Financial Inclusion

Digital Citizenship
March 10, 2020

Financial Inclusion

Financial inclusion is more than a positive social impact story, it’s a forward-looking customer acquisition strategy.

Key Insight

It is no accident that Facebook’s Libra positions itself as a global cryptocurrency built to promote financial inclusion, a term used to describe equitable access to affordable financial services for the widest population possible.

In theory that population includes those who are currently not served or minimally served by financial institutions, often referred to as the unbanked or underbanked. Financial inclusion is more than a positive social impact story, it’s a forward-looking customer acquisition strategy and subsequent business model in an increasingly competitive global economy.

Why It Matters

Traditional financial institutions are facing competition and disruption from agile fintech companies and social platforms that are integrating payments and other financial features and services into their product ecosystem.

Examples

It’s not just financial services vying to unlock the underbanked market. Mega-retailers like Walmart and Alibaba offer financial products to their customers. Latin America and India will be two markets to watch closely for innovation in financial inclusion. The Reserve Bank of India took such measures as licensing telcos as payment banks and instituting national standards for payment software. The result has been dramatic advancements in digital payments.

Amazon, Samsung, Facebook, and Google all have products that are compatible with unified payment interfaces (UPIs, India’s mobile-optimized payments system), and Indian mobile e-commerce company Paytm now boasts a $16 billion valuation. The Center for Financial Inclusion ranks Colombia, Peru, and Uruguay as the top three countries for financial inclusion (India took the No. 4 spot). In those countries and others, Latin American fintech companies are working to solve the region’s most pressing problems, particularly around inflation and remittances.

What’s Next

The role of a traditional financial institution is changing, and digital currencies are often cited as an opportunity for increased financial inclusion. Kenya-based AZA Finance allows cross-border payments and aims to cut the time and costs of those payments inside Africa and other frontier markets. In established markets, people are saving less and in some cases sidestepping banks entirely thanks to the gig economy, uncertain geopolitical conditions, and the rising cost of living. In emerging markets, mobile payments and remittances hold huge potential due to more internet and cell phone penetration. But financial inclusion is not just about getting users an app. The most successful companies build products that also bridge a knowledge gap and inform and empower users to be more financially literate.

The Impact

Lack of financial education will continue to be a barrier for people, excluding them from financial services and systems. Digital and mobile payments, meanwhile, continue to grow with promising pilot programs that leverage cryptocurrencies for remittances and humanitarian aid.

Watchlist

Afluenta, Alibaba, American Express, Ant Financial, AZA Group, Capital One, Carrefour, Center for Financial Inclusion, Citi, Facebook, Falabella, FICO, GoBank, IMF, Key Bank, JPMorgan Chase, mPesa, Ripio, TDBank, The United Services Automobile Association (USAA), Visa, Walmart, Wells Fargo.