As the pandemic continues to make life harder for low-income people, it’s also accelerating the adoption of digital tools that can create a more inclusive economy and more resilient communities.
More people than ever are using digital financial services. In 2020 alone, the number of active mobile money accounts grew to a record-breaking 1.2 billion. Some researchers predict that more than half the world’s population — 4.2 billion people — will have access to digital banking by 2026, which is double the current number.
By opening doors to the digital economy and promoting healthy financial habits, the proliferation of these new tools has immense potential to help families and small businesses build healthier, safer, and more prosperous lives. And while many still lack access to technology and the skills required to apply it, fintech can be flexible, applying a tech-touch balance that meets people where they are.
Fintech innovation is playing a central role in expanding access to and the quality of financial services — as the industry’s rapid growth indicates. One in every five dollars invested by venture capitalists this year has gone into fintech companies. As of Q3 2021, the sector has raised more than $97 billion, representing a massive year-over-year growth of 147 percent. Fintechs focused on digital asset exchanges, payments, savings, and wealth management reported growth in transaction numbers and volumes of 13 percent and 11 percent in 2020, according to the World Bank.
Three ways fintech is changing the game
My team at Accion Venture Lab finds, funds, and supports early-stage fintech startups around the world that are scaling new ways to meet the financial needs of vulnerable people. Through our work with 59 companies to date, we’ve seen three key opportunities for fintech to make a difference for those who’ve been left out of the formal economy and are now dealing with the most severe effects of the pandemic.
1. Embedding financial tools
Embedded finance allows fintechs to integrate financial services into any type of business — from utilities to retailers. This innovative practice has greatly expanded the reach of financial services and created value for customers who are early in their journey of using financial tools.
Accion Venture Lab has invested in two types of embedded finance models: platforms that create new marketplaces through which consumers and small businesses can access new financial and non-financial offerings, and enablers that allow platforms to seamlessly provide financial services.
Our portfolio company AGRIM in India is an excellent example of a platform that is bridging gaps in the agricultural supply chain. India has over 1 million agri-retailers that provide informal credit to 130 million farmers, but these retailers often struggle with limited availability of goods, opaque pricing, product quality assurance, and the high cost of working capital. AGRIM’s digital marketplace solves these issues by first connecting retailers directly to manufacturers, allowing access to a wider range of products that can be delivered to their doorsteps at transparent prices.
One of our enabler portfolio companies, Dinie, partners with platforms of all kinds to seamlessly provide lending products that help Brazilian small businesses meet their short-term capital needs in the same digital environments where they already do business. And our partner Lami in Kenya enables consumer-facing businesses like banks and e-commerce companies to develop and sell insurance products to their customers in need. This innovative model builds financial resilience in Africa, where only three percent of those outside South Africa have insurance.
2. Empowering women
The economy’s rapid shift to digital threatens to expand the digital divide and risks leaving behind those with limited digital capabilities, especially women. Fintechs can play a major role in opening economic opportunities for women and equipping them with the digital tools they need to thrive in the modern economy.
Fairbanc, another recent investee of Accion Venture Lab, is an embedded tech platform in Indonesia that enables inventory financing for small retail shops, 70 percent of which are owned and managed by women. Fairbanc has made a concerted effort to understand the hurdles these women face, including a major lack of financing options partly linked to their reliance on cash. Fairbanc’s “buy now, pay later” product is integrated into the inventory ordering apps of large retail partners, vastly expanding access to financing that these shops need to grow and build financial resilience.
In Latin America, our portfolio company Henry is expanding access to software development education — and has focused on enabling more women to get the training they need for tech jobs. Henry has grown their percentage of female students from 20 to 25 percent — well above regional rates for women graduating with tech degrees. The company is also leading by example, as thirty percent of Henry’s staff are women, and most of their instructors are women.
3. Making progress on broader development goals
Access to financial services is critical to achieving economic growth and prosperity. Therefore, inclusive fintech startups have emerged as critical partners in advancing broader global development goals, including widening access to education, improving healthcare, and building resilience to climate change.
For example, our portfolio company Field Intelligence applies data analytics and a subscription-based service to digitally transform community pharmacies in Kenya and Nigeria, helping them better manage their inventories and focus on serving their customers. And in India, Toffee Insurance is revolutionizing access to insurance by providing affordable, “bite-sized” policies that address specific challenges faced by customers, like policies that protect against dengue fever.
Our portfolio company Pula has provided more than 4.5 million traditionally excluded farmers in Africa and Asia — many of them women — with agricultural insurance and data-driven insights to help them increase crop yields and build resilience to increasingly frequent droughts and floods. Apollo Agriculture, based in Kenya, also takes a tech-based approach to help farmers build climate and financial resilience through mobile money accounts, financing, optimized advice, farming products, and insurance.
Fintech is also making it easier for people to get a high-quality education. In Indonesia, where 90 percent of colleges and universities are private and public education options are few, our portfolio company Pintek provides education lending products to low-income families and the schools that serve them. And as schools quickly shifted to virtual learning during the pandemic, Pintek provided financial support to help cover unforeseen and unbudgeted costs of digital transitions and bridge the gap when low enrollment fees left them unable to fund these new initiatives.
At Accion Venture Lab, we are letting the fintech leaders in the field guide our efforts to identify, grow, and scale the most powerful innovations that are revolutionizing our economy for those who’ve been left out. By empowering these companies to succeed, we can provide a lifeline to those facing the most severe effects of the pandemic today and who deserve a more inclusive economy tomorrow.