What are the pros and cons of fintech? Which industries need more access to financial services? Full inclusion is not the mission for most fintechs today.
Without deep understanding of the full spectrum of potential users and their context, simple and innocuous choices in the product building process can exclude whole demographics. These include creating solutions incompatible with older technology platforms, requiring a certain sophistication to be able to interact with the solution, or just by the choice of market entry and communication not reaching most people.
A partly societal mission, dedication to broad user understanding and consequent design for accessibility are needed to have a chance at inclusion in the first place. Fintech has the potential to be the silver bullet for financial inclusion, but it requires every stakeholder to take a collaborative and responsible approach. Some solutions presented by fintech are often unviable or short-sighted.
When companies act in the name of profits, there is an erosion of customer confidence, which can serve as a blow to the socio-economic progress that financial inclusion should bring. While technological innovation opens access, there is an equally important responsibility to educate millions across emerging Asia, or else there is a risk of even further exclusion.
It is clear how unbanked individuals benefit from ‘finclusion’, but there is also a burgeoning SME community that too will benefit from easier access to affordable and reliable financial services. Fintech and open banking have great potential to speed up innovation in banks and financial institutions (FIs). However, developing technology in closed systems could hamper access.
There are more than one billion people in Asia who do not have or use a bank, according to the World Bank. To make growth more equitable and inclusive, we must make greater financial inclusion an essential agenda in Asia’s economic development.
In our view, fintech “done right” is one that embraces open sharing, collaboration, and innovation. This involves developers, business leaders, operations and security teams working together to improve a company’s offerings and develop new ones, and keeping hard-to-reach segments in mind. From there, FSIs would need to react more quickly to competition and business requirements, and include smaller merchants – the likes of small shop owners, street food vendors, among others.
As fintechs and traditional financial firms rely more and more on artificial intelligence in their operations and customer centric services, the AI systems that are built using different samples, demographics and other data sources could pose the biggest risk for fintechs as they help segment and target the market. If not done correctly, these AI engines could be built with bias and potentially exacerbate the marginalisation of some segments of society.
Fintechs and traditional financial organisations need to make sure to consider the consequences on stakeholders alongside the potential business value as they increase their reliance on AI. Those considerations around ethical AI should be a critical part of their business. Any new tech tool has the potential to do good and ill. It all depends on the users – human and augmented intelligence users.
If fintech tools are only available to city dwellers or elites, they will be exclusive. The drive to focus on all customers by banks is inclusive. Fintech solutions allow banks to mitigate the dead weight of legacy systems that are expensive to replace, outdated processes and non-standard documentation.
At its best, fintech can bring people together. A good example is NTP’s collaborative approach among nine banks and a tech company working to provide customers with a trade finance solution and standard documentation. Any fintech solution needs to be simple and effectively address a need in the market, in order to gain mass adoption.
The way we see it, fintech is definitely needed to promote financial inclusion for the unbanked and underbanked. However, there is also a need to innovate and provide better solutions for those who may have access but are unhappily banked, particularly in more financially mature markets such as Singapore. The job is never done. There is a huge opportunity for both financial institutions and fintechs to work together to provide better financial solutions.
Technology innovation has brought speed and innovation into the financial sector, a sector which had seemed stagnant – at least outwardly – for many decades. The winds of change have brought far more good than bad, but as is usually characteristic of change, it is hard to please all stakeholders. New opportunities can open up a new set of challenges. Someone’s business will pivot or get upended – if not entirely disrupted.
Specific to Validus Capital, by being able to extend business financing to qualified SMEs which would otherwise not have access to business loans, we are seeing the grey market and the black market for loans recede. Yes, people are being excluded, but sometimes it’s for the best!