This August at The Fintech Times, we’re looking to highlight some of the amazing things fintechs are doing around the world. We are always hearing about the “latest groundbreaking innovation doing good for the community”, but are these innovations doing good for those in an already advantageous position, or are they helping make the financial world more accessible? To us at The Fintech Times, fintech for good means companies looking to help people who desperately need it, prioritising financial inclusion and sustainability.
When it comes to financial services and fintech, the more inclusive a solution can be, the better. Although this is the ideal, the reality is far from perfect.
Here in our latest instalment of fintech for good, we chat to industry leaders and inclusion experts to determine how the biggest players are creating and distributing fintech services that’ll work for everyone.
The power of digital footprints
Opening our conversation, here Michele Tucci, MD Americas and CSO at Singapore-based credolab, one of the largest developers of bank-grade credit risk scorecards based on smartphone metadata, describes the role of data analytics in the progression of more inclusive financial services.
“When we talk about the changes that big financial players are introducing to become more inclusive, it is worth noting the importance of new digital footprints and how behavioural data analytics technologies are making use of them to democratise access to finance,” explains Tucci.
He continues: “Most lenders still rely on out-of-date scoring systems offered by credit reporting agencies (CRAs) or bureaus as part of the creditworthiness assessment of borrowers. They can only provide scores for applicants with an existing credit history, usually those in the middle to upper-income groups. The challenge for lenders is calculating a credit score for all borrowers, including those with either limited or absent credit history. In the absence of a solution, many people have remained financially excluded.
“By applying machine learning algorithms to structured digital footprints, credolab and other next-gen credit risk fintechs are helping nearly half the world’s population that does not have a bank account access credit. With customers’ consent, smartphone and digital behavioural data are analysed to provide a secure, non-intrusive, and transparent way to convert digital footprints into credit scores in real-time and without adding any friction to the user journey.
“The fintech company’s approach works with all unsecured lending products and operates at the intersection of any industry and financial services. It concerns leading players across banks, consumer finance companies, BNPLs, auto lenders, insurance companies, and non-traditional lenders.
“As we learned from our practice, emerging markets understood the power of digital footprints much sooner than developed ones. We first found product-market fit in Southeast Asia and Latin America, where in 2016 (the year creedolab was founded) according to World Bank data credit bureaus coverage was only 14 per cent and 40.8 per cent accordingly, and unbanked consumers were simply left outside mainstream financial services.
“Now we’re starting to work with developed markets (such as the US and Europe) where there is low penetration of financial and credit services on millennials, gig-economy workers, small business owners, and a generic lack of data for applications via digital origination channels, and where our assessment of new digital footprints can make a difference in how accurate, safe and inclusive the future of finance will be.”
Biometrics for brighter horizons
Continuing on with this theme of lending and lendtech, here Prakash Pattni, MD for financial services digital transformation at the business and technology partner IBM UK&I, describes how the use of technology is overcoming the geographical barriers that have, for a long time, prevented financial service provides from true inclusivity.
“In the financial services industry, technology is enabling the big players to reach a wider client base and deliver inclusion to where it might have previously been difficult due to geographical restrictions. This has been the case across emerging markets,” Pattni explains.
He continues: “Banks are making serious efforts to be more inclusive for cash-first customers. For example, where it would have previously been cost prohibitive to set up branch infrastructure in Africa, the high level of mobile adoption means we are seeing banking services made available to more people via digital applications.
“To help new customers with identify verification as well as credit and loan risk management we are seeing banks leverage biometric technology and use alternatives for assessing credit and loan riskiness. In India, for example, the Aadhaar system provides real-time identity verification using fingerprint, facial or eye scans, while some banks are using the digital footprints of customers from social media or feedback to make credit and loan decisions based on big data analytics.
“Across the sector, IBM is helping banks to secure their most sensitive data and using its deep knowledge of AI and analytics to help understand and utilise digital footprints.”
Inclusive investments generate inclusivity
“Changes are constantly happening as a result of significant investments in technology to reduce the two main barriers and sources of friction for new entrants – high transactional costs and high identity and documentation costs,” adds Carlos Garcia, chief operating officer at Buckzy Payments; a Toronto, CA-based fintech company enabling cross-border real-time payments and banking-as-a-service (BaaS).
“That’s why, as important as new transactional technologies like CDBC, decentralised finance (DeFi) and cryptocurrencies might be, there is also a lot of focus on development around know your customer (KYC) verification and digital identity as a means to open up access to financial services for the more than 1.7 billion individuals who are currently financially excluded.”
Achieving inclusion together
Here, Sung Choi, vice president of business development at the digital currency exchange Coinme, describes how his company pioneered fintech inclusion through the formation of strategic industry partnerships.
“Coinme partners with big players like MoneyGram and Coinstar, who provides physical locations that allow our customers to exchange cash into crypto or crypto to cash,” Choi explains.
He continues: “Coinstar was one of the earliest traditional companies that joined the crypto revolution. They understood early the need for individuals to have cash access to digital assets and worked tirelessly to help make ubiquitous access a reality in the US.
“MoneyGram has dived into crypto to become the bridge between traditional finance and digital assets. In addition, MoneyGram’s vast international infrastructure has allowed companies like Coinme to provide crypto access to the unbanked and underbanked worldwide.”
A piece for everyone
“Bitfarms aims to make crypto more inclusive by expanding its reach through mining and offering access to traditional investors. It allows people access to crypto companies without actually having to hold the currency,” explains Stephanie Wargo, global VP of marketing and communications of the cryptocurrency mining firm Bitfarms.
“Bitcoin mining is important to the blockchain because miners verify the legitimacy of Bitcoin transactions, preventing users from illicitly ‘double spending’ the same Bitcoin twice. Mining also keeps new Bitcoin in circulation and serves as the backbone of the crypto industry, increasing the speed and efficiency of transactions.”
Multiple services, single app
Here, Francis Souza, partnership director, real-time payments at ACI Worldwide, analyses the relationship between big banks and fintechs and how it’s generating new forms of inclusive innovation.
“Banks often face challenges when looking to invest in additional resources and the end result is the failure to innovate current offerings or increase reachability and inclusivity for customers. This is where both ‘big tech’ and fintech have brought extensive innovations to the banking and financial services industry (BFSI),” comments Souza.
“Big tech has invested heavily in creating an all-inclusive supporting ecosystem within a single app. Meanwhile, fintech tends to focus on a niche requirement, introducing further innovations that complement the core service provided in this niche space within their apps.
“For example, Google’s GooglePay app has a whole low-value payment ecosystem that can facilitate payments for several types of services in one single app. In addition to peer-to-peer (P2P) payments and utility bill payments, Google has adopted a two-prong approach wherein: Google has several non-Google services apps embedded as APIs into the GooglePay app, and the GooglePay payment API is embedded within other stand-alone apps to facilitate payments through the GooglePay app.
“This approach enables the provision of services such as ticket bookings, food selection plus delivery and wealth investment in addition to a range of several other services. By consolidating these services into a single app, it increases inclusivity by increasing accessibility for consumers.
“Elsewhere, Uber, still a relative newcomer to the fintech sphere, has now introduced several services that put customers at the centre of the business; Uber Eats, Uber Business and Uber Money are all done through the Uber App.
“All of these services allow for greater financial inclusion of its existing customer base and enforces customer stickiness. Such services, once realised as a transaction, eventually lead to the final stage of payments being enabled through the Uber App. This is done via various payment rails, such as real-time payments, credit cards, debit cards, pre-paid cards/vouchers and e-wallets.”
A CBDC future
In concluding our conversation, here, Joshua Tobkin, CEO and co-founder of the blockchain network developer SupraOracles, discusses how the use of digital assets is cultivating a more inclusive industry for everyone who wants it.
Tobkin starts: “Unfortunately, most of the big players in both cryptocurrency and traditional financial markets have not made a truly significant effort to make the global financial system more inclusive. Instead, the existing digital asset infrastructure has been creatively used by many underserved communities in order to fit their own needs. This creativity aside, a focused financial inclusion effort by big financial players could make a big difference.
“However, while a significant effort hasn’t been made, some relatively large crypto players are beginning to see that fostering financial inclusion could be a profitable strategy. For instance, Coinbase, Circle and Bitso have recently launched new services attempting to help reduce the cost of remittances sent from the US to Mexico, which currently amount to nearly $50billion per year.
“In addition to crypto remittances, central bank digital currencies (CBDCs) could play a role in fostering financial inclusion for unbanked and underbanked individuals. While unbanked individuals have no access to a bank account and traditional financial services, underbanked individuals may have a bank account, but often need to rely on money orders or other more expensive services to facilitate their financial needs.
“Research firm Morning Consult recently polled individuals in 14 countries regarding their thoughts on CBDCs, finding that underbanked individuals consistently showed more enthusiasm for CBDCs, likely meaning that these individuals hope that CBDCs could provide a viable alternative to the expensive financial services they currently use.
“However, to ensure CBDCs aren’t just used by institutions and fully-banked individuals, governments will need to invest significant money and time into understanding and fulfilling the needs of financially underserved populations.
“If governments and private industry truly do their jobs well, CBDCs and cryptocurrencies could help make a full range of financial services, including traditional banking, loans, mortgages, and investment accounts, accessible to billions more people worldwide.”