The 2017 Global Findex Report tells much about the state of consumer financial services in the world in general, and among the unbanked in particular. It is especially fascinating to note the development and changes in financial services over time. In 2014, for example, 2.2 billion people (about half of the world’s adult population) were reported to lack access to formal financial services. By the time the next Findex Report was published three years later, this number went down to 1.7 billion. With such a marked decline, clearly a lot has been done to improve financial inclusion. And yet there is still a long way ahead in order to provide greater access to financial services around the world.
While much grassroots work has been done to reach the unbanked, technology has been a key factor in providing financial access at the base of the pyramid, and will likely continue to be so in the future. Specifically, technological advances in the financial sector allow those without traditional bank accounts to have access to a wide range of financial services. As a result, more people than ever before can now save, borrow and transfer money digitally. In the following article, we describe three key areas where technology has helped to promote financial inclusion.
Going Mobile- Mobile phone penetration is probably the biggest disruptor for connecting people to financial services, especially in emerging markets. In much of sub-Saharan Africa, for example, mobile phones are more common than access to electricity, with unique mobile subscription numbers approaching half a billion. Between 2014 and 2017, the use of mobile phones and the internet to conduct financial transactions has contributed to a rise in the share of account owners sending or receiving payments digitally from 57% to 70% in the developing world. Financial institutions are rapidly taking advantage of this new medium for connecting people, and are offering a wide range of products such as utility payments, loans, and insurance, to name a few. In addition, this new age of connectivity has made it hard for traditional financial institutions to ignore the often overlooked and hard-to-reach ‘long-tail’ of untapped customers. They are therefore following suit in order to stay competitive, and ultimately grow their businesses by creating new tailor fit products.
Alternative Credit Data– Technological advances have completely changed the world of lending. One of the biggest challenges for delivering financial services to the unbanked is their lack of credit histories. A lack of access to credit can directly prevent people from getting an education, growing their businesses or paying for medical emergencies. In such cases, people may look for alternatives amongst informal financial institutions, which often turn out to be unreliable, expensive, and risky. However, technological advances now allow banks and formal lenders to score credit based on alternative data. According to the World Bank, alternative credit scoring could bring formal financial services to 100 million more adults globally. Companies like Tala, and Branch for example, use big data solutions that tap into an individual’s social media accounts and mobile behaviors in order to help assess their credit risk profiles and offer loans accordingly. Other companies, like Innovative Assessments, offer brief psychometric questionnaires that help assess credit risks based on borrowers’ personal characters.
Remittances to All- The payments sector is another major area that has gone through significant technological disruption, and is helping the unbanked gain access to financial tools. Although M-Pesa in Eastern Africa is the segment’s ‘poster boy’ when it comes to revolutionizing the payments sphere, many other companies such as BKash and Transferwise offer e-payments and digital remittances to allow people all over the world to pay their bills and send money to one another without exorbitant fees and without the many risks of dealing with cash. Moreover, overseas workers are now able to send money easily to their families back home, and hence help grow local economies in a safer and more sustainable manner.
As the fintech sector grows, and more and more fintech companies enter the scene with their own innovative technologies, we can expect to see further advancements to help facilitate financial inclusion around the world. This may be especially important for reaching the remaining unbanked populations. Indeed, it will be exciting to see what the next Findex Report will tell us about our progress!