Financial Services

Financial Inclusion in Southeast Asia

Despite the need for greater financial inclusion, banks have traditionally been hesitant to expand services to underserved regions. They could not risk losing money by lending to customers without sound credit histories and investing in areas without strong financial infrastructure because existent operational costs were too high.

But those concerns are waning as digital technologies reduce the cost base of operations. At the same time, fintech companies have discovered innovative ways to extract data from their operations in order to challenge current risk models. Legacy banks are starting to notice these changes… and the opportunities.

Modern digital architecture has delivered hitherto unavailable interoperability and cost advantages, which makes serving unbanked populations financially viable. That’s because the core architecture for modern technology is grounded in the ABCs:

1. API enabled – Banks can seamlessly plug and play components provided by partners to provide new services and capabilities.
2. Big data – Banks need access to advanced analytics to procure insightful data in order to improve customer targeting and acquisition.
3. Cloud first – Banks need the flexible infrastructure provided by cloud computing if they want to successfully handle the unpredictable nature of digital products for a massive audience.

Financial institutions need to figure out how they can offer products and services that resonate with these underserved populations at scale while getting a return on their investments. They can accomplish both by leveraging non-traditional data from customers’ digital footprints and through the adoption of modern technologies and architecture. First, data: potential customers generate reams of data from their online lives, specifically from their smartphones.

Although governments and NGOs have tried to drive financial inclusion through policy reform and community outreach programs, telephone companies actually pioneered simple financial services for unbanked populations. People could use their mobile phones to make payments, take out microloans, send or receive money internationally and much more. This has driven real financial activity in unbanked populations – generating profit and growth. 

An important exception to the overall trend of telco companies bringing financial services to unbanked populations is India’s Aadhaar program, which matches biometrically verifiable 12-digit identification numbers with Indian citizens. This lays the foundation for compliance with know your customer (KYC) and identity and verification (ID&V). Aadhaar allowed mobile network operators, such as Reliance Jio, to provide banking and payment services.

Rural and urban communities alike are digitally savvy. Relatively inexpensive phones and data plans resulted in huge market penetration. These mobile networks have effectively established the network and digital architecture that was previously lacking – albeit in a brand-new way.

All sorts of companies are engaging with customers through their phones, including rideshares, retailers and fintechs. It’s time for traditional banks to form partnerships with these companies so they can provide data-driven experiences for their own customers.

Though personal banking is important, trade finance represents a far greater opportunity to elevate the region, stoke economic growth and conduct business with an eye toward the future. There’s a $1.6 trillion trade-finance gap in South East Asia at the moment, and a substantial portion of that could be addressed with next-generation credit and financial models – all driven by new sources of data.

From a government perspective, Thailand and Indonesia have begun investing in their financial digital infrastructure and regulations, laying the groundwork for technology and financial companies to be able to digitize products and services.

The focus on financial inclusion has also affected banking, financial services and insurance companies (BFSI) in the region. It’s opened the competitive landscape to new entrants and players in the digital banking product market. Data-rich telco companies with access to customer profiles and activity are either partnering or selling their data to BFSI or other start-up Fintechs. Mastercard is partnering with Grab (a company similar to Uber) in Singapore to support payments to drivers and a cashless society. It’s clear the future of digital banking is not limited to the National Banks. In fact, some would suggest that financial technology and other non-traditional companies are better positioned to move fast, fail fast, learn what products work, and what will win in this new era.

Beyond all this, the move toward financial inclusion is causing BFSI to consider some other factors: the products they currently have, the accessibility of their design and using a more mobile-first deployment strategy. 

This is where the principles of LEAD (Light, Ethical, Accessible and Dataful) come into play. These principles allow us to make choices in our design, centered on the key things customers need. As we develop for unbanked populations, we need to incorporate all four principles into our propositions:

• Light experiences are immediate. They are dezined by their speed, timeliness and responsiveness to the customer.
• Ethical experiences are truthful. They are open, honest and transparent. They understand the context of your customers’ values.
• Accessible experiences are without friction. They are inclusive, embrace diversity and are consistent across all touchpoints.
• Dataful experiences are defined by their intelligence. They personalize interactions and anticipate the audiences’ situation and needs. 

It’s important for traditional banks to respect the cultural norms when creating new products. In order to minimize friction, banks need to use data to make sure the right amount of information is being presented at the right time. The experiences need to evolve alongside an individual customer so it is personalized and anticipatory.

Financial institutions must clarify how and why a customer’s’ behavioural and social data will be used – especially since this may be their first time with a traditional bank. The entire experience needs to elicit trust.

As businesses begin to think about design for the unbanked, they need to consider the whole journey of this new customer—it isn’t enough to simply build an app. To be successful, they’ll need to create an experience ecosystem that both attracts the customer to new products or services, and then engages them again post-use. Businesses that consider how their service is integrated into the customers’ broader way of living and add to both the financial and social capital these new customers desire, are the businesses that will lead the way.