Money 20/20, one of the biggest fintech conferences in the world, took place this week in Las Vegas.
I have been investing and writing about fintech and financial inclusion startups for as long as the conference has existed (2012). And in this Money 2020 – the first physical conference since its namesake in 2020 – it’s remarkable how central financial inclusion has become to the fintech movement. Indeed, each day of the conference covered various topics of financial inclusion, and titled by leading actors. I attended three panels concerning “The remaining obstacles to financial inclusion”, “Bank the under-banked people thanks to payroll APIs” and “The imperative for Fintech to promote financial inclusion. “
The rise of financial inclusion may not come as a surprise. After all, this is a huge opportunity. There are over 1.5 billion people who are unbanked and almost as many who are underbanked. Around this promise, a whole breed of unicorns has sprung up. Financial inclusion leaders dominate fintech in emerging markets.
However, the story is not all rosy. 1.5 billion people are still unbanked. In the United States, features of financial exclusion like the $ 40 billion overdraft industry remain. The same barriers, such as the high cost of services and difficult economic units, continue to haunt even the most innovative players.
Grounded in the lessons of the panels I attended, I wanted to share three thoughts where the fintech community can continue to advance financial inclusion.
1. Exploit new data and channels to promote access responsible
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 of Branch described how customers were faced with unique challenges: A pizza delivery driver whose payments are digitized without having access to cash no longer has access to his tips right away. The openness of data allows fintechs to offer wages earned earlier. In other cases, it can also provide insight into the financial situation of customers, which in turn opens doors for other products. It’s no surprise that conference attendees repeatedly called for open banking and ownership of customer data (see below).
New channels mean greater ability to meet customers where they are. The classic example of financial inclusion is of course M-Pesa, which is a mobile money program launched by Safaricom, the main telecommunications operator in Kenya. Because of their reach, today over 80% of adults use M-Pesa for their regular financial services. And that’s why I’m also excited about the new integrated financial services as the wave to come: they allow customers to access financial products from brands they trust, when they need it.
And because fintechs are small, nimble players, they have the potential to iterate faster. As you walk through the halls of Money 2020, it’s hard not to be overwhelmed by the plethora of startups, each with their own areas of focus and unique approaches to going to market. While this makes the landscape much more competitive, customers are spoiled for choice.
2. Improve unit economy and reduce service costs
One of the challenges in serving the underbanked is to make the unitary economy work, especially for the truly financially excluded. On the one hand, they are harder to reach, whether it is a low penetration of smartphones or a greater demand for behavior change.
Another challenge, Jimmy Chen of Propel, is: Underbanked people have complex and fragmented financial lives with many disparate relationships. This means that individual financial providers have a limited view of the entire portfolio. It also means that a trusted partner can over time capture a larger share of the portfolio. Propel, for example, started with a food stamp program, but expanded into other products to cover its customers across multiple transactions and expand their revenue potential.
To be successful, fintechs must reinvent the back end. A traditional basic banking service with high monthly fee structures per account is simply not suitable for the underbanked. Neobanks like Chime (a holding company for the venture capital firm I work in) have redesigned their backdrops to reduce service costs for clients accordingly.
3. Regulate to protect customers and catalyze innovation
Fintech operates in a highly regulated environment. Regulators can be a force of moderation to ensure that user-friendly innovations hit the market and the most harmful ones are avoided. The current unbundling means that there is more surface area for customers, which increases the risk. Security will become more and more important and ensuring that the actors serving customers comply with best practices will become critical.
Philosophically, regulation, as Mobolaji Bammeke of Flutterwave has underlined, must protect customers but also be adapted to the needs of customers. If this prevents too many people from using the product, it can also be counterproductive.
On several occasions, panelists highlighted the role of regulators globally as a catalyst for innovation. All three panels described the desirability of an open bank. If customers had their own data, they would be in the driver’s seat. More products would be created for them and, in turn, customers would be compensated for giving away their data.
Where do we go from here?
We have made a lot of progress. FinTech has undoubtedly become the most successful category of startups. But there is still so much to do.
Perhaps the best advice for the industry came from Jimmy Chen when he described Propel’s work: He pointed out that there was no magic formula. Success depends equally on developing customer confidence, determined long-term execution, and a laser focus on solving the problem.
Looking forward to seeing where we are at Money 2030.