Leveraging technology to drive financial inclusion
Did you know that more than 1.7 billion people worldwide are unbanked? This means they do not have access to financial services including a bank account — let alone an e-wallet. And most of these people live in Africa, South Asia, Southeast Asia and China. Many of them live in communities with no formal financial services and a long distance away from banks.
Fortunately, efforts are underway to reduce the inequality gap and increase financial inclusion, so that individuals and businesses have access to useful and affordable financial products and services that meet their needs including transactions, payments, savings, credit and insurance. Indeed, the current global unbanked population standing at 31% has declined from past figures of 38% in 2014 and 49% in 2011 (Source: Worldbank.org, 2018).
The advent of financial technology or fintech is key to financial inclusion. The internet and mobile phones have changed the game for millions of people, improving their access to financial and other resources.
How technology supports financial inclusion
Technology can connect consumers to a wide range of financial services no matter where they live — a critical step in reducing poverty and improving people’s quality of life. With the help of fintech, people can put aside money for household needs, make payments easily and on time, get loans to start a business, and save for emergencies. It also saves them time traveling to distant bank branches to use basic financial services, especially important for people who cannot afford to leave their work or business unattended.
A proven case of technology supporting financial inclusion is M-Pesa, a service launched by Vodafone and Safaricom in Kenya in 2007. Mobile phone users register for the M-Pesa service with their mobile network provider before downloading the application. This mobile wallet provides them with a convenient way to make payments and transfer money to other mobile wallet users. Now 29.5 million people living in remote areas use M-Pesa to send money to their families.
Technology to increase loan access
A major challenge in bridging the inequality gap is that people on low incomes without bank accounts find it very difficult to borrow money. Loan applications and approvals require many documents, background checks and a credit history — a near impossibility for those without a bank account or credit card.
Creatively looking at workaround solutions, fintech entrepreneurs are developing new technologies to assess a person’s credit history and financial discipline through big data, with these innovative solutions already being introduced in Africa and Southeast Asia.
- Innovative methods to credit score farmers in Africa
Earlier we talked about M-Pesa. Its services have been expanded to include KCB M-PESA, a joint venture between Safaricom and Kenya Commercial Bank to help farmers access loans. Many smallholder farmers need loans to invest in their businesses but they do not have credit histories that can be checked or loan guarantees. As such, the chances of them receiving a loan are very slim. The app seeks to overcome these challenges by analyzing a wide range of relevant farming data such as cultivation data, crop predictions, analysis of farmland, and air quality, to help assess a farmer’s financial position.
Companies such as Harvesting and FarmDrive are adopting new methods of collecting data in African countries such as Uganda, Kenya, and Tanzania. They are using satellite and drone images and installing sensors throughout farmland to measure environmental conditions. This data is then combined and analyzed using artificial intelligence (AI) to develop a credit score based on the farmer’s credit behavior and the potential produce expected from their farms. The credit score is then used for the farmer’s loan application.
- Developing new credit scoring across Southeast Asia
Most people on low incomes in Southeast Asia also lack conventional credit histories which makes it difficult to access loans.
This has prompted tech companies to use AI to analyze a person’s digital footprint and establish credit profiles from the trail of data they leave behind online. Data can be taken from loan applicants’ online behavior on social media, smartphone phone usage, payment behaviors and past loans. The analyzed data is then made available on an Application Program Interface (API) that is accessible by financial institutions such as banks, personal loan businesses, car loan businesses, insurance companies, and retail businesses. They can use the information to understand people’s creditworthiness and provide loans.
The future of financial inclusion in Thailand
2.7% of the Thai population do not have access to financial services and 5.9% do not have access to loan services, according to a Bank of Thailand survey in 2016. 1.3% took loans outside the system from informal lenders and loan sharks, which would result in poor credit histories. 52.5% of the population had no loans at all.
Including these people in the financial system will significantly improve their prospects and quality of life. It would also help Thailand grow as a nation.
The government has put financial inclusion on the policy agenda. For example, the 12th National Economic and Social Development Plan (2017-2021) supports the use of financial technology to increase efficiency in the financial system so that businesses and individuals can access financial services at a reasonable cost.
Meanwhile the Bank of Thailand’s Payment Systems Roadmap No. 4 (2019-2021) aims to make digital platforms the main channels for payments in the future.
Over the past few years Thailand’s fintech space has been booming with the emergence of a wide range of services to solve different problems. Mobile service providers, retailers and tech companies are providing e-wallet services, while startups are using technology to ease the loan application process.
Data is king in today’s information-rich world, and the collection and analysis of consumer data can help expand financial inclusion. Financial institutions can team up with tech companies to leverage their consumer data and better understand clients’ ability to pay back loans. Startups are developing innovative credit scoring systems to give more access to financial services to groups such as farmers, taxi drivers, and small business owners.
To effectively develop solutions that increase participation in the financial system, we need more than technology. Governments need to continue prioritizing the development of technology to expand public access to financial services. Collaboration is key — not only with financial institutions and tech startups combining their strengths but also between the public and private sectors.
Bangkok Bank’s InnoHub team sees huge potential in these public-private partnership models which are already taking shape in Thailand. Greater cooperation across all sectors will create new solutions, elevate Thailand’s technological ecosystem to global standards, and unlock the potential of Thai society.