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APPs 21 Mar 2016

Technology as the driver behind financial inclusion: the importance of fintech firms

It’s a curious phenomenon. Technology can reach the remotest places on the planet, where even the most basic commodities cannot.

In Sub-Saharan Africa, 12% of adults –64 million people– have an account on their mobile phone, 10% more than in the rest of the world (2%). The financial inclusion of the entire population in many countries is becoming a means of furthering their development. The goals of promoting access to banking services are among those underpinning the initiatives supported by BBVA in the field of fintech, including competitions for emerging companies such as BBVA Open Talent.  

For this reason, Open Talent, BBVA’s main program for the support of entrepreneurship, created a special prize in 2015 aimed at supporting startups “with financial solutions for low-income customers or small companies to offer products and services for this sector, along with digital financial solutions that allow the bank to gather and process information”.

During the competition, Jorge Camus, CEO of Destácame, one of the prize-winning companies –and winner of the Latin American final in 2015 along with the company Bitnexo (also Chilean)– described the Catch-22 they are trying to break, and highlights the work of inclusion that needs to be undertaken jointly through an entrepreneurial fintech solution and a financial institution:

“If the bank has no financial information on a person, it can’t make a credit analysis. As the person can’t get credit, they don’t generate any financial information. This vicious circle is resolved by using alternative information such as their payment accounts for basic services: water, light and telephone. This is then used to create a behavior rating that takes into account how good a payer you’ve been”.

The Financial Inclusion Special Award is once again a feature of the eighth edition of the startups competition and this year, the winner will receive the prize of an Immersion and Interaction Week, included in the program.

Four financial facts

For another finalist of BBVA Open Talent 2015, Matías Wohlgemuth, CEO of Wayniloans, there are three financial facts that make the search for entrepreneurial projects in this sphere so interesting:

1- According to the World Bank, there are 2 billion people in the world who do not have access to a bank account.

2- In 2014, four out of every 10 people in Latin America saved, and 75% did so without going to a bank.

3- Three out of every 10 people requested a loan and 50% did so without the mediation of any financial institution.

Other facts also point to a worrying gap in access to banking services and consequently to business opportunities:

4- 40 % of women all over the world –more than one billion women– do not have access to the financial system. The gender gap continues to exist, according to the Global Findex 2014 study: only 58 % have an account in their name as opposed to 65 % in the case of men.

There is also a real opportunity for companies in the fintech sector to be able to collect these loans and formalize them, and thus avoid the exclusion of people deprived of formal financial services.

These possibilities already represent a growing phenomenon. Between 2011 and 2014, 700 million people opened a bank account. The number of people outside the banking system fell by 20 % worldwide.

Four technological facts

Another point is that technology will not only play an important role in all the processes that bring about financial inclusion, but will be the lever used to promote these solutions for spreading the uptake of banking services. And here are another four facts by way of example:

1- By 2030, two billion people will use their cellphones to save, lend and make payments, according to Bill Gates.

2- Figures from the World Bank reveal just how vital mobile devices are for the unbanked population: in Sub-Saharan Africa, 12% of adults (64 million people) have mobile money accounts, 10% more than in the rest of the world (2%).

3- The demand for mobile banking in Latin America continues to grow. In 2014 the number of smartphones in the region grew by 54.6%, to 270 million units of this type of mobile device, according to data from Ericsson published in the newspaper El País. And the outlook is extremely encouraging: the forecasts point to 605 million smartphones by 2020.

Latin America is therefore not only a fertile ground for advancing in financial inclusion thanks to disruptive technologies, but is also the source of projects such as Bim, the Peruvian mobile wallet for the population without access to banking services.

4- Africa leads the pack in terms of mobile accounts vs accounts in financial institutions. In Ivory Coast, Somalia, Tanzania, Uganda and Zimbabwe, for example, more adults have mobile money accounts than bank accounts.

In short, the advance of technology in general –and mobile technology in particular– in developing countries, and the emergence of more companies and fintech startups is already revolutionizing the sphere of financial inclusion. So in turn, the outlook and business opportunities in the area of financial inclusion are looking more and more promising.

* You can see more information on financial inclusion by clicking on this link to a free ebook to download the subject.

* Click on this link if you want to know more about the BBVA Open Talent program and the shortlisted participants with projects on financial inclusion in 2015.

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