There are currently over 1.7 billion people in the world that are unbanked and lacks access to basic and necessary financial services that are crucial for their upward mobility. A 2017 study by World Bank revealed several key factors behind the large population
of the financially excluded, such as high costs associated, long distance, and the lack of required documentation. These findings, when contextualised in an increasingly connected and digital world, highlight a glaring issue: Digital backwardness and inadequacy
of the finance industry.
However, while incumbents in the finance industry, such as the big banks, fail to meet the needs of the financially excluded, the number of fintech companies have sprouted in the recent years. These new and non-traditional entrants tap into the latest innovations
to offer tech-enhanced financial solutions that fill the gaps left by existing finance players. They are structured to be more suited to handle the needs of the unbanked, at the same time, often operate at a faster pace and larger scale as well.
The question remains: What more can be done to further boost financial inclusion at a fast rate, and offer financial services to the unbanked? The answer would be to bring in the best of both worlds, through industrial partnerships.
Missing Puzzle Pieces in Fintech Companies and Traditional Banks
Fintech strengths lies in its nimbleness and data-driven innovation that is well-suited for the new era. Without an existing system holding it back, fintech companies can easily adapt their services to meet the everchanging and increasingly diverse needs
of financially excluded consumers. However, these corporations still lack several key characteristics that makes it a reliable financial service provider.
Firstly, although it is becoming popular, it is still a niche sector that lacks players with the brand name recognition that will help it gain traction among the mainstream. As such, it lacks the strong consumer pool and the data points that comes along
with it. In a digital era where data is the key defining factor that makes or breaks services, this lack of access will severely impede the potential of fintech companies.
Secondly, fintech companies in general lack security safeguards for a multitude of reason – such as a lack of capital, low priority, lack of regulatory enforcement.This lackadaisical approach to security will not earn them favours among the financially excluded
population, especially since a significant portion of this group has listed their high distrust of financial institutions as the main reason why they are unbanked.
Traditional banks, on the other hand, offers the exact opposite set of strengths and weaknesses, suggesting a collaboration between these two players to be highly synergistic. Big banks have amassed a vast amount of data from years of operation. Along the
same vein, the incumbents have accumulated goodwill and recognition from the general public over the years. They would also have a strong capital base to ensure the state-of-the-art security and privacy mechanism that should assuage any data breach concerns
from the financially excluded.
However, one key challenge for traditional finance industry players is the headache of legacy systems which have proven inadequate in the digital era. Banks are constantly trying to figure out how to plug the gaps in pre-existing operations which can be
inefficient, ineffective and often impossible. This arduous process means that traditional banks will never catch up to the needs of the unbanked as long as they hold on to their legacy systems, perpetuating a cycle of updates.
Industrial Partnership as the Key to Financial Inclusion
A partnership model between the two players will prove to be the key to solving financial inclusion. Traditional bank’s treasure trove of consumer information and analytics will prove invaluable to fintech companies who would be able to leverage them to
provide tailored services to address the diverse needs of the unbanked. Their longstanding history of operations would have earned them brand recognition and lend legitimacy to the fintech companies.
Additionally, thanks to the industry’s regulation on security and privacy, big banks can address fintech’s weakness in security safeguards. On the other hand, fintech’s agility to meet consumer needs as well as disruptive technologies will allow big banks
to finally extend its services to the unbanked in an accessible and sustainable manner.
Furthermore, as software-based experience continues to take centre stage among consumers’ growing needs, this collaboration model will naturally extend to other key stakeholders, notably mobile ecosystem where the point of contact between financial services
and consumers lies. Fintech companies are already leveraging mobile operating systems’ various developer toolkits and services to integrate their products with consumers’ devices and facilitate a smoother and enjoyable user experience. But as mobile capabilities
grow and the point of contact for financial services expand to other devices, such as wearables, there will be more opportunities for partnership between the different players to foster innovation and serve the needs of the financially excluded.
Playing Catch-up on Digitalisation through Industrial Partnership
The finance industry has previously rejected the digitalisation movement and we are now starting to see the ill-effects of that decision. There are over 1.7 billion people in the world today that are unbanked and do not have basic access to the necessary
financial services.
But this is set to change soon as fintech companies lead the charge to revolutionise the industry, supported by a myriad of factors. These companies, unencumbered by legacy systems and regulations, are mobile and disruptive than any other existing industry
players. More importantly, they also have access to cutting-edge technologies – an invaluable characteristic in an industry that is increasingly focused on software-based experience.
Industry players will need to come together if they want to extend the reach of their financial services to the financially excluded population as each holds a piece of the solution to the puzzle.