Unlocking fintech for financial inclusion

I remember the first time I was in Wembley Stadium: it was to see Live Aid for Africa in 1985 with the Gods of Music: Queen, U2, Boomtown Rats, Bowie, and McCartney. As a pre-teen, to pay my way, I saved up money by building and selling music amplifiers and Intel 286 computers to schoolmates in India.

My most recent trip to Wembley Stadium was a rather different affair. There, I got to see ‘rock stars’ of a sort, though they didn’t play any music. Wembley recently hosted FinTech Connect Live! 2015, one of the largest fintech events in Europe. I joined over 1,400 other attendees. Many of them came from across Europe, but quite a few were from farther afield — representatives from Canada, USA, India, Pakistan, Bangladesh, South Africa, Kenya, Nigeria attended the conference. There were over 100 exhibitors showcasing their wares – from digital identity solutions and digital keys for hotel chains, to big data analytics firms and international money transfer solutions.

The British government has made it a priority to make London the world’s fintech capital, and FinTech Connect is one of the main ways the city is earning that distinction. Another key organization promoting this message is the UK Trade and Investment (UKTI) — a government body that helps British firms export and international firms import goods and services. UKTI co-sponsored the event.

Accion was invited to speak at the event, and I chaired a panel titled “FinTech Driving Financial and Social Inclusion.” The panel members included Samee Zafar, director at Edgar Dunn & Co, a consultancy; Louise Holden, who leads MasterCard’s Financial Inclusion efforts in Europe; Claire Alexandre, who heads the M-Pesa Commercial and Strategy team within the Vodafone Group; and Eric Barbier, the founder and CEO of TransferTo, the global mobile money hub serving 400 mobile operators in 100 countries.

We discussed what the ideal enabling environment — in both emerging and developed markets – would look like to foster the growth of innovative fintech companies. One of the first points that the panel agreed on was “right touch” regulation – finding the ideal level of regulatory oversight that fosters innovation while also addressing risks. Creating effective, enabling regulation is one of the quickest ways that we can help the two billion people living in poverty and without access to financial services formally save, create credit history, purchase insurance, and join the world economy. It’s one of the main reasons why Accion supports the Economist Intelligence Unit’s Global Microscope 2015: The Enabling Environment for Financial Inclusion, which assesses 55 countries on their financial inclusion policies and transparently shares the very best financial inclusion policies.

Case in point is India — where, until recently, the Reserve Bank of India was seen as a draconian rule-maker. Now, following the Bank’s decision to create new types of licensed financial institutions and Prime Minister Modi’s Pradhan Mantri Jan Dhan Yojana program, which has provided hundreds of millions of Indian households with a basic bank account, India’s financial inclusion policymakers are seen as some of the most progressive in the world.

Another related factor that the panel agreed could help fintech drive financial inclusion was making it easier to set up corporate entities. For example, in the UK, one can set up a company in about 2 hours because the regulations allow it. The high speed of registration of legal entities is, unfortunately, not the norm around the world. In Nigeria, for example, it takes 75 days to setup a new company in a process that includes a number of physical meetings with the corporate affairs commission.

We also talked about the role of partnerships to help fintech scale up. Just because you have a shiny new widget does not mean that people “ought” to listen to you — or use your product. Claire Alexandre was passionate about the point of coming up with a clear value proposition that fills a gap and meets a need.

The challenge is finding an equitable business model for both the young fintech developers and the legacy players. Mobile operators typically call the shots on these negotiations, and it is not uncommon for the network operators to charge 50-75 percent of revenue from a third party. This is changing with OTT models which run “over the top” of the existing infrastructure (mobile, internet, etc), such as Google Hangout and Skype, which provide alternatives to and steal market share from traditional services (in this case making calls by phone).

That said, there are many existing organizations that will help startups accelerate public adoption of certain services. For example Safaricom’s i-hub in Nairobi, Barclays’ Techstars Accelerator, Santander’s Innovation Labs, and others.

Eric Barbier talked about the power of being interconnected, globally, and enabling international value transfer (via money, airtime, and cryptocurrencies such as bitcoin) to allow people “back home” to pay for goods and services. TransferTo has faced challenges in new geographies relating to regulatory permissions for inbound and outbound international money transfers – anti-money laundering rules are becoming ever tighter due to the fight against terrorist financing.

The commercial case is tricky, particularly for financial inclusion-minded fintech. Developers need investors who are willing to back an idea long before it reaches viability or returns a profit. Louise Holden talked about the role of government in fostering financial inclusion and helping de-risk untested business models by subsidizing project operating costs. M-Pesa, for instance, was initially funded by the UK government’s Department for International Development. Many governments want to use fintech, such as both Mozambique and Pakistan, which both are looking to use the technology for conditional cash transfers.

Interestingly, Samee Zafar talked about the rise of the “Impact Investor” as a key phenomenon and asset class for family foundations and high net worth individuals. The challenge with many of these is that they are not entirely clear about what they can and will invest in – mainly due to the great cultural distance between investors and what they invest in. Investors can only overcome this by researching and understanding local issues.

During the conference, there was a great debate about the value of cryptocurrencies and the use of big data analytics to create risk models that can help ascertain how well a product ‘fits’ a given customer. This debate — like so many others in financial inclusion — is still ongoing. And Accion is definitely one of the key influencers and perhaps driving the debate forward.

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