Perhaps unsurprisingly, one of the main reasons fintech has been so successful is that it helps unbanked and underbanked people gain access to financial services. Unbanked people are those who make no use whatsoever of traditional financial services, while underbanked people are those who take minimal advantage of them. Estimates indicate that approximately 2 billion people worldwide don’t have a bank account. Fintech companies can provide alternative options to ensure everyone still has the opportunity to save and invest money wisely.
The following examples illustrate just a few of the ways in which fintech companies are already working toward this goal and why these products and services will play an essential role in the global economy.
In an effort to tap into the unbanked and underbanked market, QPAGOS, a virtual-payment provider, has installed self-service kiosks in easily accessible areas, as lack of access to a financial institution is one of the main reasons why people can’t take advantage of financial services.
Like with many fintech services, QPAGOS offers a mobile app that serves as a digital wallet. If a user makes a deposit at a kiosk, they can access their funds via the app. The kiosks allow users to conduct transactions and access other financial services securely without a bank account. Although QPAGOS has in the past targeted Mexico, where 65 percent of people don’t have bank accounts, it’s also striving to serve the unbanked population of the United States. As of now, the company has plans to install 1,000 kiosks through California alone. If these become more common, they could have a dramatic impact on many lives.
People who make limited use of financial services often have a limited credit history. They simply haven’t been in a position to use a credit product yet, and therefore, if they ever do apply for a loan, may find that banks have difficulty assessing their credit.
That’s not the case with fintech-based lending companies. Because they operate online, where they have access to significant amounts of an applicant’s digital data, they can base a person’s credit-worthiness on other factors, which increases the applicant’s chances of approval.
Online lending companies are also ideal for people who live in rural areas where it may be difficult to reach the nearest bank branch. By keeping the entire process online, lending companies are better-equipped to serve customers in these areas. The same principle applies to online banking services. Fintech alternatives to common banking tasks have made it easier than ever for people to manage their finances, even if they don’t have an immediate way of reaching a bank branch.
Increasing Access to Foreign Markets
Mobile banking and payment solutions have been ideal for people who don’t have easy access to brick-and-mortar financial institutions. Unfortunately, up until recently, many of these products were not compatible with financial institutions across borders. This limits the degree to which users from developing markets can take advantage of them. Many startups have been reluctant to develop products specifically for these markets because of the low return on investment.
That’s why several fintech startups recently partnered with the Bill and Melinda Gates Foundation to develop Mojaloop, an open-source code that allows various mobile banking systems to become compatible with one another as well as with financial institutions in foreign markets.
In addition to benefiting unbanked and underbanked people in emerging markets, Mojaloop benefits fintech companies. Instead of having to develop new products strictly for people who are underbanked or unbanked, fintech startups can use Mojaloop to reach them via existing products.
Traditional financial institutions typically maintain brick-and-mortar locations, and because they have pay for electricity, rent, and the like, they often charge relevant fees to run their business.
This isn’t the case with many fintech companies. By operating primarily online, they significantly reduce overhead. This means they can pass the additional savings along to consumers.
Some experts believe that the distaste for fees is a key reason why digital wallets have thrived among underbanked customers. Digital wallets allow users to save and spend money like a traditional bank account would, but they don’t impose the prohibitive fees associated with other financial services.