The Globalisation of Fintech

By Madhvi Mavadiya | 13 April 2016

The key issue of financial inclusion was addressed by Innovate Finance’s Global Summit and industry experts explored how financial technology can have a social impact by placing those that are unbanked onto applications that can help them to manage money. An estimated 2 million people in the UK are financially excluded and this is where alternative financing can benefit the unbanked or underbanked.

Banking the Unbanked

Financial exclusion affects those that have low or unstable incomes or those who have experienced a significant change in circumstances, but this does not mean that just because 50% of people with a basic bank account choose to manage their money in cash, they do not have complex financial lives. Worldwide, there are 2 billion people that are unbanked and fintech could offer these people innovative payments capabilities.

Different banks add value in different ways. As Equity Bank in Kenya has shown, big growth is possible because of the scale that new technology adds,” Robert Annibale from Citi highlighted how digital money has boomed in this African country. 2007 saw mobile transfer application M-Pesa gain extensive growth in Kenya and six years after the platform entered the marketplace, over 40% of the GDP was being transacted on this app, according to Forbes.

M-Pesa’s successes have led to traditional banks perceiving the mobile application as a competitor and in the past, have sought regulations from the government to stop citizens from banking in this way. Alongside this, banks have started to offer digital services with transaction fees that are much lower than M-Pesa, however, this is opening up the mobile money market to more people.

In 2014, Equity Bank introduced slimline SIMs that can be laid on top of existing SIM cards to allow the bank to access the phone menu and ensure that transactions are secure, according to the BBC. CEO James Mwangi described the traditional bank as a “mattress” as this is where people hide their money and believed that mobile payments is the perfect way to break down barriers to banking.

Banking the Impoverished

The biggest problem with accessing a bank is not bank charges, it is the cost of access. I will have to go 70km to where the bank is; I will have to pay public transport; I will have to spend the whole day to get to the bank; I have to dress because I have to go to the biggest shopping centre in my district; that is what will be removed,” Mwangi said according to the BBC.

Kosta Peric from The Bill and Melinda Gates Foundation spoke about how this could be a tipping point for financial institutions. “We are seeing frictionless, super-scalable tech that will tip this iceberg and making a payment will be as easy as sending a text message,” Peric said. Francesca Brown from the Department for International Development (DFID) followed this comment by elaborating on how although fintech offers a lot of opportunity, sometimes the country that the unbanked are residing in could is a drawback because of economic or political instability.  

Brown mentioned that we need to encourage the private sector to provide more funding so that her organisation, DFID, can do the rest. This year, it was announced that DFID will partner with representative of mobile operators, the GSMA Foundation, to develop new technologies “that can improve response to natural disasters, help women obtain financial services and boost access to safe water and clean energy across the developing world,” according to the UK Government website.

Nick Hurd, UK International Development Minister, explored how over the past ten years, the UK has been attempting to solve the problems of extreme poverty with digitalisation. “With more people in developing countries using mobiles than ever before, this partnership with the GSMA and its members will increase access to banking services, especially for women, bring access to energy to many for the first time and even vital health information.”

For example, over ten years ago now, DFID provided M-Pesa with their initial seed funding. Peric said that more governments should be paying attention to organisations like these because they are valuable systems to use in order to deal with social welfare. “If you digitise money, it will make it easier to use” and he continued to explain how distributed ledgers as a technology can contribute effectively to financial institutions as it provides a frictionless experience and implements security.

Banking the Migrants

At the moment, the line between a beneficiary and a humanitarian is blurred, according to Sarah Crowe from UNICEF and she expressed that we are in the “first technological humanitarian crisis at the moment as everyone has a mobile phone and we can use this device to help those that are stranded.”

Crowe highlighted the new Greek law that has been put in place that exempts Syrian refugee “unaccompanied and separated children, children with disabilities, victims of distress and trauma, pregnant women and women who recently gave birth, from “exceptional border procedures” or returns.

Director of the Civil Society and Technology Project at the Central European University, Kate Coyer, has been advocating how important phones have become to refugees, according to CNBC. “It is a vital tool and for people who have taken so little with them from their homes, and lost most of what they had along the way, their phones are among their most valued possessions.

They are also using GPS navigation tools, Google maps, online translators, currency exchanges. There is anecdotal evidence to suggest the power of these online tools could help bring down some of the costs and dangers of trafficking. It wouldn’t eliminate traffickers, but it can help refugees from being taken advantage of to the nasty extent that they are now.” However, although most migrants have smartphones and could have access to mobile banking, TechCrunch’s Mike Butcher stated that “a bank account is not going to solve the problem.”

Christine Duhaime from the Digital Finance Institute argued that it is not acceptable that migrants cannot access money and terrorists can. “ISIS has no issue getting financing and being banked. They operate under a culture of support and are smart in building companies where they can bypass anti-money laundering laws - the same laws that block refugees from banking.” She continued to state that access to money for migrants would mean that children would not have to work and could go to school.

Banking the Emerging Markets

In 2014, the Reserve Bank of India (RBI) announced that it was attempting to redefine banking and reach the 700 million unbanked Indians by encouraging payments banks to target migrant labourers, low income households and small businesses, according to the Guardian. These banks should offer savings accounts and remittance services with a low transaction costs and organisations must commit to setting up at least 25% of its physical access points in rural communities.

Alok Vajpeyi from the Rainmaking Innovation said at Innovate Finance that “fintech in India is one of the best kept secrets, but there is no acknowledgement of this.” He goes on to say that the subcontinent has always been a tech driven country and on top of this, 40% of the Indian economy is derived from financial institutions.

Vajpeyi explored how fintech is different in London because it is a leading centre, but he emphasised that collaboration between banks and companies is real in India, as he revealed that Startupbootcamp are looking to enter into this country. In addition to this, he added that London is “the best fintech destination because the city has a very forward looking regulator. India can learn from the UK government and the world can learn from India too.”

Kapronasia’s Zennon Kapron focused on China and how the payments space is dominated by three companies and the impact that this has had on the day to day lives is unlike anything seen before. This is only expected to grow as the biggest company Alipay, has been investing in India and recently announced that they would be moving into Europe. “The government is pushing fintech and with a regulatory body set up and controlling risk, there is recognition that China needs to mature as a financial country and Alibaba is pushing this forward,” Kapron said.