How can FinTech contribute to Financial Inclusion?
This week Hong Kong and other parts of Asia celebrate Mid-Autumn Festival, symbolising family, harmony and the importance of being thankful for the wellbeing offered by the year so far. Yet, while Hong Kong’s residents share mooncakes and festivities, many of the affluent city’s residents don’t get to share in its prosperity.
Hong Kong ranks among the most unequal places on the planet, with the richest 10 per cent in city earning 44 times more than the poorest. Hong Kong stands just behind New York as the world’s second-most unequal city in terms of income. The city’s Gini coefficient (an index measuring inequality, whereby 0 means perfect equality and 1 denotes absolute inequality) reached its highest level in recorded history earlier in 2017, rising to 0.539.
A number of particularly vulnerable groups in Hong Kong suffer from financial exclusion, such as low-income elderly people, ethnic minorities, foreign domestic workers, refugees, the under-privileged, as well as small and medium enterprises, for whom it remains extremely difficult to open a bank account.
To name but a few, the major financial exclusion issues facing these groups relate to:
Lack of access to affordable credit
Becoming victim of predatory lending
An inconvenient and costly remittance process
Lack of financial literacy (such as basic financial knowledge and skills)
Lack of digital literacy (i.e. the technological gap between older generations and tech-savvy younger people is growing)
Unavailability of insurance and/or investment products affording adequate social protection
Difficult bank account opening process (for newly arrived residents, start-ups and SMEs)
Regulatory restrictions demanding a stringent KYC/risk assessment process
Lack of adequate banking facilities
Forced bank account closure/dormant account procedure due to shortage of funds or inactivity
The growth of financial technology (FinTech) start-ups, projects and initiatives holds an immense potential for improving the wellbeing of the least advantaged segments of the population, not only in Hong Kong, but also globally. Indeed, it is estimated that 2 billion adults around the world do not have access to a bank account, while 1.6 billion of them have access to a mobile phone. The potential of technology in empowering the underprivileged and disrupting the traditional way of doing finance is immense.
FinTech education to improve financial literacy
A number of innovative platforms exist to bridge the skills and knowledge gap of both students and finance professionals in view of the rapid pace of newly-emerging technologies. Among them is London-based Centre for Finance, Technology and Entrepreneurship (CFTE), which has the mission to enable the transition towards Finance 2.0. CFTE provides an education solution that furnishes finance professionals with the FinTech skills needed to meet the latest technological developments in the world of finance.
Other projects, targeted at upskilling students, recent graduates and financial services professionals involve Massive Open Online Courses (MOOCs), designed to provide FinTech knowledge, skills and expertise at a much larger scale than that of traditional educational institutions. For instance, leading universities such as MIT, Oxford Business School, Copenhagen Business School and the University of Hong Kong have rolled out dedicated FinTech MOOCs that aim to democratize and facilitate access to FinTech knowledge. FinTech Circle Institute is another platform that empowers financial services professionals with a combination of digital, innovation and entrepreneurial skills to embrace the technology revolution in banking, insurance and asset management.
FinTech start-ups bridge the SME-banking and financing gap
Visionary start-ups in Hong Kong and beyond have the objective of addressing the bulging SME financing and banking access gap, which also represents an immense opportunity, given the importance of the SME segment for the global economy. Pioneering start-up Neat has recently launched a ‘Current Account for Business’ feature, which enables small businesses and other start-ups to open a business bank account in just 10 minutes. This represents a huge improvement, compared to resorting to traditional banks, which can sometimes take months to complete the bank account approval process for small businesses.
Another problem plaguing small businesses, namely, access to finance, is solved by FinTech companies that have the objective of creating a new asset class in order to channel more liquidity to SME firms. They do so by attracting investors who traditionally would not get involved in providing trade finance to SMEs. One of them, FundPark is an online marketplace that connects SMEs with funders by an innovative, responsive and technology-enabled operation model. Velotrade also solves cash-flow imbalance issues for small businesses, creating an online marketplace that brings together businesses willing to sell their trade receivables to investors willing to advance funds, making it much easier for SMEs to access bridge financing, compared to traditional channels.
Democratising access to finance and more efficient credit scoring
Unencumbered access to financial products and services for individuals and SMEs is the lifeblood of the economy. One FinTech company – Microcred – is a leading digital finance provider, focusing on financial inclusion for individuals and small businesses in Africa and China. Microcred provides a suite of credit, savings, insurance and financial services products to its clients. Similarly, Kiva is a non-profit, mission-driven technology company, running a global marketplace platform for crowdfunded microloans that empower financially excluded entrepreneurs. Kiva provides zero-interest, crowdfunded microloans, which represent a real benefit to the small businesses that form the backbone of the economy.
Improving the credit scoring and assessment process is also a crucial step in ensuring adequate access to finance for under-privileged individuals. WeCash is a China-based big data credit assessment platform that offers solutions for technology companies. It uses machine-learning algorithms to provide credit assessments in less than 15 minutes, which greatly facilitates the process of loan origination.
Financial technology solutions can therefore not only act as a catalyst of innovation and efficiency in the traditional finance sector, but can also provide vast opportunities for enhancing participation and access to the financial system. This in turn has the multiplier effect of enabling further benefits for those traditionally excluded from the financial system, as well as the overall health of the economy.
Disclaimer: some of the companies listed in this article (i.e. Neat, Microcred, WeCash) have participated in SuperCharger Accelerator programmes.