What would you do if your bank sent you an email asking you to fill out a survey to rank their services? How would you honestly rate your bank? Would you give your bank 10/10 on their customer service? Would you say you are satisfied with their business hours? If you were a SME or startup and needed seed funding, would your first option be going to your local bank and asking for a loan, waiting 3-6 months and paying a high interest rate if approved? Ten years ago banks didn’t have to reach out to customers to rate their services because they had a monopoly over financial services, government support, and a legacy of being the only institutions to manage money. No more so.

People now have options

Technology, the Internet, smartphones, and the sharing economy have transformed how people and businesses all over the world – from developing economies like Myanmar to high-income countries like the UK – are managing their money. As more consumers around the world have smartphones and access to the Internet, they can use mobile banking to deposit their paychecks, access microloans to start a business and transfer money to friends and families overseas. Startups and SMEs now have more options to raise money and promote their services on crowdfunding platforms such as Kickstarter, and to directly reach out to investors and VCs – both online and offline – communities, accelerators and conferences to pitch, cultivate, and grow their businesses.

Global shifts: The disruption of banking through FinTech

The leader in this global shift of financial inclusion is not led by banks. FinTech has created a new avenue for tech companies to enter the financial sector and modernize how customers manage their money and fund their ventures. Banks are not only racing to improve their customer service but to transform their centuries-old business models and technology in order to compete with lean, user-friendly, and savvy FinTech companies.

At Techsauce Global Summit 2017, Saeid Kian, former product manager for Wave Money, sat down and talked with Nahathai 'Kaew' Poopichapong, Head of International Strategy for Ascend Money, under TrueMoney (based in Bangkok and also present in 5 other Southeast Asian countries – the Philippines, Myanmar, Cambodia, Indonesia and Malaysia), and Angus Sanders, Head of Strategy & Business Operations at Funding Circle UK, a lending landscape that facilitates direct lending between investors and borrowers. The three sat down for an exciting discussion that helps inquisitive entrepreneurs, VCs, and investors to learn about various perspectives on C2B and B2B in FinTech.

What does financial inclusion mean and how do you measure its successful implementation?

Kaew: It simply means for consumers to have basic access to financial services such as savings, credit or insurance – to help them have a better life. In TrueMoney Cambodia right now, after operating for 2 years, we have about 1.5 million customers. A lot of them previously didn’t have access to financial services. And 1.5 million customers is essentially about 10% of the Cambodian population, and this is the number of people we included into financial services. According to the World Bank, about 2 billion people don’t use formal financial institutions, and more than 50% of the adults in low-income households are ‘unbanked.’ Financial inclusion is a key enabler to reducing poverty and boosting prosperity. This prosperity is rooted in technology and smartphones that have enabled people in developing countries to create mobile bank accounts and access microfinance. So for Ascend, some of the concrete ways they measure the success of financial inclusion include measuring:

• How many consumers have mobile banking accounts?

• The rate of customers using a smart phone to contact banking services

• The number of transactions

• The types of transactions

• The amount of money processed by customers

Angus: As most people know, SMEs are the backbone of pretty much every economy in the world and make up over 95% of businesses and about 60% of employment – so SMEs are really important for the economy in most countries. In order for them to grow the value of the economy they need credit. From Funding Circle’s perspective, we believe financial inclusion means we insure access to credit for SMEs.

Angus explains that for credit worthy SMEs, financial inclusion is primarily measured by providing good services to them, how much money is directly going to a particular SME, and net lending, one measure of how much money goes out [to SMEs] – also a good metric to measure inclusion. Big banks in the UK usually don't do net lending, whereas Funding Circle performs a major amount of net lending. For example, between January and May 2017, Funding Circle UK did more net lending than the 22 biggest banks in the UK put together.

Angus: Banks are pulling out of net lending, and with Funding Circle, about 20% of SMEs would have been turned away from banks. For the other 80% of businesses, it takes about 3 months to get a loan from a bank. That time for an SME is huge; they don’t have the capacity and time to wait… so they come to Funding Circle.

FinTech is actively improving financial inclusion, why is it starting to break down those barriers? Is it cost, is it scale, or a combination of both? What is it about FinTech that allows these barriers to be broken down?

Angus: In the UK, banks have a big legacy infrastructure that’s very hard to change; they have huge databases and lots of customers. People go to Funding Circle as an alternative because banks either turn them away or it takes to long to get a loan.

Kaew: Banks are the traditional go-to financial institutions for most. Yet FinTech has an advantage in that it can easily scale. For example, in Myanmar, the largest bank would have not more than 100 branches countrywide, but to open a mobile banking service we can hire 5,000 agents and set up retail stores near people’s homes and easily have access to their money.

How is big data used in FinTech services?

Kaew: A lot of customers cannot get access to credit because they don’t have credit history, so what FinTech does is it comes up with innovative ways to measure people’s credit scores.

One example of a innovative credit score measure is Alipay’s Ant Financial, a strategic investor for Ascend Money, who created ‘Sesame Credit’ to measure people’s credit score based on transactions on their Alipay account, purchases on Taobao, and social media data. It uses thousands of variables to come up with one score, to tell individuals “how much their worth is” and customers can use this score to borrow money from financial institutions and more.

Angus: Credit data is the number one challenge for Funding Circle. Both in Europe and the US we have to rely on standard financial metrics from the bureau and the bank. In order for us to expand outside of Europe and the US, we need to have access to data and credit history.

The challenge is that step before lending: access to financial data. So far the UK government has ‘forced’ banks to open up their data to individuals, SMEs, and startups, but for FinTech companies focused on peer-to-peer lending outside Europe and the US, data is still not opened, notably because of regulations.

How can FinTechs effectively gauge interest? Where should they get their interest rates? What is traditionally done vs. FinTech companies like Funding Circle?

• Banks look at credit cards and bank accounts to analyze how well a customer pays, whereas FinTech doesn’t have access to that, or other key metrics data, so the first step is analyzing other metrics such as how people fill out forms, how much time do they take to fill out the forms, and also how well they answer the questions.
• Angus suggests that banks should provide access to these types of metrics so that it will become easier for FinTechs to develop a credit score, in which FinTech companies would be able to better know the likelihood of default & set more accurate interest rates.

What are companies doing for customers that use mobile banking?

• Mobile operators are partnering with insurance companies to share and cross-sell their products by analyzing how often customers ‘top up” their mobile phone & what websites customers are browsing so insurance companies can target certain customers and sell micro insurance.

What are the primary challenges and barriers with pushing & expanding FinTech inclusion forward?

Our panelists came up with the following:

• Regulations

• Governments being pro-bank, their ‘wait and see how FinTech will play out,’ mentality, along with being afraid as to how banks will react to more competition

• Direct lending is not legal

• Access to consumer financial data

• Distribution and scaling – because there is no ‘one-size fits all solution’ for Southeast Asia’s markets. All are different.

If there was a genie that granted you one wish to solve a major problem in financial inclusion what would you want to be fixed within the next 10 years?

“I hope there would be more entrepreneurs and startups to focus on low-income consumers and the bottom of the pyramid, which has been ignored for a long time. Most FinTechs focus on the high end or top of the pyramid. Millions of people in the world can still benefit from FinTech products and services; a lot of money can be made.” – Kaew, Ascend

“Awareness of alternative funding of finance in the UK, so SME’s don’t always have to go straight to the bank, that would be huge and change the SME experience, and the second would be availability to credit data.” – Angus, Funding Circle