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Financial inclusion has finally made it to the main stage
Reflections from Money 2021
This piece first appeared on my Forbes fintech column here.
Money 20/20, one of the largest fintech conferences globally, just took place in Las Vegas.
I have been investing in, and writing about fintech and financial inclusion startups for as long as the conference has been around (2012). And in this Money 2020 – the first physical conference since its 2020-year namesake – it is remarkable how central financial inclusion has become to the fintech movement. Indeed, every day of the conference covered various financial inclusion topics, and headlined by leading players. I attended three panels concerning “Remaining Barriers to Financial Inclusion”, “Banking the Underbanked through Payroll APIs” and “The Imperative for Fintech to Drive Financial Inclusion.”
Financial inclusion’s rise is perhaps no surprise. After all, it is a huge opportunity. There are over 1.5 billion people that are unbanked and nearly as many that are underbanked. Around this promise, an entire breed of unicorns has risen. Financial inclusion leaders dominate fintech in emerging markets.
Yet the story is not all rosy. 1.5 billion people remain unbanked. In the US, hallmarks of financial exclusion like the $40b overdraft industry remain. The same barriers like high cost to serve, and challenging unit economics continue to haunt even the most innovative players.
Anchored in lessons from the panels I attended, I wanted to share three reflections where the fintech community can continue to push forward to further financial inclusion.
1. Leverage new data and channels to promote access responsibly
One of the catalysts of the financial inclusion revolution has been the power of new data and new channels.
New data unlocks new products. Ahmed Siddiqui from Branch described how customers faced unique challenges: a pizza delivery driver whose payments are getting digitized away from cash no longer have access to their tips right away. Opening up data allows fintechs to offer earned wages earlier. In other instances it can also give a window into customers’ financial situation – which in turn opens the doors to other products. It is no surprise conference attendees repeatedly called on open banking, and customers data ownership (more below).
New channels mean a greater ability to meet customers where they are. The classic financial inclusion example is of course M-Pesa, which is a mobile money program launched by Safaricom the leading telecom carrier in Kenya. Because of their reach, today over 80% of adults use M-Pesa for their regular financial services. And this is why I’m excited about new embedded financial services as a coming wave as well: it allows customers to access financial products from brands they trust at the point they need them.
And because fintechs are small nimble players they have the potential to iterate faster. Walking the halls of Money 2020, it is hard not to be struct by the plethora of startups, each with their own focus areas and unique go-to-market approaches. While this makes the landscape that much more competitive, it leaves customers spoiled for choice.
2. Improve unit economics and lower cost to serve
One of the challenges to serving the underbanked is making unit economics work, particularly for the true financially excluded. For one, they are harder to reach – be it from lower smart phone penetration to a greater behavior change requirement.
Jimmy Chen from Propel highlighted another challenge: the underbanked have complex and fragmented financial lives with many disparate relationships. This means individual financial providers have a limited view on the full wallet. It also means a trusted partner can over time capture a greater share of wallet. Propel for instance started with a food stamp program but have broadened out to other products to cover their customers over multiple transactions and expand their revenue potential.
To succeed, fintechs must reinvent the back end. A traditional core banking service with high monthly fee structures by account simply does not scale down to the underbanked. Neobanks like Chime (a portfolio company of the venture capital firm where I work) have rethought their back ends to lower cost of serve accordingly for customers.
3. Regulating to protect customers and catalyze innovation
Fintech operates in a highly regulated environment. Regulators can be a force of moderation to ensure customer friendly innovations make it to market and more nefarious ones are avoided. The current unbundling means that there is more surface area for customers, which increases the risk. Security will become increasingly important and ensuring players serving customers are complying to best practice will become critical.
Regulation philosophically, as Mobolaji Bammeke from Flutterwave highlighted, must protect customers but also be appropriate to the needs of customers. If it blocks too many from being able to use the product it can also be counterproductive.
Repeatedly, panelists highlighted the role of regulators globally as a catalyst for innovation. All three panels described the opportunity for open banking. If customers owned their own data, they would be in the drivers seat. More products would be created for them, and in turn customers would be compensated for giving up their data.
Where do we go from here?
We have made much progress. Fintech has arguably become the most successful startup category. But there is still so much more to go.
Perhaps the best advice for the sector was from Jimmy Chen when describing Propel’s work: he stressed there is no magic formula. Success depends equal parts developing customer trust, determined long-term execution and a laser focus on solving the problem.
Excited to see where we’ll be at Money 2030.