As we look back on decades of economic growth in Asia, we see a region that has emerged as a global powerhouse, with a rapidly rising share of global trade and manufacturing output. For this success story to continue, financial inclusion is a critical area that needs to be addressed.
The World Bank estimates that over a billion people in the region have no access to formal financial services – in other words, without formal employment, bank accounts, or the ability to participate in both offline and online commerce. In Asia’s developing economies, large segments of society are in danger of falling further behind without access to basic services like low-cost remittance and loans.
The good news is that technology has been a driving force behind significant changes in the financial services industry. One instance of such change is in how banks and fintech startups are now empowered to service these previously excluded groups of people, while maintaining industry-leading standards of security and regulatory compliance.
With large investments being made in the region, a figure KPMG estimates at US$8.1 billion in the first half of 2020 alone, there are more opportunities and possibilities than ever before to ensure financial inclusion. All this bodes well for the region: empowering wider swathes of the population to participate in greater levels of economic activity will bring about long-term benefits for economies.
Overcoming geographic limitations
One of the greatest factors causing financial exclusion is the distance between rural areas and bank branches, which often makes it impossible, or at least extremely time-consuming and inconvenient, for people living in these areas to access banking and financial services.
The advent of smartphones and digital financial apps have been a game-changer, making the need for physical proximity less relevant. Currently, 66 per cent of the population in Asia Pacific is subscribed to mobile services, and with this figure expected to increase to 70 per cent by 2025, we can expect to see more of the unbanked overcoming the rural divide.
On the flip side, rural banks are also embarking on digital transformation initiatives to scale their presence. These efforts were accelerated this year by the outbreak of COVID-19, which drove higher demand for digital services. Some fintech help rural banks bridge the digital gap. In the Philippines, for instance, born-in-the-cloud fintech startup Pearlpay has empowered 450 rural banks in the country to reduce their data centre footprints through its cloud-based core banking solutions.
Opening up economics opportunities
An important element of financial inclusion is ensuring small businesses and citizens in rural areas have access to funding, which they can then use to improve their livelihoods, and their daily lives. Traditionally, this has been an issue because individuals lack credit history or collateral; the high costs of processing loans pose obstacles to the viability of offering such loans.
India’s CreditVidya is tackling this exact issue by using artificial intelligence and machine learning technologies to analyse payment data, financial behavioural data, and smartphone device data to score loan applicants’ creditworthiness. This is opening up loans to millions of Indian citizens that were previously financially excluded, with CreditVidya now processing 100,000 loan applications daily.
CreditVidya’s technology significantly reduces the cost of processing loans, making it financially viable to offer such loans. In Indonesia, Amartha Mikro Fintek is helping to connect entrepreneurs in rural areas with investors, allowing them to seek funding more easily. The company is also using analytics and open source business intelligence tools to analyse loan default data and keep non-performing loans below three percent, well under the global industry average.
Simplifying financial matters
Technology is also bringing about equity by enabling easier access by a broad cross-section of customers to financial opportunities that were previously regarded as overly complicated. This is opening doors, and levelling the playing field even for those who might be averse to financial mechanisms due to a lack of understanding.
For example, Singapore-based StashAway is a virtual wealth management platform that allows people of any level of net worth to invest in capital markets. It also personalises portfolios for individuals based on their existing assets and risk preferences. Using cloud technology, StashAway not only cut infrastructure costs for development by 90 per cent, but also built a robust platform that could quickly scale up to serve thousands of customers while also ensuring compliance with multiple country-specific financial regulations.
These are inspiring examples of how innovation and digital disruption are positively improving lives across developing and developed economies, while simultaneously driving economic growth. The fact that private and public sectors are working together, and paying more attention than ever before to drive such initiatives, lays a foundation for a brighter future, giving cause for optimism for the region’s future.
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