While much of the discourse revolving around innovation in financial services tackles specific sectors of the industry, such as lending, payments, or online capital formation, the reality is that the biggest beneficiaries of Fintech may be the underbanked: the millions of people who have never had access to sophisticated financial services.
Regardless of where you are standing today, there are segments within your community that have little or no access to financial services such as a basic savings account. The disparity becomes even more obvious when you compare high-income demographics against individuals with lesser means.
Geography obviously plays a role as rich countries, such as the US or European nations, have far higher percentages of individuals having access to basic financial services. But the advent of Fintech, and perhaps more importantly, the ubiquity of smartphones and internet access, is fueling a significant change.
During the Cambridge Centre for Alternative Finance’s annual conference, which took place in the UK this past summer, Alfonso Garcia Mora, Global Director Finance, Competitiveness and Innovation GP The World Bank Group, addressed this very topic: Fintech is driving financial inclusion.
Mora shared some interesting statistics. While financial inclusion has improved globally, 1.7 billion adults (31%) remain unbanked. As of 2017, 69% of adults around the world have a financial account with 92% of “high income” individuals holding an account as of 2017. Excluding the high-income group, Mora reported the following percentage of adults with an account as of 2017:
- East Asia & Pacific – 53%
- Europea & Central Asia – 58%
- Latin America & Caribbean – 49%
- Middle East & North Africa – 44%
- South Asia – 48%
- Sub Sahara Africa – 41%
Worldwide, most unbanked adults are women at 56%.
Cash Still King
Additionally, 235 million unbanked individuals earn money from agricultural employment; 100 million receive government payments in cash and 260 million of the unbanked use cash for remittances.
Mora said that traditional methods such as ATMs/Debit Cards, Bank Deposits, Credit providers are slow, expensive and lack transparency. This is where Fintech can step in and improve the situation with digitally native services unburdened by legacy shortcomings.
Virtual currencies, DLT based settlements, mobile payments, and more can improve transfers and savings.
Robo-advisors and automated wealth management can provide access to sophisticated services to the masses.
As of 2017, it is estimated that two-thirds of underbanked adults have a mobile phone – key to financial service availability. This access can be the catalyst for financial inclusion as has been experienced in Sub Saharan Africa where mobile money accounts have grown dramatically in recent years.
Of course, these opportunities bring new challenges such as regulatory issues and compliance as digital financial services frequently ignore national borders. But policymakers must be cautious not to let perfect get in the way of the common good. And established finance must be partners in innovation not create unnecessary barriers to innovation.
Mora said that Fintech is making inroads globally but has not yet reached the disruptive critical mass. He explained:
- Most advances are in mobile payments with major impact on financial inclusion
- Big Techs are increasingly offering financial services and challenging incumbents
- Traditional financial institutions are adapting rapidly, increasing their digital footprint
- Supervisory agencies are exploring Fintech applications
- Impact on monetary systems and financial stability is limited at present
In the end, Fintech is not just for the betterment of developed countries and an educated populace. Fintech can be a catalyst for the greater good of lesser developed regions, helping to boost wealth and economic development.