How FX can transform FS for the financially underserved
According to Global Findex re...
Mel Tsiaprazis, Chief Operating Officer of Crown Agents Bank, discusses how FX can transform financial services in Africa.
According to Global Findex research, approximately 1.7 billion adults are unbanked. That means no account at a bank, other financial institution or mobile money provider. What most industry experts can agree on is that there is little point in now attempting to build bank branches throughout heavily unbanked regions that sit primarily within emerging, developing and frontier markets. Instead, we are at a unique point where we are able to bring new solutions to the financially excluded, rather than attempting to implement dated financial infrastructure which developed markets have already moved on from. In short, instead of continuing to let emerging markets play catch up, we can invest in their futures.
One of the major obstacles in these markets is the ability to move money in and, once it’s in, around the country. This is where reliable and efficient foreign exchange (FX) can make an enormous difference; it’s a process we take for granted when heading on holiday, but its absence can have a detrimental impact in markets that have a dependence on cash and low liquidity.
Avoiding dead-end donations
The most pertinent examples occur in times of crisis. When natural disasters hit and global attention turns to otherwise overlooked regions, simple logistical issues can mean the difference between getting life-saving supplies to those affected or having funds stuck by red tape.
Being able to quickly convert established currencies such as USD, EUR and GBP into exotic currencies means that financial aid can actually reach the desired NGOs and charities and, in turn, the final beneficiaries to help provide water, food and medicine. Delays can be fatal and ensuring the cheapest and fastest conversion is essential. The Ebola crisis in West Africa was just one example of where Crown Agents Bank’s experience and expertise allowed the on-the-ground charities to overcome seemingly insurmountable obstacles to not only contain the outbreak but bring it to its conclusion.
All the world’s a stage (when you can access it)
The forex market is the largest market in the world and there are currently 180 currencies recognised by the UN. Yet, the top ten most traded currencies are involved in nearly 90% of trades, according to the Bank of International Settlements. It’s hard to overstate the importance of access to these currencies in order to play in the global market.
Central banks in emerging and frontier markets in particular can suffer without the ability to move money out of the country when their currency isn’t readily traded with the top ten. Being excluded from international markets is destructive to a country’s economy and stunts the opportunity to grow. Financial inclusion isn’t just about access to a smartphone; it’s about the opportunity to deal in a global context and be recognised on the world stage.
Even when timing is less vital, the ability to move money into underserved territories is important. Sub-Saharan Africa is one of the fastest-growing investment areas for fintech firms over the last year to eighteen months, with investment in African fintech nearly quadrupling to $357M. However, if VCs and other investors can’t translate that $357M into local currencies, this investment becomes a lot more difficult.
Countries like Kenya and Nigeria are looking to this external international investment to support the growth of their economies and fintech hubs, in-keeping with the rest of the world. In order to become an international player, they need to be able to deal in a global currency.
Looking to the future
The fantastic news is that technology offers new solutions to issues that have been around for generations, such as war-torn environments and natural disasters. But financial services (FS) need to work with the latest technology to identify how to best serve populations that - put simply - they are not used to. For example, Crown Agents Bank is a 185-year-old financial institution that recently acquired a fintech startup based in New York that focuses on frontier market payments; contrary to popular belief, the financial services industry can and is changing. The rate that fintech investment is growing in underserved African, Latin American and Asian markets is good news for future generations; however, providing solutions today is still crucial.
FS needs to accommodate non-traditional infrastructure in order to achieve financial inclusion. Smartphone penetration is far more scalable than branches and the potential to reach and serve those previously cut off from all but cash is phenomenal.
The logistical issues don’t end with a bank account. Liquidity and capital flow are still often real problems for markets with high volumes of unbanked people, and so transactions like FX can be fundamental for enabling day-to-day payments. Ensuring that cross-border transactions for both individuals and large institutions stay time- and cost-efficient can be just as important as enabling access to these services in the first place.
The fintech industry across the world needs to rise up to the challenges posed by these markets. We’re in an extraordinarily exciting time for financial inclusion as new technology is connecting more people and countries than ever before, and I’m so excited to see what the next five to ten years hold.
For more information on all topics for FinTech, please take a look at the latest edition of FinTech magazine.
FIVE things fintechs must do to keep investors onboard
New investors flocked to the stock market during the COVID-19 pandemic. Thirty-eight percent of investors said they had never had a brokerage or similar account before opening one in 2020.
Low or no-fee trading options have helped accelerate the trend – nearly half of new investors said they accessed their account primarily through a mobile app. As FinTechs, how do we create the trust needed to keep new investors in the market and create a fruitful customer experience for them?
The financial industry does a disservice to individual investors if we merely offer tools that focus on making money quickly, an approach that usually backfires. Instead, the surge of interest presents an enormous opportunity for those who want to help more consumers use financial technology to educate them on responsible spending, saving, and investing in order to achieve financial wellness current fintech tools have welcomed individual investors in the door.
Now, it’s time to focus on education and improving their experience going forward. There are several ways those of us in fintech can step up to shape the future of retail investing so that it works better for everyone, starting with the following areas.
Equal access to financial wellness education
Financial health should be available to everyone — but today, not everyone has the educational resources to achieve it. One study shows that only 3.9% of students from low-income schools were required to take a personal finance class. What they aren’t learning in school or from family members, fintech companies can provide on their platforms.
The companies should move from solely offering financial services to a more responsible model of education, advice, and prescriptive choices to help consumers develop better habits and make wiser financial decisions. Not only can they empower consumers and bridge historical wealth divides, but they can also stimulate growth by opening up new consumer segments.
Just as we’ve come to expect that our fitness routines are tailored to our individual bodies, we’re also ready for finance tools that go beyond one-size-fits-all solutions. But only six percent of financial institutions say they’re using the kind of technology that allows them to deliver a deeply personalized experience. Fintech tools need to reflect that financial success looks different for each of us.
For one consumer, it may mean providing guidance on how to pay off student loans early; for another, it may mean prescriptive actions that enable them to stick to a budget for the first time; for a third, it could look like prioritizing environmental, social and governance (ESG) investments, so that her portfolio aligns with her political beliefs.
Now, we are seeing financial technology beginning to meet the demands of personalized finance in a substantial and meaningful way.
The rise of AI-Powered Advice
Big-picture advice and predictive guidance used to be a feature of high-end financial advisory firms — a perk only available to those who could afford it. But thanks to rapid advancements in data analytics and artificial intelligence (AI), that kind of holistic advice is now more accessible than ever. AI-driven robo-advisors can parse many different streams of financial information, delivering customized answers to key questions: Is it time to buy a home, or is it smarter to keep renting? Can I afford to take out another student loan?
Intelligent connectivity powered by AI can anticipate consumers’ needs and next steps, making proactive suggestions that guide them along the path to financial wellbeing. Fintech companies can also help consumers identify when their financial picture becomes too complex for a robo-advisor, and help them find a human financial advisor to meet their needs.
Focus on financial mental health
New investors are quickly finding that the market can be overwhelming. That’s not surprising, financial anxiety is common and studies show that financial stress can have an impact on mental health for some.
It’s not enough for fintech companies to give retail investors access; they also must provide the guidance and support that help consumers manage their financial well-being. Educational tools can ensure that consumers are well informed about their options.
Predictive analytics can anticipate consumers’ questions, serving them key information and insights before they ask. Features that emphasize a comprehensive notion of financial well-being, rather than short-term wins and losses, can also help ensure that consumers are keeping their eyes on the bigger picture.
Gamification for good
The surge of gamification apps has done an impressive job making investing as engaging as playing a video game or joining a social media platform.
Much of the current use of gamification emphasizes short-term thinking, but there’s also an opportunity to help consumers think more broadly about their overall financial picture. One example is peer benchmarking, a feature that enables help consumers to see how their financial habits compare to those of friends and fellow consumers.
Gamification can also be used to incentivize making smaller, smarter choices — for example, rewarding saving over making an impulse buy.
The future of fintech is about more than just broadening access to the markets. It’s about making sure more individuals have access to the tools that can help improve their financial well-being—in the ways that suit their own circumstances and needs. The potential to act within their own set of individual priorities, with their long-term financial wellness in mind is much more empowering to a consumer than simply relying on short-term, high-risk investments.