Can fintech power financially-inclusive growth in emerging economies?
Assessing the extent of fintech’s true and measurable impact on the unbanked and underbanked people of Southeast Asia.

According to the World Bank, more than two billion people, globally, have no access to banking services, whether payments or lending. A year ago, my KPMG colleague, Jan Reinmueller, published an article on fintech opening the door to the unbanked and underbanked population in Southeast Asia (SEA). He highlighted three areas where fintech could make an economic impact – providing basic mobile banking services, providing micro-loans, and using data and analytics to help small businesses make better decisions.

This year, I challenged my team in KPMG Singapore to re-visit this and assess the extent of fintech’s true and measurable impact on the unbanked and underbanked people of SEA. To look at this issue, I posed the following questions:
  • Are there clear examples of success stories? What are their measures of success?
  • What is stopping these successes from becoming widespread/pervasive across borders?
  • Can more be done and by whom to promote/attract these successful business models into SEA?
  • How do we make these sustainable for the next generation?
To successfully implement digital innovation of any kind, we need an entire ecosystem consisting of various key players: capital providers to build infrastructure (i.e., the government for incentives and regulations to help attract the best ideas/talent), capital providers for execution of new ideas (venture capitals and corporates), adopters of these ideas (corporates, consumers, banks) and finally, supportive collaborators (research agencies, academia, technology platform providers, consultants).

Similarly, for the issue of underbanked or unbanked population in SEA, we need to create a supportive and complete ecosystem instead of relying on fintech companies alone to move the needle.

We think that while there are clear success stories, such as Wing in Cambodia (mobile payments and remittances) and Lenddo in the Philippines (micro-lending), there is much more than needs to be done. We can learn our best lessons from similar emerging markets, such as Africa or India.

We have seen governments in the SEA region acknowledge the need to address the unbanked segment and provide significant development assistance, such as education, cheaper loans disbursed through traditional channels, access to assistance schemes, etc. What we have not seen them do is work specifically with fintech companies to aggressively address the single most important catalyst for micro-SME businesses – the availability of cheap micro-loans.

Among the things we can learn from Africa, an important example is nano-loans issued by mobile wallet providers. Nano-loans are small loans that are repayable in 1 or 2 months – a product that doesn’t compete with banks or even other traditional micro-loan providers. In SEA, banking regulators are still debating and finalizing their regulations on mobile wallets and micro-lending. Perhaps, a simplified set of rules governing nano-loans through mobile wallets can be developed quickly, which in turn will attract many established providers to enter our markets (usually in partnership with a local telco or bank). Also, just like incentives to banks for adoption of innovation, regulators could also provide grants/incentives to fintech companies to build capabilities, such as BaaS and open-APIs, which will help lower the cost of entry into these cost-challenged segments.

In Africa, Venture Capital (VC) firms have been actively supporting this area of fintech innovation. Foundations and NGOs, such as the Bill and Melinda Gates Foundation and IFC/World Bank, have also been supporting fintech development for the underbanked quite aggressively. While foreign VC firms and foundations are also willing to invest in SEA, the region needs to galvanize our own local/regional VC firms as well as large local conglomerates to play a more active role in providing risk capital to allow more funds to be made available to this segment.

Today, every country aspires to be a Smart Nation or have a Smart City, but the true litmus test of progress will be in being a “Smart, Financially-Inclusive Nation”.

The article was contributed by Tek Yew, Head of KPMG in Singapore’s Financial Services Advisory practice and a member of our Global Fintech Leadership team, where he leads engagements with clients on areas such as fintech innovation, digital transformation and customer growth strategies.
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