January 15, 2017
Financial inclusion is one of the most complex problems equally damaging for economies and populations in every corner of the world. While the scale may vary in developing and developed countries, for every government, it remains one of the top issues standing in the way of society’s resilience to hardships and opportunities. At the end, it is unlikely for any society to be prosperous in the long term when a substantial part of it is excluded from participation in value creation and contribution to the prosperity of future generations. Unfortunately, at the moment, ~39% of the world’s population does not even have a bank account, not speaking of access to other financial services.
Solving this particular problem is not only a matter of a moral obligation for governments but also a highly underestimated business opportunity for financial technology companies. With certain exclusions, the majority of FinTech companies, as innovative as their solutions are, unfortunately, do not often set inclusion as a primary goal and mission (although, certainly contribute to it).
Meanwhile, in certain parts of the world, the consumer market is just at a ‘perfect’ place, if we may say so, to be introduced to solutions that would connect them to the formal financial system. Those conditions include the relatively low rate of formally banked population, high mobile penetration, high connectivity and low barriers for setting and conducting a business among other factors. In that regard, the APAC region appears to be just the right place for companies to roll out initiatives and technologies contributing to financial inclusion of the underserved population.
Certain countries in the APAC region, more than other, are in need for innovative FinTech companies to introduce technologies and solutions that would facilitate inclusion. China, India, Malaysia, Indonesia and Vietnam are particularly well-suited for startups in that regard as they have high mobile penetration rate and relatively low rates of formally banked population.
As a mobile phone penetration rate of 131% in Vietnam, only 21% of the country’s population is formally banked. Vietnam, in that regard, is at a unique moment in its history, when innovators can capitalize on extending access to financial services through mobile technology to a large part of the population. In Indonesia, the situation is even more dramatic – at a mobile phone penetration rate of 122%, only 19% of the population is formally banked.
Opportunities for the same in Japan or Australia, for example, where mobile penetration rates are at 115% and 107%, with formally banked at 96% and 99% respectively, are substantially less. For startups that are introducing inclusive technologies/solutions, markets such as New Zealand, Australia, Japan and Singapore, are extremely competitive, as existing population to a significant extent is formally banked.
According to FinTech HK, certain hallmarks of the APAC market make it well-suited to benefit from FinTech innovation: from a demographic perspective, the opportunities to provide FinTech solutions are broad as Asia has both the highest number of unbanked and the fastest growth of HNWI populations. Moreover, the report on the rise of FinTech in the region suggests that digital channels for banking not only represent the most cost-effective way for financial inclusion of people without bank accounts but are also the preferred method of interaction for wealthy customers.
In addition, the APAC region is characterized by a mismatch between physical banking infrastructure and non-physical telecommunications infrastructure (branch penetration per 100,000 persons in the EU and the APAC region are 62.5 and 12.5 branches respectively), making the introduction of digital banking particularly likely in APAC.
The number of future digital banking customers in the APAC region is projected to hit 1.7 billion by 2020, which will not only include the underbanked population. One of the important hallmarks of the expected growth is that it will also be driven by the adoption of digital banking technology by the emerging middle class, which, as professionals from FinTech HK suggest, will demand more unsecured loans. As a result, alternative lending is expected to prosper in the region for customers to finance their needs, especially if liquidity across Asia can be shared via P2P platforms (e.g. between Japan and Vietnam).
Asia is at a unique position where financial technology innovation is both the only economically viable way to bank the poor but is also the most demand-led way to bank the affluent.