According to the Consultative Group to Assist the Poor (CGAP), a policy and research centre dedicated to advancing financial inclusion, two billion people don’t have access to financial services- commonly referred to as the ‘unbanked’. The problem is at its worst in the Middle East and North Africa, where four out of five of adults don’t have a bank account, closely followed by Sub- Saharan Africa and South Asia1.
This unfortunate state of affairs is a severe hindrance to financial wellbeing. But with support and access to financial services such as credit, saving accounts, and insurance and payments products, the unbanked should be able to take control of their finances and start planning for a more prosperous future.
Financial technology, or Fintech for short, has an important role to play. According to CGAP, “digital financial services have significant potential to provide a range of affordable, convenient and secure banking services to people in developing countries”2.
CGAP sees the opportunity to make progress in several areas. One is application programming interfaces (APIs). APIs allow third parties to plug into the infrastructure of bigger financial institutions (FIs) like banks, so they can build applications which meet the needs of people without access to traditional banking services.
Meanwhile, advances in analytics allow FIs to use a range of data previously unavailable- such as social interactions- to build a clearer picture of potential or existing customers. This helps FIs to develop financial products or services tailored to their customers’ needs, and even work out a credit score.
For a great example, look no further than Kenya. The Commercial Bank of Africa has partnered with mobile network operator Safaricom to offer users of mPesa, the mobile money transfer service, access to a digital credit product called mShwari. mShwari figures out a person’s credit score based on their mPesa payment history and provides short-term loans direct from their mobile device.
Focusing on money transfer services, we feel three trends will dominate in 2017. Firstly, mobile payments will become even more popular, especially when transferring money overseas. After all, there are 4.77 billion mobile phones in the world (expected to rise to over five billion by 20193) so over half the global population own one. Mobile security becomes increasingly important as a result, and we believe another trend this year will involve technological advances to combat fraudulent payments. And thirdly, we foresee a shift towards demonetisation, as experienced in India where the government removed 86% of cash in high denomination notes from circulation at the end of 20164.
Keep an eye on the blog over the next few weeks as we explore each of these trends in greater depth.
Written by Sudhesh Giriyan, COO, Xpress Money