There is no one way to solve financial inclusion. The needs of the financially excluded differ according to region, country and personal or family circumstance. Factors include regulatory regimes, geographical constraints and political will to name but a few. Approaches may be bottom-up or top-down and launched by a variety of agents including banks, telcos, tech players and more. What isn’t up for debate is the scale of the issue. According to the G20 up to two billion adults globally lack access to formal financial services and as a result, are disadvantaged in working to improve their lives. What is also clear is that irrespective of the approach taken, digital technology has a massive role to play in putting this situation right. This is reflected in the G20 High-Level Principles for Digital Financial Inclusion, developed by G20 Global Partnership for Financial Inclusion (GPFI) and launched in 2016.
These principles outline a responsible tech-based approach to financial inclusion and cover topics such as balancing risk, the need for frameworks, digital and financial literacy, tracking progress, the importance of identification and more.
The range of technologies in play for financial inclusion is wide.
Biometric systems are in use to solve KYC requirements and speed account opening, for example, biometric SIM verification in Pakistan for account opening and the use of the government ID programme Aadhaar in India.
Blockchain is being used in programs such as Regalii, Oradian and WorldRemit for remittances and international payments. It too has a potential role in providing identity services for the excluded.
Artificial intelligence and machine learning can be used for credit scoring and offering loans in an emerging market, for example, MyBucks, which operates in 13 countries.
However, the most important technological advance, the one that is driving changes in banking all around the world, and the one that underpins Fidor’s commitment to solving financial inclusion, is open banking and APIs, and it is this that is the basis of our fidorOS platform, which is at the core of the service Fidor offers to banks to promote financial inclusion.
Why is this so important?
One of the biggest challenges banks face is in pivoting traditional banking infrastructures, designed to meet conventional banking needs, to respond to the challenges of the financially excluded. It makes no sense to offer traditional banking products to the excluded. But how does a bank deal with a lack of credit data arising from no history of using conventional banking instruments? How does it open accounts where no KYC data exists? How does it extend a city-based branch network to the needs of the rural poor? As we’ve seen, there are a variety of new technology choices out there, but they are fragmented and not necessarily compatible with legacy bank platforms.
By selecting a modular, app-based approach, employing an API integration layer that plugs directly into bank core systems without the need for extensive redevelopment and retooling and a middleware layer that takes care of major banking functions, banks can take advantage of a plethora of new third-party solutions that meet the exact needs of these new classes of customer. And they can do it quickly, responsively and flexibly, leveraging the most appropriate channels for the market.
Fidor itself powers emergency loan services in Germany to customers without a conventional credit history. And that’s how ADIB is using Fidor technology to promote financial knowledge sharing to its Generation Y customers in UAE with Moneysmart, and that’s what lies behind Fidor Marketplace, bringing together a range of different service offerings going beyond banking exactly targeted at the customer need. Service providers get instant outreach to potential customers. Banks can offer a far wider range of services far more quickly than they could develop independently, without integration hassles. Individuals and micro-enterprises, new to financial services or previously badly served, can access products and services that now meet their needs.
Whether a bank is tackling financial inclusion for regulatory reasons, as a CSR project or because it recognises it as a genuine business opportunity, it makes sense to do in a way that maximises effectiveness and minimises time and cost inputs. Co-creating solutions with a fintech partner using open APIs is the way to do that.