Financial inclusion needs to be more than just about technology

Products need to be sustainable and scalable to meet the needs of the unbanked.

You can build the fintech industry, but will they come?

Technology alone cannot solve the problem of bringing the underbanked into the finance system, argues BDO Unibank chief executive officer Nestor Tan. He cited the Philippines as an example where even though a third of the population had a smartphone in 2019, 44 million people were still unbanked. So if financial inclusion is not just a matter of owning a smartphone and signing up for a banking app, what does it take?

According to Tan, this requires several things. “Number one, which most people overlook, is trust. Remember, people are parting with their money so they have to trust these institutions. Second is access. Are you there? Can they see you? Can they feel you? Third is the credit process because the flipside of them parting with their money is we’re parting with our money. The fourth, which is probably the most important part of financial inclusion in the private sector, is sustainability. And that means cost efficiency, scale, and the ability to expand into other areas.

"Fintech is in all of those, but not one of those. Technology on its own is agnostic. It’s how we use technology in one of those four things that will make financial inclusion effective.”

Naureen Hyat, co-founder of Pakistan-based mobile financial startup Tez Financial services, believes that financial institutions must also learn how to scale their products in order to reach the unbanked. She cited the case in her native Pakistan where over 150 million people - more than half of its population - do not have access to financial services. The country’s underprivileged, which also comprise the nation’s unbanked, also lack credit histories, which Hyat argued is something only the upper classes can afford to have. Banks are also not leveraging the country’s smartphone penetration, something which almost one-fifth of the population have.

In promoting what she called “sustainable scalability”, Hyat stated that financial inclusion must be centered on developing solutions that will help the poor and unbanked realise their financial dreams. Institutions may offer products such as credit, conventional forms of savings, insurance, investments, pension plans and mutual funds. For their part, Tez Financial Services has products such as Tez Advance which offers nano-loans to people wanting to build credit histories. With over 100,000 users per year, it provides one to four-week instant loans between $6.46 (PKR1,000) to $32.30 (PKR5,000) in 15 minutes.

Technology is helpful in achieving financial inclusion but it has to understand how human behavior works and not just scratch the surface, added Hyat.

“When I talk about human behavior, it’s not only how humans interact, but also what their needs are. Anything that could actually understand and mimic that would be the focus. And that not only trickles down the customer’s journey but also the type of products that need to be served to them,” she said.

As consumers will dictate financial inclusion, regulators and institutions must take advantage of the tech disruption to develop new financial products, said Bank ABC Group’s deputy group chief executive officer Sael Al Waary. The Middle East, he explained, has leveraged the high mobile and internet usage in the region especially to reach unbanked refugees, expatriates, and small and medium enterprises (SMEs).

For example, in Bahrain, a national electronic wallet payment system called BenefitPay was launched in 2017 to allow merchants and consumers to transact using apps to either send or accept payments, therefore helping the country’s 400,000 low-income expatriates to receive their salaries electronically.

Waary is optimistic about the state of financial inclusion in the Middle East, but the challenge of financial literacy still remains, as the unbanked has yet to realise what to do with their hard-earned money, he added.