Will fintech realize its potential for financial inclusion?

By Michael Schlein

Fintech innovation can play a role in advancing financial inclusionLater this month, the World Bank will release the standard measurement on global progress toward financial inclusion: the Global Findex database.

I expect that the Findex will verify what we in the financial inclusion movement have recently seen: hundreds of millions of adults now have access to formal bank accounts, representing remarkable progress. We should salute World Bank Group President Jim Yong Kim and acknowledge the Bank’s Universal Financial Access 2020. Jim Kim’s leadership has helped to galvanize tremendous progress in financial access for so many who, until now, have been ignored.

But there’s much more work to do. Unfortunately, I also expect that the Findex will show that many of those with an account do not view it as useful or relevant.

Access alone is not inclusion. Instead, it is an important first step toward a truly financially inclusive world, where customers benefit from a variety of high-quality, affordable products and services; have sound financial education and capability; and trust their financial service providers to act responsibly.

When global leaders meet for the World Bank meetings, I hope they’ll focus on overcoming the barriers that still prevent us from reaching this vision. They should also commit to the most promising technologies and solutions that can create a financial system that works for everyone.

Barriers preventing financial inclusion

Digital financial services have already helped tens of millions — maybe even hundreds of millions — to benefit from the world’s formal economy.

But it’s increasingly clear that many of the financially underserved are also technologically underserved. The GSMA’s Mobile Economy 2018 reports that nearly 40 percent of the world’s 5 billion mobile subscribers have no internet access; most of the offline, live in the low- and middle-income countries that could benefit the most from digital financial services. Many mobile subscribers live outside of 3G or 4G signal range, which slows service or limits what they can do with their devices. Many unconnected users must contend with poor network performance, high connectivity and handset costs, poor digital literacy, or a lack of locally relevant content.

This caps fintech’s impact: developers analyze internet usage to create tailored products; clients need consistent signals to engage with customer service personnel; both rely on strong mobile signals to do business remotely.

Other barriers exacerbate these technical challenges: many of the financially underserved are last-mile customers living in rural communities. Farmers and many small businesses are particularly difficult to reach.

Finally, women face particularly high barriers. Between 2011 and 2014, the World Bank found a persistent seven-point percentage gender gap in account ownership.

How we can create a financially inclusive world

Despite these challenges, I believe we can still create a financially inclusive world within our lifetimes. Inclusion is a mainstream message today, and more organizations have made inclusive finance part of their core business strategies. Businesses beginning to address this problem should know that the greatest impact results when organizations work with the right partners and set concrete goals for promoting financial inclusion.

And although gaps remain in coverage, technology remains one of the great democratizers of the 21st century and will continue to help the financially underserved. Today, six trends are driving financial inclusion:

  1. Connectivity is expanding across the globe.
  2. Data — and our ability to use it — is growing exponentially.
  3. Customers are increasingly tech-savvy.
  4. Costs are coming down, making it much more cost efficient to scale.
  5. Banks and fintechs are finding new ways to partner.
  6. Regulators are supportive.

These trends have helped fintech innovation flourish around the world. We need to make added investments in inclusive technology and the infrastructure supporting it, because, as impressive as fintech has been, we haven’t used it to its full potential. Going forward, we should create global platforms with hyper-local application. Developers should also prioritize cross-border and scalable innovation with common standards and interoperable platforms. Finally, organizers should emphasize test-and-learn approaches by working in regulatory sandboxes and innovation hubs.

Innovators can also use fintech to make the biggest impact by pursuing:

Insuretech: The total addressable market of uninsured adults stands at 3.8 billion people — and they are the most vulnerable. AllLife is the first company in the world to provide insurance to the ‘uninsurable’: those diagnosed with HIV/AIDS. Based in South Africa, AllLife uses algorithmic pricing, robo-underwriting, and behavioral economics to provide treatment programs; its treatment-centric, managed care approach is demonstrating how to work at scale in emerging markets.

Agritech: Two-thirds of the world’s working poor make their living in agriculture; anything we can do for farmers can drive significant economic and social progress. Pula uses satellite imagery and crop yield information to underwrite insurance, automate payouts for weather-related events, and help farmers afford better seeds and fertilizer.

Digital lending innovations: Small businesses face a $5 trillion financing gap. Inefficiencies in customer acquisition and analysis prevent lenders from making reliable lending decisions and entrepreneurs from getting the financing that they need. But new technologies and data sources can help small businesses: Mexico’s Konfio analyzes thousands of data points — including biographic information, financial history, electronic invoicing, and social media usage — to make lending decisions quickly and inexpensively.

Looking ahead

We should celebrate the great progress we’ve made even as we recognize where we have more work to do.

By focusing on disruptive new technologies, passing enabling regulations, and designing high-quality, affordable financial products and services that benefit users, we can ensure that every individual has the means to reach their economic potential. We can create a financially inclusive world.

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