Fintech in Asia must go beyond mobile payments to be inclusive

Not a week goes by without more news about fintech as a driver of financial inclusion. Google reports around 1,000 news items about “fintech and financial inclusion” in the past 24 hours, and over 12,000 in the past seven days alone. Fintech mergers and acquisitions reached a new high of US$348.5 billion in 2021, while private equity investment in fintech reached new highs as well. Banks are among the key players, often through dedicated venture or sandbox arms. In 2018, 92 per cent of people in Chinese cities reported using WeChat Pay or Alipay as their primary means of payment. Mobile payments constituted over 83 per cent of all payments transacted. The government has allowed the development of advanced digital financial infrastructure, outside the control of the big four state banks. The launch of the country’s digital currency is the ultimate tool to achieve 100 per cent financial inclusion. These trends seem to imply fintech could resolve Asia’s deep fissures in financial access. But the region is full of contrasts. There has been vast progress in the payments space, even outside China. Slightly over 41 per cent of Asians have a mobile wallet – 81 per cent in Indonesia, 68 per cent in the Philippines and 84 per cent in Thailand – and have used it to make mobile payments. Mobile payment company Boku forecasts Asia will have 2.6 billion mobile wallet users in 2025. However, while mobile payment rates are growing, only half the population of Southeast Asia has a bank account. Being able to make mobile payments doesn’t mean one has access to savings, loans and other financial products that are the backbone of financial security and moving up the economic ladder. In Cambodia, for instance, only 18 per cent of those aged over 15 had a bank account in 2017. Wages in factories, which are a primary source of employment, continue largely to be paid in cash. In Indonesia, 50 per cent of the population remains unbanked. In India, the unbanked rate has fallen drastically in recent years due to government efforts, but 190 million are still excluded. Despite the rhetoric about financial inclusion, fintech has largely been about mobile payments, which is where the profit lies. Of the top 10 fintech unicorns, eight are payment platforms. Thus, wide disparities in financial access persist. Yes, our housekeeper in Bangkok pays at the market using her mobile phone and can send money to her family upcountry via her mobile. But she can’t borrow money to buy a car or a house, or save smartly using financial products. Fintech has made it easier to pay, but her economic prospects remain unchanged. Domestic helpers in Hong Kong are in the same boat: they may use mobile payments to send cash home, but the chances of securing a large loan are low. As fintech and digital banking open up more services to those who are already banked, Asia risks a wider socioeconomic divide, where the adage that you must have money to make money rings true. While it does take time to build information and communications technology infrastructure, financial institutions in the region are more able than ever to bank the underserved without taking on inordinate amounts of risk. What can be done? Our experience working across social development, finance and technology for the public good has shown us how we might make a start. First, enabling digital access to financial services begins with basic digital literacy. In Asia, about 64 per cent of the population has access to the internet, but access does not guarantee that the other two components of bridging the digital divide – literacy and quality – are present. Literacy is about possessing basic digital skills. The International Telecommunications Union estimated in 2019 that in 40 countries more than half the population do not know how to attach a file to an email. Quality of access means knowing how to use the internet for its opportunities. The move to digital finance needs patience Asian governments need to continue to build the hardware, but more should be done to ensure the soft skills that bring literacy and quality. Public education must ensure that children leave school with skills that are relevant for life in the digital economy. Factories, warehouses and even construction sites could be part of the infrastructure for educating workers about digital skills. Our own experience is that when workers receive life-skills training at the factory, for instance, there is a documented rise in loyalty and worker retention while supporting the factory’s own transformation. As smartphone penetration rises, mobile bite-sized learning is within reach. Policymakers could provide subsidies or tax incentives for worker education on key topics. Continuing professional development is held up as a tool for adapting to the new world of work, but there’s no reason white-collar workers should be the primary beneficiaries. Lastly, we issue a challenge to the fintech sector and its regulators, including the many budding payment platforms, to adapt platforms and the data they are amassing to address inclusion. Adjacent and bundled services could vastly increase the amount of data that is the real source of advantage, while giving unbanked and financially constrained small and medium-sized enterprises a cushion to grow safely. Ultimately, these platforms will need to address interoperability, including cross-border payments and data transfers, but for now the focus should be on lowering the entry barriers to inclusion in the system. Policymakers play a critical role through licensing and compliance conditions. Increasing financial inclusion can provide an estimated 14 per cent boost to growth in emerging markets; even a conservative guess of a few percentage points would make a significant impact as the region recovers from Covid-19. The technology is here, and the rewards are clear. Pamela Mar is executive vice-president for knowledge and applications at the Fung Group, where Barbara Meynert is a senior adviser