa Moyo also believes frontier economies have an explicit advantage over the BRICs because of their limited exposure to, and influence by, the developed world.

Banks looking to increase revenues and profitability should consider looking outside their core markets to the emerging opportunities in non-traditional countries. Although they are still nascent in development, frontier economies show ample growth potential in the next few years, along with the rise of a new young consumer class. This will likely translate to maturing financial consumers with more sophisticated needs and interactions with payments. By engaging with these consumers early, banks will not only have an advantage over alternative competitors, but also increase their bottom line.