Financial inclusion at JO1N

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Article takeaway: the financial industry must understand that poverty is a fact, not every customer is within the prime category, and the key focus should be on understanding the core audience

Starting from the 2000s, when the world started digitalising, discussing financial inclusion has become a cliché.

Financial inclusion is about accessibility, we hear. So here is a Monzo current account. Revolut multicurrency wallet. Paysend a remittance wallet. All important, convenient. None are enough.

And these are not enough because these products jump around the two main issues why we have an exclusion in the first place. The first is poverty. The second is that servicing the poor has historically been extremely expensive and considered risky.

B2B industry is full of products and services that are oftentimes unavailable to the B2C market. For example, let’s look at the cash flow management tools: any company can get a credit line or substantial overdraft allowances, paying for it almost nothing at all. However, a modern retail customer oftentimes struggles to find cheap alternatives when it comes to personal cash flow management tools. Moreover, large lenders are focusing on creditworthiness, rather than affordability. This perhaps is not the most appealing approach given the world we are living in.

Leaving the cost of servicing aside for a second the fundamental starting points when discussing financial exclusion should be (but are not) the following simple topics:

1. Poverty is a fact

Poverty is man-made. It is universal across time and geographies, yes, but it is man-made. And what man-caused, society can and should fix.

2. Financially constrained is an important customer group

In his bestseller autobiography, ‘Banker to the Poor’, Mahammad Yunus describes how the problem to solve is not access to banking. It’s access to money and cash flow management tools. His micro-lending idea to pull families out of poverty by lending small sums to struggling women and supporting communities through a hand up, not a handout was met with sneers. He was told it will never work. Even after it did. It will not be profitable. Even after it was.

So, in a world where we accept responsibility for providing access for more financially restricted segments of society (and that means somewhere to put a hard-earned wage, but it also means access to finance and access to the money they lack, so they can participate in the economy more fully) and we accept the evidence of the Grameen project among others that giving access to the poor is a profitable business, why are we still not done?

So glad you asked. Now we can talk about the cost of servicing.

Cost of Servicing

For the excluded, the problem is poverty, oftentimes also inefficient cash flow management and a pair of unnecessary brand-new Nike shoes.

All that combined makes them a next-to-impossible segment to service under traditional banking set-ups. Not because institutions are cruel, but because banking, until recently, was an expensive business to run.

The average customer was (and often remains) loss-making for a lender until after they have been onboarded for a third product with the same bank. A current account, credit card, BNPL, home loan, unsecured loan, deposit account or other. That’s because the cost of servicing has historically been really high. That’s why banks largely stay away from segments such as migrant workers, the elderly or the young. Not because they are callous and unfeeling. But because they have to balance the cost of doing business with the cost of staying in business and segments that don’t make money, cost money, and that way businesses fail. Thus, this comprises the opportunity for tech-savvy and nimble players to strive and make business, while also benefiting society.

Changes are coming

Banking is changing. And not just because we have snazzy apps that allow you to split a taxi fare with a friend or pay for a new sofa in instalments without actually applying for a loan. Banking is changing because the systems we are building are transformative in their potential impact. They are faster. Safer. ‘Lighter’ on their feet and much cheaper to run. They allow us to parse much richer, more accurate and more diverse data for creditworthiness and to manage transactions of whatever size (and let’s face it, big was never a problem. Things were never too big to make sense. But now they are no longer too small to make sense).

We have the infrastructure to make services financially viable for those who provide them (they are businesses after all). We have the data analytics firepower to understand what we are dealing with and make informed, robust decisions around lending, repayment schedules and access without actually jeopardising the business. We have distribution channels that mean we can reach people cheaply through the iniquitousness of mobile phone reach the world over.

If you want to tackle inclusion, you tackle access to money. You make it easier for those who need it to get to it, and cheaper for those who provide it to do so.

This is not volunteering or charity. It’s is a combination of inclusion and business. JO1N us to grow together and create the society of financial inclusion by giving customers the power of choice via multi-lender proposition ‍