By Andrée Simon, president and CEO, FINCA Impact Finance
Financial technology innovations have forced a shift in traditional financial services paradigms and prompted large financial institutions to re-evaluate how they do business. The outsized impact that fintechs have had on the industry over the years has not only been disruptive, but quantifiable.
In 2018 alone, global investment in fintechs reached record levels ($112 billion). And while global fintech investment fell in the first half of 2019 ($22 billion), compared with $31.2 billion in the same period of 2018 (a decline of 29%), this lull is more reflective of broader trends in venture capital investment than it is an indictment on the prospects of future fintech growth.
Fintech’s positive impact can be traced back even further. Between 2011 and 2014, 700 million adults became account holders, and the unbanked population fell by 20%, down from 2.5 billion. And while globally, 1.7 billion adults remain unbanked, fintech is helping make financial services more accessible to an increasing number of people.
Despite fintech’s successes, a gap remains for women, rural residents, and other underserved communities. For this reason, responsible financial institutions cannot rest on their laurels nor become complacent – there is more work to be done to improve financial inclusion for women and those who remain financially excluded.
As we head into the new year, innovative financial technologies will continue to transform the financial services landscape and play a pivotal role in making financial products more accessible to more people. There will surely be bumps along the way, but fintech is not going away anytime soon.
With that in mind, here are four fintech and financial inclusion trends to keep an eye on in 2020.
Closing the gender gap
Although the global Findex database revealed that major progress has been made toward financial inclusion, the picture looks less impressive when you look more closely at the data. Despite what the reports might suggest, women are not benefiting equally and continue to be at a disadvantage.
In fact, a recent study estimated that in 86% of all low and middle-income countries, more men own mobile phones than women, and 58% of these countries have a gender gap greater than 5%. This gap continues to be an obstacle that prevents women from fully participating in the economy.
There are two major barriers to women’s financial inclusion that really stand out. The first of which is the digital gender gap that exists. Even when women own a mobile phone, they are generally less likely than men to connect to the internet, preventing them from reaping the full benefits of the technology. This severely curtails the transformational impact that mobile financial services can provide.
Social and cultural barriers represent another major hurdle for women in the pursuit of financial inclusion. This problem is particularly acute in regions like South Asia, where deeply engrained patriarchal attitudes are commonplace. Even in cases where women possess both a smartphone and a data plan, using it for mobile banking services may not be socially or culturally acceptable.
Fintech needs to do a better job of closing this gender gap. For example, fintech innovations such as mobile and agent banking can be part of the solution, but they must be properly designed and targeted toward empowering women. Research shows that, thus far, fintech has been most effective at narrowing the gender gap in markets where women are already financially included to some degree. Where that isn’t the case, and where women face diminished access to technology and digital literacy training, these solutions are less empowering.
Prioritising banking over banks
Although fintech and big data have had an outsized impact on traditional banks, the microfinance sector has not been immune to the sea change effects that have resulted from the rise of these digital technologies. Traditional banking models, which rely heavily on profits earned from transaction fees and require customers to physically come to branches to do their banking, are quickly becoming a thing of the past.
Such models are giving way to a new space carved out by fintech innovations, where customers can expect service providers to offer practical, clear-use products that cater to their needs; where making transfers, payments and remittances can be done without a fee and financial services can be accessed remotely on mobile devices.
This transformational trend cannot come soon enough for people in places like the Democratic Republic of the Congo (DRC). With less than 35 km of paved road for every one million inhabitants, the lack of physical infrastructure is a barrier to financial inclusion, economic productivity and a threat to physical safety.
In fact, traditional branch-based banking is not feasible for most of the DRC’s 81 million residents, and other channels are extremely scarce. However, basic financial services are needed. Even a small savings account can help a family cope with setbacks, which are all too common. Without that safety net, life can devolve into a daily financial scramble. Fintech innovations are bringing banking closer to where people live and work, and offering them more customised options.
Despite their utility, innovative technologies do have some inherent flaws. In Kenya, for example, the growing popularity of digital credit accessed through mobile phone apps has brought with it increasing incidences of identity fraud.
According to a recent report issued by MSC, rapid loan approvals and the ease of acquiring personal data are the key drivers of this trend. Additionally, clear guidelines governing privacy protection and sharing data are lacking in many markets that offer digital credit.
Finally, in Kenya, the decreased costs of delivering digital credit at scale have not trickled down to the consumer and the interest rates offered by the various digital lenders on the market are erratic and are often not less than what traditional financial services providers offer.
Collaboration will be key
Innovative fintech products are challenging the dominion traditional lending institutions have over others within the financial services sector and will continue to level the playing field within the industry.
And while fintech organisations have been disruptive, they don’t have to be the death knell for banks. Quite the contrary – when fintech and banks collaborate, they can create impactful new financial products and channels that better serve existing clients and help expand outreach.
The reality is, banks need tech firms – especially when they don’t have the capacity to develop digital products and services in-house. Fintechs also need banking partners to reach their full potential, and they need them much more than many people realise.
In many markets, a banking licence is needed to directly provide most financial services. This is something most fintech do not have. Even when a fintech manages to obtain a banking licence, providing loans from its own balance sheet is a complicated process. Most fintechs don’t want to become banks. They want to be fintechs.
Financial institutions provide stability, and they also have advantages in distribution, savings, customer experience and marketing that fintech firms struggle to replicate. Banks also know more about their customers because they have personal relationships with them.
At the end of the day, there is a huge opportunity to reach more people with digital finance. Collaboration helps seize that opportunity.
The human touch
No amount of digital technology can change the fact that financial inclusion is and always will be about people. That is why a delivery model that combines the efficiency of digital finance with the personal trust of in-person or “touch-tech” banking, is important.
Rather than replacing branches and loan officers, touch-tech uses digital channels to foster relationships with customers. While frontline staff members are key players in providing services, leveraging digital technology to optimise processes helps frontline staff do their jobs better, leads to greater outreach, as well as better outcomes for the clients.
Today’s customers are looking for the next generation of financial service providers. In a global financial landscape that is constantly changing and innovating, financial organisations will need to continue to eschew traditional banking paradigms and think more creatively in terms of relationships. This means thinking outside the box culturally, technologically and operationally.
For a financial organisation to be successful and thrive in markets that continue to see declines, shifting to a touch-tech service delivery model that combines fintech innovation with a human-centred approach to delivering impactful financial services is something that should not be overlooked.
Originally posted on Fintech Future’s website.