Financial Inclusion: The Holy Grail of Fintech
What else would it be⸮ The whole point thus far has been to provide easier and faster access to financial products and services; targeting consumers that were overlooked, left out, or unable to take advantage of what the market offered. By harnessing the IoT, fintechs (financial technologies) are able to include a much wider audience with less expensive solutions and quicker onboarding, while also minimizing risks and increasing cyber security.
Two Demographics in need of inclusion.
The World Bank has estimated that approximately 2 billion people are not using traditional financial services and more than 50% of those in poverty are unbanked. Hey, it’s been risky to provide services, if any, to consumers and businesses that couldn’t meet the basic financial requirements, i.e. steady paycheck, positive credit history, etc. The cost of acquiring consumers, along with the potential of future loss, has been an unmitigable risk.
Many consumers and businesses struggle being underbanked. Their credit-worthiness has been pushed to the limits of acceptable risk by lenders. Without additional inclusion and access to more financial services, specifically credit or loans, the underbanked will become a greater risk. Businesses will fail without additional funding and consumers will be squeezed with more fees and higher rates.
The fintech startups have been looking for ways to increase overall inclusion by minimizing the inherent risks associated with the unbanked and underbanked. They are tapping into social media and analyzing a multitude of data points in an attempt to better evaluate and determine potential risks. Fintechs also look to establish processes to efficiently mitigate risks that are inevitable with the aforementioned demographics.
Fintech has seen many successes. Most have come by way of either creating accessibility where there wasn’t any, like agency banking/microbanks in Africa, or making financial services more appealing through new apps, like mortgages/business loans. However, these are just opening a revolving door to financial inclusion. Bringing more consumers into the marketplace isn’t a guarantee that they will not be deemed a risk very soon afterwards.
A fundamental change needs to occur within financial services and banks before we can be guaranteed that the “newly included” will be kept around long enough for a positive outcome. We should not have the holy grail if: (a)we bring millions more into banks and the financial marketplace, (b) we increase these new customers’ debt loads and (c) lead them into poorer financial health by applying the “big squeeze” for the last bit of change in their pockets.
Many new fintech companies and banks are on their way to obtaining the holy grail, yet few if any are showing signs of the fundamental change needed to make financial inclusion worth it.