“This piece of plastic here has saved lives. It was a revolutionary product. I have no doubt about it.”
Years ago, I went to a talk by a top executive from a bank which had proven incredibly successful in pushing for credit card adoption in Puerto Rico. An audience member asked her a pointed question about the role of banks in society and whether her work had social value, especially given the predatory practices that had led to the subprime mortgage crisis. Totally unfazed, she answered that credit cards had made Puerto Rico a safer place by reducing the need to carry cash, consequently lowering the crime rate. The financial technology of cashless payments making society better.
A sound argument, but ultimately one that ignored the larger role banks were playing, making millions off Puerto Rican debt. Fast forward to today, the island is in financial ruin, with more USD74 billion in bond debt and USD49 billion in unfunded pension liabilities as of May 2017. Perhaps not the revolution credit card advocates were hoping for.
Some say that Southeast Asia is in the middle of its own fintech revolution — from peer-to-peer lending to robo-advisors to cashless payments — venture capital keeps flowing into the region, every company wants in on the game, and not a week goes by without some new fintech product being announced at a fancy conference.
But what exactly are we revolutionizing? What will fintech’s societal impact be? If disruption is the name of the game, what exactly are we disrupting and why?
It has been almost a decade and a half since Muhammad Yunus of Grameen Bank won the Nobel Prize for pioneering microfinance. The prize committee cited the potential for microfinance to “eliminate poverty in the world” and “create economic and social development from below”. Since then, there’s been a fierce debate over the effectiveness of microloans, with many pointing out the high-interest rates and what can be often predatory practices. Muhammad Yunus himself said that he “never imagined that one day microcredit would give rise to its own breed of loan sharks”.
In the aftermath of the 2008 crisis, Satoshi Nakomoto, the creator of Bitcoin, envisioned a global “trustless” blockchain system which decentralised power away from institutions into the hands of ordinary people. The first block mined even had a message embedded: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”, a comment on the failures of the banking industry. The new technology was meant to prevent such a thing from happening again.
Yet today in the cryptocurrency world we’ve seen instances of fraud, poor governance, hacks due to lax security, and most crucially, centralisation. An analysis by Consensys in May 2019 showed that the top five Ethereum pools mined 84% of all newly found blocks; in other words, a select few could exert control over a majority of the network. In the cryptocurrency market, volatility can often be caused by “whales”, powerful investors who can move the prices of a coin up and down by a few huge orders. Such developments are a far cry from “decentralisation” — power is still concentrated in the hands of an elite few.
This is not to say that credit cards, microfinance, or blockchain technologies are useless. Far from it. But these are cautionary tales that we have to be constantly mindful of the incentives at play, the structures we create, and the people who are affected. Think about the exponential growth of Grab, an upstart challenging the taxi status quo; and now, thought of by some as a virtual monopoly exploiting labour. Or indeed, of Mark Zuckerberg, who initially denied Facebook’s impact in the dissemination of fake news and is only now beginning to own up to the fact that it has become both publisher and platform.
Those of us working in the fintech industry, working with issues that will directly affect people’s bottom lines, loanability, and access to financial services, can’t afford to take years to realize our responsibility.
Today, Malaysians face a variety of deep financial issues. From 2013–2017, a total of 100,610 Malaysians were declared bankrupt. Three out of five of these were 18–44 years old. PTPTN has MYR40 billion in debt while the number of students requiring loans from the body is expected to grow from 180,000 today to 250,000 by 2040. It’s not just the youth: based on the EPF report, two-thirds of contributors aged 54 only have RM50,000 and below in their EPF accounts in 2015.
Exacerbating all this is low financial literacy- a 2014 report by S&P Global Financial Literacy reported that financial literacy rate in Malaysia is only at 36%, compared with 59% in developed countries.
We must design our products with these people in mind: not only are these the people who most need fast, easy, and cheaper alternatives to traditional finance, they are also a largely underserved market.
Take for example migrant workers in Malaysia. According to a 2017 World Bank report, only 22% of plantation workers own a bank account. Two-thirds of them use non-bank remittance service providers such as Western Union, where they are often required to travel laden with cash to physical locations and fill up documents every single time they do a transfer. This is not only a hassle but often dangerous. Then there are transfer fees and unfavourable currency conversion rates. All this time and fees mean less of a worker’s hard earned cash gets to their families at the end of the day.
According to the same report, 74% of those surveyed own a smartphone. It does not take a genius to realise that this is a huge potential market: global remittances reached USD689 billion in 2018 while Western Union reported that 90% of its transactions were still in cash.
Too many fintech companies chase the minority who have investment accounts, credit cards, and proper financial documentation, competing in an increasingly crowded and undifferentiated space, yet ignoring those who could truly benefit. We ignore our social responsibility at the risk of dismissing those who could be our best customers.
Once, when I brought up the idea of being more socially inclusive and take the small step of targeting small enterprises with an industry veteran, he bluntly said to me: “We have CSR programs for social inclusion. We focus on where the money is. Leave this social agenda and policy stuff to the politicians.”
The words echoed those of the top executive on their work in Puerto Rico.
I cannot disagree strongly enough. Financial inclusiveness and by extension a sense of societal impact is not some segregated CSR program; it cannot just be a slogan to be trotted out at times of convenience or only when we’re trying to attract angel investors. It is a concern that must permeate every level of a product’s life cycle — whether it be ensuring app design is intuitive even for the non-tech savvy, marketing not just to English-speaking audiences, or coming up with ways for customers to provide alternative forms of financial documentation. By helping people navigate the often convoluted and opaque world of finance, we stand to create a tide that can lift all boats: the underserved, fintech companies, banks, and the economy. Financial inclusion is not a cost; it is an investment.
Sometimes, we are so obsessed with “disrupting” that we forget that the best innovators don’t just “disrupt” markets, they create new ones. Let us be creators — to look beyond the status quo and empower the underserved to better understand and control their finances.