Fintechs and financial inclusion
This paper (PDF) by CGAP aims to explain finance innovations in a detailed way and generate insights on whether the services work as stated, create value for underserved customers, and ease age-old pain points in delivering financial services to underserved customers. A key finding of the paper is that fintechs are bringing innovation to every part of the financial services sector, often through new value propositions, including flexible products and better ways to address the financial challenges faced by low-income customers. They are making financial services more affordable and accessible, are improving customere experience and accelerate use and engagement. Five innovation areas display the potential for fintechs to impact financial inclusion: 1) Interactive customer engagement, e.g. by using SMS to reduce the cost and effort of engaging with customers; 2) Smartphone-based payments, thereby reducing account dormancy and expanding use cases for payments; 3) Connection-based finance, to build customer creditworthiness and offer finance for low-income people; 4) Location-based finance, by using satellite data and machine-learning techniques to analyse physical location and offer insurance or credit; 5) De-risked nonproductive finance, by helping low-income people pay sizable or unexpected expenses while using unique features to reduce risk for the financier. A separate set of case studies for each of the innovation areas, “Fintechs and Financial Inclusion: Lessons Learned (PDF)”, describes for each pilot the service that was piloted, the nature of our testing, and emerging lessons. Funders have a role to play in supporting early-stage fintechs. Without support from investors, many early-stage fintechs struggle even though they may have potentially game-changing ideas. Supporting these fintechs could unlock innovation and produce relevant lessons for the entire financial services market. Fintechs face a universal set of internal challenges, including the development of a clear value propositoin, assembling the right human and technological resources, balancing digital and in-person customer interaction and forming strategic partnerships.