Fintech’s Emerging Role in Fighting Global Poverty
Before co-founding Kabbage, Kathryn spent nearly 15 years working with large and small companies focused on credit, payments, and e-commerce. Also, an advocate for women in the workplace, a humanitarian, and a philanthropist, Kathryn was recognized as one of the 100 Most Powerful Women in the World by Forbes magazine in 2007, serves on the board for CARE.org, PadSplit, Tricolor, and the Atlanta Chamber Music Festival, is a member of the Digital Advisory Council at Fannie Mae, and is a trustee for the Woodruff Arts Center in Atlanta.
While today we often associate financial services with large banks, digital currencies, and payments as well as new apps and services, there are still places in the world where financial services is an analog experience – person-to-person and focused on building a community.
For example, in Ghana, there are cocoa farmers in remote villages – mostly women – who save their money and then loan it to each other as needed. These loans allow them to start businesses and participate in the local economy, something that has not been available to them previously for a variety of cultural and societal reasons. This program has been introduced by CARE around the world, largely in the global south, to give working families access to economic independence.
Even in developed economies like the U.S., there are service workers in restaurants, grocery stores, manufacturing facilities and healthcare organizations across the country living out of cars because they can’t afford rent in large metropolitan cities like Boston, Chicago, New York and San Francisco.
The Fintech Opportunity
The financial services industry around the world is being transformed by technology. What we know as fintech (financial technology), is changing the way society thinks about money – from reshaping financial products and business models to the concept of money itself. This shift is having a profound impact on global poverty – helping to bring opportunities to build more inclusive and efficient financial services, and ultimately helping to promote economic development in many impoverished nations.
For example, there are many companies focused on Africa and Latin America that provide small business lending to individuals, entrepreneurs and budding companies looking to participate in that economy. Fintech companies like Tala and Zopa recognize there is an opportunity to leverage technology to improve financial services in these underdeveloped communities.
Transformation Takes a Village
The key to making this happen effectively is for policymakers and financial regulators to support innovation and address new challenges. A recent World Bank report, Fintech and the Future of Finance, highlights the dramatic changes in the financial services industry.
There has been a huge increase globally in the share of adults using financial accounts, with a 30% increase from 2011 and 2021 to 71%. This is partially due to fintech development such as mobile money – electronic purses like M-PESA in Kenya or web-based services like PayPal. The share of adults making or receiving digital payments grew to 57% in 2021 from 35% in 2014 according to the latest round of World Bank Findex data surveys. Mobile money has also become an important enabler of financial inclusion in Sub-Saharan Africa, especially for women, in terms of account ownership and account usage through mobile payments, saving, and borrowing.
Fintech’s Role Around the Globe
One geography where fintech is playing a major role is India, where a lot of people are living in poverty, but the country also has access to vast technology. I know it’s hard to imagine not having government-issued identity documents, but many people in underdeveloped countries like India don’t have birth certificates or even know how old they are. The county rolled out a unique identifier (UID) program that provides the foundation to bring more people into mainstream financial services by digitizing a person’s identity to be recognized in government and commercial systems. With a recognized identity, these people can then access a range of financial services to help move them out of extreme poverty.
And as we know, poverty isn’t just a problem in the developing world.
As of January 2021, there were 37.9 million (11.6%) people in the U.S. living in poverty. Let’s look at it with respect to income - back in 2019, over 70% of all the jobs in the world were service jobs. These are hourly workers who typically don't have access to all of the corporate “perks” we hear about – equity, bonuses, etc., but even these traditional compensation offerings along with how service workers are paid, do not provide options for building wealth. This is another area where fintech innovations like vesting cash bonuses give workers the opportunity to create long-term wealth regardless of industry, job function or how they are paid.
Supporting the World’s Entrepreneurs
Entrepreneurs have been coming to America for decades to build their own “American Dream.” There are 32 million small businesses in the U.S. and 81% of them are independent contractors and sole proprietors with zero employees. Of the remaining 6 million small businesses, 90% have fewer than 20 employees and 80% have fewer than 10.
During the COVID-19 pandemic, fintech companies like Kabbage served small businesses that didn't have access to government relief programs because their businesses were too small and banks didn't know how to serve them. Today, fintech solutions continue to play a major role supporting entrepreneurs whether it’s here in the U.S. or on the other side of the world in India. These apps and services are helping people to establish credit for small businesses, bringing opportunities to build more inclusive and efficient financial services, and promoting economic development in impoverished nations.
Fintech is our Future
Fintech has largely been the tip of the spear, focusing on underserved markets and bringing those markets into mainstream financial services by giving everyone opportunities to build businesses to create wealth.
With new innovations and the adoption of these technologies across the globe, the future of fintech will continue to help bring financial services and economic development to many areas of the world, including right here in the U.S.
All opinions expressed by the writers are solely their current opinions and do not reflect the views of FinancialColumnist.com, TET Events.