Financial technology startups aren’t only making it easy to send money to friends, apply for a loan or check a bank account on a mobile device. They are also reaching the millions of people who are unbanked and are living in poverty around the world.
According to a World Bank report, since 2011 when the FinTech revolution began, more than 1.2 billion people globally have gotten access to financial services, with more than half a billion doing it during the past three years. With access to a financial account, people no longer have to rely on cash and can store their money safely instead of under a mattress. It also enables them to build assets and better manage any financial emergencies that arise such as an illness or injury.
Prior to the emergence of financial technologies, getting a bank account in emerging markets was simply out of the question for the masses. Often banks are far away and require documentation that isn’t easily accessible to open an account. A lack of trust among citizens also prevents many from seeking the services of established financial institutions. But with the cost of smartphones continuing to decline and more people getting connected to the Internet, financial technologies are reaching the unbanked. People living in areas of poverty can now open a savings account, apply for a loan and even purchase financial products such as insurance.
Some of the big players to emerge include M-Pesa, a Kenya-based payment company that lets users send, receive and store money on their mobile phone via text. Since its launch in 2007, it has grown rapidly. As of 2016, it was used by 96% of households in Kenya lifting close to 200,000 people in the country out of poverty.
Paytm, the Indian digital payment company is another example of a financial technology that is reaching the unbanked. It has exploded in popularity in recent years after the Indian government removed high denominated currency out of the system to combat fraud. With India fully embracing digital payments, Paytm, which counts Alibaba, the Chinese eCommerce giant and Berkshire Hathaway as backers, now has more than 300 million users.
Since then many financial technologies have emerged to provide banking and payment services in emerging markets. Some are taking a one country approach while others want to connect people living in different parts of a continent. But it's not just the startups vying for the business. PayPal and other tech-heavy hitters have invested in financial technology companies catering to emerging markets. Last year PayPal invested an undisclosed amount in Tala, the consumer lending app for emerging markets. The Android-based app underwrites consumer loans by looking at behavioral data rather than a credit score. “At PayPal, we believe that everyone should have access to transparent, convenient and secure financial services,” said Mark Britto, senior vice president and general manager of global credit for PayPal, said in a press release at the time.