Is technology the plaque that has created a painful cavity in the shape of a regional, demographic and social gap caused by the differences in one's economic position and circumstance? Or is technology the filling designed to repair the institutional decay making the financial system more inclusive?
Bridging the gap caused by financial exclusivity is instrumental for social mobility in an era where digital is transforming society, especially in how we interact with services, each other and organisations. What impact does this omni-present digital 'thing' have on one's socio-economic circumstance? Some suggest that digital access to information and services is somehow transforming society positively by improving how organisations interact with their customers and the increased effort in understanding customer desires and expectations. Digital is also decentralising the influence and capital of the oligopoly structure of financial service institutions creating economic democracy which can be translated into social democracy.
The role of fintech in developed markets is improving user experience (UX) when making financial transactions. However the role in emerging markets is very different because of the highly differentiated banking system and culture. The US has an unbanked population of 6,5 percent meanwhile emerging countries such as China, Mexico, India, Indonesia and Sub Saharan Africa have an unbanked population of 2 percent, 39 percent, 47 percent, 64 percent and 66 percent respectively. Because customer desires and expectations are different in developing and emerging markets the service offering will have to be different.
The customer-centric model that fintech claims to follow should pick up on this divergence and should strive not to cut and paste imported solutions from developed markets.
According to the Global Findex database (2014) published by the World Bank, 62 percent adults have a financial transaction account with either a traditional bank, an 'unconventional' bank, or with a mobile money provider. These statistics provide an 11 percent increase from 51 percent in 2011. This being said, two billion adults remain without an account around the world which is a 20 percent decrease from the 2.5 billion unbanked adults in 2011. So, there has been an increase in the number of people with access to financial services and a decrease in the number with bank accounts. This means that digital financial transactions are the entry point for the un(der)banked supported by the fact that (in 2014) 80 percent of adults in emerging economies had a mobile phone, while only 55 percent had financial accounts.
The impact of the digitisation of financial services in emerging economies have proved to be inclusive. This inclusiveness was achieved through an elimination of the physical barriers (proximity to branches) financial barriers (bank charges, service charges, monthly subscriptions) and centralised structure of the financial services system prompted by the high barriers of entry (deep pockets) into this industry curtailing the competition which drive up the costs of banking.
Remember FinTech has not yet been 'properly' regulated and regulation is also considered a barrier to entry. These limitations have promoted exclusivity in the financial services industry. A key factor of digital banking, which keeps costs low, is the ease to scale the operations from a digital platform. Furthermore, because digital can provide financial services by leveraging off mobile technology at a fraction of the cost more people can afford to participate in the financial ecosystem.
By bringing down the barriers of entry of the banking institutions, entrepreneurs now have the opportunity to enjoy the economic benefits previously available exclusively to established institutions.
The spread of mobile phones has spearheaded this opportunity. The economic benefit of this inclusion is massive at an individual and societal and organisational level. Not only is there opportunity to provide financial services to 80 percent of the global population through their mobile phones, there are also 200 million businesses in emerging economies without access to financial services including savings and credit. By bringing down the barriers of entry of the banking institutions, entrepreneurs now have the opportunity to enjoy the economic benefits previously available exclusively to established institutions. Blockchain solutions have provided a digital platform which enhances transparency. Furthermore, for governments, a cash run economic ecosystem means that transactions are not captured into the system and tax revenue is lost.
Compared to developed markets, emerging markets have a high unbanked population, weak consumer banks and high mobile phone penetration. Do these factors provide an opportunity for a tailored FinTech solution that could drive economic and social inclusion? The enablers of financial inclusion are predominantly customer centrality and technology advances. Softer enablers include trust and understanding consumer desires and expectations. Providing solutions to address their fundamental requirements will drive a sustainable conversion of the un(der)banked into an inclusive financial ecosystem.
The digital divide is defined as a regional, demographic and social 'gap' as a result of economic circumstance. This gap speaks to a lack of access between those with access to information, communications technology and FinTech. This access is in most emerging markets disabled by an absolute or conditional lack of high quality and high speed internet access. FinTech requires digital access to those goods or services. This access requires connectivity. In emerging markets internet access is low speed and low quality. Therefore how does this compromise the inclusive nature of digital technologies?
Emerging markets are characterised by a relatively high Gini Coefficient; the wealthier you are, the higher the possibility that you have access to social and economic goods and services including a reliable internet connection. In South Africa, Vumatel has been offering fast fibre-to-the-home broadband in the affluent Parkhurst neighbourhood proving that telecommunication facilities are more readily available for wealthier communities. This connectivity has a magnetic effect on profit driven organisations who wish to be located in such an area.
Wealth is created and distributed in already affluent neighbourhoods leaving less connected 'poorer' neighbourhoods neglected. This further aggravates the divide. In the UK, 95 percent of the population have access to reliable internet as opposed to South Africa where internet penetration sits at 47 percent. The poorer demographic do not have access to high speed fibre reliable internet and are restricted to less developed fixed infrastructure, lower-quality and/or high price mobile data costs. The average cost of high speed and high quality internet for a South African internet user is approximately $25 a month as opposed to a UK internet user $2,60.
In developed markets the purpose of fintech is to enhance the UX. In emerging markets the purpose of fintech is to make banking more inclusive. It would seem a futile exercise to develop all these wonderful and inclusive FinTech solutions without addressing the real cause of the digital divide in emerging economies which is the platform where these digital transactions can occur. It is like insisting on putting on braces when you don't have teeth. Developed markets have teeth (infrastructure) that they can improve, emerging markets are currently replacing their deciduous (milk) teeth with adult (permanent) teeth. Emerging economies are still building their infrastructure.
The digital divide certainly does exist. However the gap is not in the digitisation as digitisation is financially inclusive. The gap is brought on by the access to that digitisation, or lack thereof. Because access is what enables the digitalisation to happen, the package of financial inclusion becomes incomplete.