Achieving financial inclusion has been a daunting task in major parts of the world and, as a result, new generations and disparate populations either have a deep distrust of the financial sector, or have traditionally had little access to it. In fact, a full 48 percent of the world's population is unbanked and financially underserved. In developing countries this translates to 2.5 billion people who have to rely on cash or informal financial services that are typically unsafe, inconvenient and expensive.
The rise of new technical solutions offer fresh opportunity to try and disrupt traditional banking models and enable global financial inclusion. We’re witness to this surge in fintech, with tech companies promising solutions and proposing new ways to reach disenfranchised populations.
Yet to solve the problems associated with financial inclusion, it is vital to look beyond the technology and the bottom line. Fintech isn’t just about impressive platforms or revenue returns, it’s about being relevant in people’s lives. It’s about empowerment. It’s about making circumstances better and giving people opportunity through the facilitating power of financial services-- especially for those who need it most, but have been excluded by the old rules of the credit game.
We’re starting to see how the merging of finance and technology has opened access to financial services in new and unimaginable ways. Data scientists recently identified a striking pattern through their examination of 13 different countries whose GDPs varied by as much as 1000%., The ability for individuals to achieve financial inclusion, and the rate in which it was achieved, is, in fact, independent to wealth or income. The evolution of data science-driven fintech solutions is enabling the unbanked to establish creditworthiness regardless of income. What this proves is that that identity and responsibility are much stronger indicators.
This new mindset levels the playing field, opening a much more inclusive and welcoming environment to fresh players. Consequently, the vast swaths of the global population who are currently unbanked because they can’t access traditional credit can be properly served financially at the right moment, in the right way, in any place.
To enable financial inclusion in today’s world individuals simply need access to a smartphone. The number of global mobile subscribers is set to surpass five billion this year, a number that is growing rapidly every day. Prepaid mobile subscribers leave a digital footprint in the same way internet users do. They constantly and consistently interact with their mobile device - over four hours a day in fact - and every interaction is a data point and an opportunity to continuously build more robust digital identities. As a result, we’re seeing a world where people can prove their creditworthiness through mobile interactions, rather than traditional methods of income and assets that overlook a large number of viable candidates.
When we allow individuals to build an identity based on their digital footprint, it becomes easier for users to successfully borrow and repay small usage amounts. As these users take advantage of progressively greater credit extensions, they can readily move up the ladder toward financial inclusion.
A woman in a developing country, for instance, could start with small micro-loan to keep in contact with her family overseas and this could progress to a small personal loan to help her start a business, or enroll in studies. Those working in fintech are in a unique position to reinvent the financial wheel or, rather, circle. They have the ability to transform the old, broken, vicious circle into a virtuous, optimistic one.
Silicon Valley is looked to as the hotbed of innovation in markets far outside of traditional technology. When it comes to finance, tech leaders have the opportunity to transform people’s perceptions of the sector and win back lost trust; something traditional banking brands have largely failed to do on their own. By providing an entirely fresh perspective to the finance industry, and without complex legacy systems, companies can build nimble, agile processes as they go.
The process of making the ‘invisible’ financially-excluded masses ‘visible’ opens the floodgates to a wealth of new revenue streams. The same data science report mentioned previously also identified a revenue stream at the ready for operators to the tune of $70 billion. This makes sense when you consider the 3.7 billion people on prepaid plans who each represent an annual Average Revenue Per User (ARPU) of $150. Not only that, financial identities rooted in data science lead to a 50% reduction in churn for the operator and a 10% lift in ARPU.
Yes, the stats are impressive and they’re hard to ignore when you’re talking about the huge potential for revenue growth in fintech. If they become the raison d’etre, however, we’ll lose sight of the unique opportunity for fintech to finally make finance a force for good. It’s vital to stay connected to the consumer in the face of these alluring numbers and remember the relevancy in their lives and the bigger purpose.
That’s why I love hearing the individual stories of how fintech companies are literally changing lives. Financial services should be about empowerment and the word credit should no longer be a dirty word. It should be an enabling one.