2020 was supposed to be the year we celebrated the end of financial exclusion. But around half the world’s population still don’t have access to a bank account. We asked Edwin Chong of neobank Muniy, David Pope of verification specialists HooYu, and Diane Brocklebank, representing the Prepaid International Forum, what fintech can do about it.
Sometime around mid-April, Ratan Kumari (46) gravely injured her feet from a bad fall as she, her family and neighbours were walking the 1,300 miles back home to their native village in Uttar Pradesh, north India.
The entire group was stuck. The Indian government had announced complete lockdown of the country to check the spread of COVID-19 on March 24 and wage earners like Ratan, her husband, and his brothers, lost their jobs in the city of Bangalore. After a few days’ wait, with public transport suspended, they’d set out for home.
By the time Ratan was injured, they had already walked for 10 days and desperately needed rest. Looking back, she considers herself fortunate. In Bangalore, she worked as a cook. One of her employers had insisted she get a bank account and taught her how to use a digital wallet, mostly to help keep her money safe.
A cheap smartphone and a digital wallet linked to a bank account enabled Ratan to receive a cash donation from a volunteer organisation with which the family secured food, medicine and shelter for a few days before continuing their journey home.
Worldwide, millions of people have to overcome many hurdles to access financial services – the time and cost of travel to banks, lack of identification documents and a general sense of inaccessibility. But history demonstrates that fintech can have a positive impact. Research shows that M-Pesa enabled around 185,000 women in Kenya to move from subsistence farming to business or retail sales, and also helped them save – all through their phones. Access to mobile banking may help underserved communities, especially women, in more ways than one. But progress is slow.
According to the World Bank’s Global Findex, by 2017 (the last time it collected figures), around 1.7 billion people (almost a third of the world) still didn’t have access to mainstream financial services – a situation it had set out to address some years previously, promising universal access for all adults by 2020. The Centre for Financial Inclusion revised the Bank’s 2017 figures, removing dormant accounts, to conclude that only 48 per cent of adults in low- and middle-income countries had bank accounts that they actually used.
Inclusion has also been very uneven across countries, communities and genders. Can fintech play a significant role in bridging these inequalities while improving financial inclusivity worldwide? We brought Edwin Chong, co-founder of the recently launched mobile bank, Muniy; David Pope, marketing director of ID verification specialists HooYu, and Diane Brocklebank, contributor to the Prepaid International Forum, together to answer that and other questions…
The Fintech Magazine: How – and how far – has fintech extended financial inclusion for the unbanked people of the world over the last few years?
Edwin Chong: One way that technology has tremendously helped is by lowering cost, so that more people could be reached. Another way it has played a role is with data – providing access to alternative types of data and ways to analyse it, which allows you to evaluate different financial situations and include them in the
mainstream financial system. So, people could be offered loans based on their use of mobile phone data or their contact list. These digital footprints are also valid ways of evaluating someone’s situation.
Diane Brocklebank: Fintech is about flexibility, scalability, and bringing solutions to markets very quickly; fintechs are unencumbered by legacy systems, which has been an enormous driver in helping to bring the financially excluded into the financial system.
David Pope: Fintechs solve problems that mainstream financial services weren’t even aware existed and hence weren’t catering for. Fintechs isolate a problem, then develop and build features to solve that problem. That’s particularly true in the emoney and prepaid space for financial inclusion.
TFM: It’s difficult to believe that there are people who are still unbanked, even in a mature fintech market like that of the UK. Who are these people?
DB: There are lots of socioeconomic and cultural reasons why people are unbanked. Many are left out because of the design of financial products. These are people who may have been discriminated against, may be marginalised or belong to some very vulnerable consumer groups, and may not have the ID to open a bank account. They may be temporary or migrant workers, or they could be people who don’t have access to the technology, such as a smartphone. A lot of people who live on the periphery of society are in dire straits; they rely on very informal ways of banking, like doorstep lenders, putting cash under the mattress and borrowing from friends and family.
TFM: And it’s not just individuals, is it? Even some sectors are underserved?
EC: Apart from foreign nationals living in the UK, there are high-risk industries, such as crypto, gambling, or CBD [medicinal use of the cannabis plant] that tend to be shunned by traditional banks. They are eager to find solutions that let them move money normally. They could be a completely legitimate business but just because of the industry they’re in, everyone looks at them suspiciously. These are people who don’t fit standard credit assessments or usage patterns and, because of that, they miss out on opportunities.
In general, at Muniy we’d like to get more people into the economy. By getting an account to people who primarily use cash, we can help them start establishing their digital footprint. And, once that happens, it’ll allow us to get a fairer picture of their situation and a credit record, so that they can take advantage of other services like loans, financial products or a better user experience.
TFM: Much of the problem stems from people not having traditional forms of ID that allow for the normal know-your-customer and anti-money laundering checks. How can that be addressed?
DP: HooYu verifies customers in a way that a traditional approach can’t. The old method of checking a database to confirm a name, address, date of birth, etc, is no longer the defence it used to be against fraud, and it also doesn’t work for everybody. It actually creates financial exclusion. HooYu is designed to verify the identity of anybody, from any country, no matter where they are, no matter what kind of ID document they’re using, and we make that process easy for them. Let’s suppose you’re Polish and you’re in London, applying for an account with a company that’s using HooYu. It will automatically detect the settings on your device and serve you the HooYu user interface (UI) in the language you’re using.
We’ve also been doing a lot of work on accessibility and we’re about to release a new UI that offers screen readers that read out relevant parts of a screen to help users through a process without confusing them, and, for those unable to use the mouse, take them from start to finish by tabbing through each field.
TFM: How can prepaid technology help to transfer some of the unbanked or cash sectors to digital?
DB: Prepaid technology is an enormous fintech enabler. It allows fintechs to bring new solutions to market, very, very quickly. Use cases vary – from traditional travel money products to products that are designed for students going on their gap years, to offering an alternative to a business bank account . We’re seeing a lot of growth in this area, especially with very small businesses, freelancers and sole traders.
In the context of COVID-19, it’s allowed companies that were formerly relying on cash to rapidly digitise their payments. Also, in the charity sector, we have members that have been working with charities, right through the pandemic, to bring their products onto a prepaid solution.
So prepaid is not only about serving the underbanked. In the context of financial inclusion, there’s an enormous opportunity for fintechs to leverage that technology.
TFM: What can the financially underserved expect once they join the digital mainstream?
EC: I think that will lead us past thinking in terms of ‘OK, we made you a wheelchair that can climb stairs’, to ‘forget about stairs – here’s an elevator’. The future is more about meeting people where they are in their daily interactions, and figuring out how to be there to help them.
DP: As the high streets become a less attractive place to go, the elderly generation who are digitally underbanked, will not only be using digital financial services, but a broader range of them.
DB: The pandemic has accelerated the shift to digital and there’s a huge opportunity for fintech to now tailor products and services for a generation that have suddenly become digitally savvy. My mum, who refused to go near online banking, now wants a smartphone and online banking! If we look at some of the products out there for small businesses, too, where it’s not just about a means of payment, but a suite of other things that can be brought in to help them manage their business more effectively.