Fintech and financial inclusion

Fintech has been abuzz the last couple of years now. It’s fashionable for executives in the financial sector as well as in others to talk about this subject in business conversations. For those unfamiliar with the term, it is a portmanteau of financial technology to describe the emerging financial services sector that use technology and innovation to compete in the marketplace of traditional financial institutions and intermediaries.

The concept is not new; in fact, fintech has been around for several years now with the emergence of PayPal and other financial technology companies during the dotcom era. It has reached mainstream consciousness due to the accelerated growth of start-ups playing in this space, driven by advances in and adoption of cloud technologies, big data, Internet-of-Things, and artificial intelligence. This is evidenced by the more than twelvefold increase in global investment from $930 million in 2008 to more than $12 billion in 2014, according to an Accenture study.

The four major areas where fintech participate in and disrupt are payments (e.g. digital wallets and peer-to-peer payments, investments (e.g. equity crowdfunding and peer-to-peer lending), financing (e.g. crowdfunding, micro-loans and credit facilities), and insurance (e.g. risk management and microinsurance). Other areas include surrounding services such as financial advisory and data security.

Notwithstanding its business prospects, fintech has piqued the attention of governments and international institutions to help alleviate the gap in financial inclusion. Why? Because financial inclusion is an age-old global problem wherein over 2 billion people globally have no access and can’t use mainstream financial services to capture opportunities and reduce vulnerability. For example, in India, Indonesia, and Vietnam, a staggering 53%, 64%, and 69%, respectively of the population have no bank accounts, according to a World Bank study.

In the Philippines in 2014, about 69% of Filipinos did not have bank accounts of their own or maintained one with someone else. This is far higher than the global average of 38%, the developing economy median of 46%, and the East Asia and Pacific average of 31%. Not only that, more than 90% of microenterprises and SMEs in the country and other ASEAN member-countries operate entirely outside the formal financial system.

The root-cause has been on both the supply and demand sides. On the supply side, delivering financial services on a nationwide scale requires huge investments in branch offices, infrastructure, and people; hence, scaling and return on investments are business issues.

As regards the demand-side, the disadvantaged population is slow in using and availing of financial services due to low financial literacy, low and cyclical incomes, minimal collateral to offer, and limited credit which is used primarily for personal consumption such as medical emergencies and celebrations.

This is where fintech has the potential to address these issues by scaling expeditiously at low cost, at the same time educate and advise the less privileged on financial literacy to ensure payments of microloans and insurance.

There are already a number of successful and profitable fintech companies that address such pressing issues. One is PayActive, a US-based start-up which partners with employers to provide smartphone-accessible accounts to the employer’s workforces. As the employees earn hourly wage, their wages are deposited daily into their PayActive accounts. This allows them to have access to viable alternatives to conventional expensive lending products that lead individuals into a downward spiral of indebtedness.

Another example is BIMA, an international microinsurance firm that focuses on millions of people across 21 markets, who are previously shunned by traditional insurers. It has swiftly grown to deliver insurance and medical services through mobile networks across Asia and Africa, reaching 20 million underinsured people. It has started operations in Philippines recently.

There are other Philippine-fintech start-ups raging from remittance services for OFWs to payments, crowdfunding, and others. But many of them do address the issues of financial inclusion.

It’s noteworthy that some major local banks have started to pursue fintech initiatives. Hopefully, their experience in consumer and SME banking coupled with corporate resources can spur true innovations for financial inclusiveness.

The opinions expressed here are the views of the writer and do not necessarily reflect the views and opinions of FINEX.The author may be emailed at


The author is a senior executive in an information and communications technology firm. He is the Chairman of the ICT Committee of the Financial Executives Institute of the Philippines (FINEX). He teaches strategic management in the MBA Program of De La Salle University. He is also an Adjunct Faculty of the Asian Institute of Management