2015 was the breakout year for FinTech – we saw this sector making its way into the mainstream with many established investors and banks putting their money into promising FinTech companies. Some of the key highlights of the year included Lending Club’s astounding IPO, SoftBank’s billion dollar support to SoFi, Standard Charter’s $207 million investment in Dianrong, and JP Morgan Chase’s partnership with OnDeck.
2016 will be yet another exciting year for FinTech with a focus on:
- Social impact: facilitation of financial inclusion of the unbanked/underbanked
- Regulation: development of appropriate regulation for the sector
- Ecosystem building: enhanced government support and bottom-up initiatives especially in emerging Asia
- Partnerships: establishment of more Bank-FinTech partnerships
- Banking organization transformation: increased investments in innovation programs, implementation, and cultural change
Related to the last point, CH&Co. has partnered with Next Bank, one of the largest independent collaborative communities, to promote innovation and change in the financial services sector. One of our latest collaboration was the FinTech Finals 2016 event in Hong Kong, where CH&Co. facilitated two out of the three sideline summits: i) The Future of Wealth and ii) Financial Inclusion. More details can be found below.
As such, our editorial this month focuses on the topic of Financial Inclusion. We believe that the next step for FinTech is to tap on the unbanked/underbanked to bring about social change through the use of technology.
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Financial Inclusion – Banking the Next Billion through FinTech
The past few years have witnessed an accelerated change in thinking as businesses realise that one of the biggest opportunities for FinTech is to develop new solutions to reaching the unbanked population both in developing and developed countries. This trend is not driven by Corporate Social Responsibility, but rather the potential for serious money to be made from the sizable market of the unbanked.
Digital financial services is viewed as a great solution to lower the costs and increase the security of financial transactions. At the forefront of innovation are private companies that provide digital payment solutions to both individuals and businesses, real time settlement, or data analytics for more comprehensive credit risk assessments.
Perhaps one of the first movers in this area was M-Pesa, a mobile phone-based money transfer, financing and microfinancing service launched in 2007 by Vodafone for Safaricom and Vodacom, the largest mobile network operators in Kenya and Tanzania. It has since expanded to Afghanistan, South Africa, India and in 2014 to Eastern Europe. M-Pesa allows users to deposit, withdraw, transfer money and pay for goods and services easily with a mobile device.
Since then, many other innovations have emerged. To this end, we lay out an analysis of the emerging trends in FinTech and the prominent startups in the area of financial inclusion below.
- Digital payments and remittances: the most prominent area of innovation is in the remittance sector where FinTech startups are starting to provide lower cost and faster services for sending money across international borders compared to traditional means. These services include the use of mobile wallets and cryptocurrencies such as bitcoins.
Read about CH&Co.’s views here and here.
- P2P or alternative lending: an increasing number of companies have developed new business models to expand credit facilities for both lower-income consumers as well as Small-Medium Enterprises (SMEs).
- Alternative credit scoring and verification: as new data pools are being collected through the internet and social media, companies are starting to exploit these data to provide credit scores of individuals, thereby enabling lenders to make better decisions and expand their loan services downstream.
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Above are of course not the exhaustive list of solutions present. Today there are some 2,500 FinTech companies estimated to be entering the field, offering a range of solutions. All these new solutions are positive news for those who are currently excluded from access to financial services, including the smaller businesses that are in need of financing. Nonetheless, we believe the next steps for financial inclusion will require changes in the following:
1) Integration and consolidation: current solutions tend to be developed by individual companies and are present in silos. The next step forward is to develop a more broad-based solution that integrates the various services above for the benefit of consumers.
2) Reduction of the gender gap: most of the solutions currently address the issue of marginalisation for lower income consumers and SMEs that do not qualify for traditional credit facilities. Nonetheless, the gender gap remains large especially in the developing world especially for those living below the $2 per day poverty line, where women are 28% less likely than men to have a formal account. We see opportunities for future solutions to enable the closing of this gap
3) Supporting infrastructure: there is a need for regulation, risk management, and operating models to catch up to the pace of change in FinTech for financial inclusion. We expect regulators to give more attention to consumer protection, cybersecurity risks, data protection and privacy to support financial access for the unbanked. At the same time, existing processes, systems and operating models in organizations – particularly financial services – will need to be adapted to capture digital opportunities.
There is a compelling case for formal financial services to onboard the unbanked population, and FinTech startups are proving that there is value to be gained from serving this group of people. In 2016, we expect financial inclusion to become mainstream as established financial institutions expand their services to the typically unbanked.
What are your views about the future of financial inclusion? Email us, we would love to hear them.
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January 2016 Highlight: CH&Co. Partners Next Bank for FinTech Finals (FF16) 2016 in Hong Kong
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2016 FinTech Finals, the premier FinTech startup competition in Asia
Reflections
FF16 took FinTech events in Hong Kong to the next level as prominent influencers and startups in the financial industry discussed issues that affect the future of FinTech. CH&Co’s partner, Bertrand Billon, was also part of the panel that talked about how FinTech is transforming the lives of the next billion by bridging the financial inclusion gap.
In the Future of Wealth summit, CH&Co., together with Olivier Berthier (CEO at Moneythor), Jason Jones (Co-Founder of LendIt & NSR invest) and Zhansheng Chen (Associate Professor in Psychology at the HK University) talked about the role of FinTech in automating Wealth Management activities, and looked into Robo-advisers, client relationship amplification, big data and the socio-logical boundaries of relationships of men with money.
In the Financial Inclusion summit, Byambaa Losolsuren, Director of the Investment and Research Center, presented her views on giving access to finance and adequate infrastructure to reach more women. A deep dive was also presented on i) women-focused business opportunities in FinTech and ii) the case study of Mongolia. In addition, the roundtable discussion between the panel of experts (Christine Duhaime (Co-Founder of Digital Finance Institute), Rachel Freeman (Deputy General Manager of IFC), Lara Gilman (Mobile Money Market Engagement Director of GSMA) and John Owens (Chief of Party, Chemonics International)) and the audience was very fruitful as there was a free flow of creative ideas on how we can bridge the financial inclusion gap through new business models and frameworks.
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Digital Predictions for 2016
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Digital Wealth Management in 2016: The Year of Re-shaping
Digital Wealth management will take off in 2016. Fintechs, Financial institutions, IT firms and Regulators; will all contribute to the reshaping and acceleration of this process.
Full article here.
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In 2016, IoT Comes Home
In today’s iPhone-obsessed culture, it is the headline-grabbing tentpole product releases of brand names that capture the public’s imagination, whereas the potential of IoT is much more a sum of its parts. In 2016, that potential could finally be realised as several pioneering electronics companies have already demonstrated a commitment to pushing in-home IoT-enabled products as parts of their upcoming product releases, and how they interact might accelerate consumer-facing IoT products for years to come.
Full article here.
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The Daily Fintech Top 10 InsurTech Predictions for 2016
2015 was the year that InsurTech emerged from the shadow of Fintech. This story has been told through the author’s 40 research notes published on DailyFintech.com over the past 8 months, including 28 interviews with the CEOs and Founders of InsurTechs. Here, the author gives his top 10 InsurTech predictions for 2016.
Full article here.
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Are You Ready for the Cybersecurity Challenges of 2016?
No one can declare with certainty which cybersecurity threats will rise to the fore in 2016, except leaders of cybercriminal rings. And even they may not have a concrete plan. Nevertheless, the author ventures a few predictions, mostly safe ones, about cybersecurity in financial services in 2016, with the help of some top experts.
Full article here.
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5 Resolutions for Digital Banking Success in 2016
With the potential of success in mind, Jim Marous, Co-Publisher of The Financial Brand and Publisher of the Digital Banking Report and Ron Shevlin, Director of Research at Cornerstone Advisors, talk about what New Year’s Resolutions would make sense for bank and credit union executives hoping to improve their digital banking maturity in 2016.
Full article here.
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2016: A pivotal year for the future of fintech
Finextra News asks Bruce Wallace, chief digital officer of Silicon Valley Bank, whether a fintech bubble is brewing. Read the full article here to see what he says.
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What does the future hold for blockchain and insurance?
Last September, the World Economic Forum published a report entitled, “Deep Shift – Technology Tipping Points and Societal Impact”. By 2025, 58% of these experts and executives believed we would hit the tipping point for Bitcoin and blockchain. This was defined as “10% of global gross domestic product will be stored on blockchain technology”. This article explores the direction blockchain and insurance are heading – read all about it here.
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Featured Case Study – QFPay
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