Phto by Avishek Das, 2017 CGAP Photo Contest Phto by Avishek Das, 2017 CGAP Photo Contest

Fintech and the Future of Banking

Few issues in financial inclusion have generated more hype — and confusion — in recent years than fintech. Digital technology continues to inspire a dizzying array of new companies, business models and products, transforming financial services value chains in the process. While many fintechs claim to advance financial inclusion, the link between specific innovations and financial inclusion is often assumed rather than proven. For all the buzz around fintech, the reality is that it is hard for funders, investors and social entrepreneurs know which innovations matter for low-income, underserved customers. The excitement around fintech can also obscure risks it poses to financial systems and low-income customers, as we have seen with digital credit in East Africa.

To help funders, providers and regulators understand how fintech is evolving and identify promising innovations, CGAP is working to bring clarity to the space with a focus on what matters for the poor. At the market level, our research has demonstrated that technology-enabled disruptors are increasing competition for mass market customers while breaking down vertically integrated value chains in the financial sector, with potentially wide-ranging implications for financial institutions and financially underserved customers. At the level of individual financial services, we find a range of new business models emerging among fintechs, digital banks, and platforms that enable challengers and incumbents alike to put useful, user-friendly, lower-cost solutions into the hands of poor customers so that they can use them to improve their lives. Explore our resources in the sections below to learn more.

The big picture: How is fintech disrupting financial services in emerging markets?

While some business models are more relevant to financial inclusion than others, the overall impact of fintech innovation has been to unbundle value chains in ways that could prove beneficial for low-income customers and providers who serve them. On the consumer end, this means customers gain access to a rapidly growing range of financial service providers, often with innovative models that offer products in a different way, at lower cost, with fewer preconditions and less administrative red tape. On the back end, it means that providers themselves are able to rely on a growing range of third-party fintechs who offer highly specialized, value-adding, and cost-effective solutions to core banking processes. In both cases, highly scalable innovators are redefining how banking works.

Slide Deck

Financial products and processes are being unbundled, reassembled, and embedded in entirely new ways that may change the very nature of banking. What does this mean for financial inclusion?
Video

A 2-minute video that illustrates new entries to the financial services sector - such as fintechs- can lower costs, bring higher quality services, and help reach previously underserved or unserved people.

Which fintech business models have the clearest links to financial inclusion?

Since 2016, CGAP has been researching emerging business models in digital financial services with the goal of separating the hype around fintech from solutions that can genuinely benefit the poor and underserved. Our conclusion is that there really is transformative change underway that will redraw the financial services landscape in ways that should expand inclusion. A number of distinct and innovative business models are emerging, often driven by people and companies that come from outside the traditional banking sector and do not identify with legacy banks, their business models, or their approaches to financial services. In the resources below, we identify and describe some of the main models and innovations among fintechs, digital banks, and platforms.

Publication

Based on pilots with 18 fintechs across Africa and South Asia, this paper identifies emerging fintech innovations with potential to improve the lives of the poor. It also highlights common challenges faced by early-stage fintechs.
Slide Deck

Most “unicorn” companies are platforms. But what exactly are platforms? What are the main business models? Are to what extent are they relevant to financial inclusion for low-income customers? Explore the answers in this slide deck.
Slide Deck

This slide deck sheds light on the digitization of banking and analyzes the connection of three new business models to financial inclusion: fully digital retail banks, marketplace banks and banking-as-a-service.
Publication

What makes digital banking inclusive? CGAP looks at how three digital banks are innovating and driving financial inclusion: Tyme Bank in South Africa, Kotak 811 in India, and UnionBank of the Philippines.
How can development funders make impactful fintech investments?

Development funders have an important role to play in helping fintechs at all stages – early, growth, and mature – reach their full potential to serve low-income customers. In developing their fintech strategies, funders should carefully assess which fintechs have real potential to improve the lives of low-income customers. It is also important for funders to align goals and approaches with the stage of fintech they are targeting, and to nurture the broader fintech ecosystem with support for infrastructure, policies and regulations, and local capital markets.

Publication

This practical guide, based on two years of global research, describes how development funders can identify promising fintechs and maximize the impact of their support.
Slide Deck

Are development funders providing catalytic support that helps build inclusive fintech markets? This slide deck analyzes a decade of funding flows into the fintech sector.
Infographic

With a strategic approach, development funders can expand fintech's impact on low-income communities and small businesses. See key findings from CGAP's fintech research at a glance in this infographic.
How can regulators encourage fintech innovation while managing risks?

Fintech can harm low-income consumers if not properly regulated. For instance, CGAP’s research has raised serious questions about the digital credit boom in East Africa. As CGAP CEO Greta Bull explains in a blog post: “Digital credit is a testament to the ways in which technology and new business models can help expand financial services to low-income households. But it also points to the potential hazards of letting a market develop unchecked.”

Publication

While many regulators in emerging and developing markets understand the potential benefits of open banking regimes, they are uncertain how to design them in ways that support financial inclusion. CGAP has identified 12 critical design components.
Sand dunes in Vietnamn, Photo by Minh Quoc Le, 2015 CGAP Photo Contest
Blog Series

A regulatory sandbox is a framework set up by a regulator that allows FinTech startups and other innovators to conduct live experiments in a controlled environment under a regulator’s supervision. In this blog series, CGAP takes a critical look at

Blog

Tech giants, digital banks, e-money issuers, fintech startups — as more diverse players enter the financial services space, they are becoming harder for regulators to classify and license. Here are four ways regulators can respond in 2020 and beyond.
Additional Resources
Blog

Fintech has attracted off-the-charts hype in the development community. But lost in all the excitement is a cool-headed assessment of what these shiny new things are really delivering for poor people. Greta Bull, in the first in a series of CGAP leadership essays, takes stock.
Blog

There are a billion mobile money wallets in developing countries that could be made far more relevant for low-income customers by a digital marketplace approach to banking.
Blog

By enabling virtually any type of business to offer banking services cheaply and in record time, “banking-as-a-service” providers can dramatically reduce the barriers to entry into banking and potentially deepen financial inclusion.
Blog

There's a growing sense in developed markets that the next few years will see profound change in financial services. What are these changes? And what are the implications for financial inclusion?
Blog

Where is fintech innovation happening in the Arab world? What types of solutions are emerging? CGAP shares preliminary results from our research on fintech in a region with roughly 140 million financially excluded adults.
Blog

There is a staggering $4.9 trillion financing gap for micro and small businesses in emerging markets. These fintech models stand out for their ability to solve small businesses' credit needs at scale.
Blog

Take a look at some fintech pilots that didn't go as initially expected but yielded important insights about how to make better financial products.
Blog

FinTech startups in developing markets are leveraging partnerships to reach customers as diverse as women's savings groups, dairy cooperatives and smallholder farmers.
Blog

FinTech isn't always about rolling out a dazzling new smartphone app. In places where USSD phones are the norm, it means something quite different.