Few issues in financial inclusion have generated more hype in recent years than fintech. Yet not all fintech innovations in emerging markets are relevant to underserved, low-income customers. Given the off-the-charts hype around fintech, the growing number and diversity of digital innovations and business models, and lack of evidence around the impact of specific solutions, how can responsible funders and investors in financial inclusion know which fintech solutions to support? Right now, there is no easy answer.
To bring greater clarity to the fintech space, help providers identify innovations they can incorporate into their businesses, and enable funders to distinguish between fintech and fintech that serves the poor, CGAP in 2016 embarked on a multi-year effort to understand whether emerging fintechs are solving key pain points in financial inclusion. As of April 2019, our pilots with 18 fintechs around the world have uncovered several early-stage innovation areas that have significant potential to create value for low-income customers at scale. For example, some fintechs are using satellite data and machine learning to offer insurance and credit at reduced cost to smallholder farmers, one of the world’s most financially excluded groups. Others are creating intuitive smartphone-based payments apps with low data costs and storage requirements, as low-end smartphones and data plans spread rapidly throughout Asia and parts of Africa.
CGAP continues to research a wide variety of fintech business models to identify those that are most relevant to financial inclusion. Our work encompasses early-stage business models with promise, in areas such as insurance, savings and pensions, so that the global development community can support these models with patient capital. We are also examining models that are already starting to scale, in areas like payments and credit, to draw attention effective models and to consumer protection risks.