KUCHING: Technology is deepening financial inclusion in emerging markets and momentum is building as new technologies come on stream and as the Coronavirus Disease 2019 (Covid-19) pandemic brings more people online, Moody’s Investors Service Inc (Moody’s) highlighted in a recent report.
“Mobile and digital technology bring basic financial services to the unbanked; data analytics and artificial intelligence provide credit to those without credit history; while cloud-based hosting services and distributed ledger technology like blockchain herald a wave of innovative, low cost products geared towards historically marginalised groups.
“Both incumbent banks and new players – lean and agile technology firms and mobile operators – are benefitting from a fast-growing customer base,” it said.
The degree of financial inclusion varies across emerging markets, but it pointed out that a significant proportion of adults still do not have a bank account, and access to credit is minimal.
“Technology is bringing in new customers from low-income urban and rural populations, as well as small merchants and microbusinesses. Both banks and new players are benefitting,” it added.
Growing mobile phone penetration in low income populations combined with the use of small shops as banking agents, also provide a first “entry point” for many, particularly in Africa.
It explained that mobile phones are providing fast, affordable and convenient access to financial services, particularly in parts of Africa and low-income Asian countries like Bangladesh.
“Users of low-tech, feature phones can participate in the electronic payments and settlement system
without Internet access and with only their phone number as an account. Telecom companies and mobile network operators (MNOs) leverage their mobile infrastructure and customer base, and combined with a network of agents – typically small shopkeepers and retailers – can bypass rural banking constraints. According to the mobile operators association GSMA, more than 2.9 million mobile money agents are operating in 90 countries.
“Through their mobile phones, adults with no financial history are able to carry out cash-in/cash-out transactions, peer-to-peer transfers and save cash in a mobile account, all at a fraction of the fees charged by banks.
“Mobile money technology is easily replicated by commercial banks, who typically pair with a mobile firm to offer a suite of financial products via its mobile operating platform. As a result of these developments, previously unbanked individuals are entering the formal financial sector,” it said.
It noted that mobile customers initially used the convenience of mobile phones purely for money transfers, but innovation has increased volumes and created cross-selling opportunities for loans, investment and insurance products and international remittances.
“For incumbent banks, mobile technology provides substantial growth opportunities, as they are able to tap a new business segment that was previously uneconomical. At the same time however, mobile operators have become their competitors and, by offering payment and money transfer products, are commanding a substantial portion of the revenue pie,” Moody’s said.
The use of biometrics (fingerprints, iris scans, facial images) combined with a unique identification number has also allowed those without documents to open bank accounts.
“In Asia and Latin America, electronic payment platforms have allowed the under-banked to progress from occasional cash withdrawals to payments, receipts and transfers. They have also brought small merchants without access to point-of-sale terminals into the formal financial sector,” it said.
Data analytics and Artificial Intelligence (AI) are also delivering innovative credit solutions.
“Lack of credit history has constrained credit dispersement in emerging markets. Fintechs are offering credit to under-banked clients by analysing data held in smartphones,” it noted.
Aside from that, it highlighted that blockchain, digital currencies and the cloud are making products more affordable, allowing tailored financial products for farmers, micro-firms and other underserved sectors.
Despite the optimism in financial technology, Moody’s also cautioned that this increased financial inclusion brings new risks and challenges.
“Credit risks arise from the absence of financial history of the newly banked populations. Cyberrisk is increasing and data privacy requires regulation. A robust and vigilant regulatory framework is key for the successfully deployment of these new technologies,” it advised.