Improving Financial Outcomes with FinTech
New data published in the latest Global Findex shows impressive momentum in financial inclusion worldwide. Since 2011, 1.2 billion people have gained access, and the share of adults who have an account with a financial institution or mobile money service has risen to 69 percent globally. With continuing advances in mobile phone penetration and FinTech innovation, this progress puts us on track to achieving the World Bank’s goal of universal financial access by 2020. However, a transaction account is only the first step toward true, sustainable financial inclusion.
At Omidyar Network, we believe that as access to financial tools continues to broaden, we must turn our focus to improving household financial outcomes worldwide. Newly-opened accounts can serve as an on-ramp to a broader range of affordable, convenient, and relevant financial services that address people’s unique context, and help improve day-to-day cash management, increase resilience, and position them to better capture and seize long-term opportunities.
The Global Findex data also hints at how to do that. Since 1 billion of the world’s unbanked have a mobile phone, digital financial services can remove some of the limitations of traditional brick-and-mortar banking. The digital rails created by the mobile phone — and the trail of data it leaves behind — allow us to deliver services that simply were not feasible before, and at far lower costs.
FinTech entrepreneurs all over the world are reimagining the future of finance, leveraging new tools enabled by technology, new approaches to consumer behavioral insights, human-centered design, public good platforms, and improved financial regulation. In this brave, new financial world, we’ll see more solutions that are better adapted to people’s specific needs. Today, for example, auto-insurance can be tailor-made for the occasional Uber driver, which logs when they pick up a new passenger and automatically kicks in a higher liability coverage for the duration of the ride.
At Omidyar Network, we are backing entrepreneurs tackling some of the most monumental barriers in improving household financial outcomes globally — with creative business models and at scale. We are especially excited by the traction we have seen in four specific areas with tremendous potential to advance financial health:
Whether fully-licensed banks or aggregators of existing best-in-class financial services, neobanks are digital-only, mobile-first banking services that use various solutions in the new toolbox to build long-term, trusting relationships with consumers. Functioning as apps in consumers’ smartphones, neobanks offer a seamless financial experience that can be customized to meet individual needs — including nudging them to better financial behaviors and delivering expert financial advice on demand. A few examples from our portfolio include:
- Chime is a mobile-only bank account that connects US customers to financial services through easy to navigate interfaces that help them maintain control over their finances, automate savings, and plan for the future — all without charging banking fees.
- Aspiration offers high interest, no-fee bank accounts to consumers in the US. Leveraging an innovative “pay what is fair” business model, Aspiration has created a new approach to help customers bank, spend, and invest sustainably.
- Tandem is a full-service digital retail bank in the UK that leverages mobile and data to nudge consumers towards better financial management and away from common pitfalls, such as overdraft fees and missed payments.
- Kaleidofin helps underserved consumers in India to meet their life goals by matching them with existing financial solutions that address their unique needs.
New technologies and approaches are also disrupting the insurance industry, helping more people to mitigate a number of risks they couldn’t easily manage before:
- Pula is providing radically restructured agriculture insurance for smallhold farmers in Africa. Using satellite technology and data to provide previously uninsured landowners with a better safety net, Pula policies are free for the farmers. Premiums are paid by input companies or farm aggregators whose business interests are served by protecting farmers’ incomes.
- MicroEnsure designs, implements, and manages microinsurance products that address a range of risks faced by low- and middle-income consumers. Such protection mechanisms help individuals fulfill their economic potential.
Next-Generation Wealth Management
A new breed of wealth management firms are using technology to solve the unique challenges of specific customer segments, such as first-time investors who are trying to beat inflation in emerging markets, or retirees who need to optimize their retirement plans to fit their financial situation. Some examples include:
- Scripbox helps Indian consumers move from indecision to action by combining the best of portfolio theory and behavioral finance to create a simplified investing experience.
- United Income is a digital advisory firm focused on simplifying retirement planning, long-term asset management, and everyday financial services for aging households in the US.
Alternative Credit Assessment
Innovative solutions to credit scoring that tap into alternative data can unlock new customers for traditional and alternative lenders. For people with a “thin” or no file at the credit bureau, but with a digital footprint, such as social media activity or mobile phone usage, new ways of establishing creditworthiness can help them gain access to credit. Supply chain or distribution data from businesses can also help micro and small entrepreneurs to access better, cheaper credit to grow their operations.
- LenddoEFL combines community-based microfinance techniques with social media data and psychometrics to help people around the world access affordable, life-improving financial services.
- Cignifi uses big data and a proprietary algorithm to predict a prepaid phone user’s likelihood of being a good credit risk and responding to market offers for financial services.
- ZestMoney enables lenders in India to reach a wider market by using an algorithmic credit-underwriting model to power lending decisions based on alternative data sources.
- Indifi streamlines micro, small, and medium enterprise (MSME) lending in India by partnering with supply and distribution chain aggregators and using industry data to augment credit assessment.
Other FinTech innovators are building platforms to help financial services providers improve product design and customer engagement. For example, Juntos focuses on user-centric design to enable a mobile conversation platform that delivers high-touch, engaging conversations via SMS to build trust and confidence among newly-banked consumers. ZineOne provides a digital hub for banks and retailers to aggregate data streams and build contextual insights that can help them improve customer engagement in real time.
As the recent Global Findex has shown, these new developments have already become important drivers of financial inclusion. We are reaping the benefits of the digital revolution, which enables better services at lower costs and greater scale. As we move our focus to financial health, we should double down on solutions that take new approaches to make it easier for people to manage their financial lives, help them increase their economic resilience, and offer them opportunities to build a better future for themselves, their families, and their communities.