Banks and mobile operators have a lot more in common than you might think. They both have global distribution networks and a system of financial clearing houses that settle charges between the individual companies on the network. This means I can use my
credit card globally just as easily as I can my phone, and in both cases, I can settle my bill when I get back home.
But while the underlying financial and mobile networks are the same all around the world - and are established to serve ‘everybody’ - there is an entire tier of customers banks are not reaching. According to the World Bank, around 68 percent of the world’s
adult population (3.9bn) have no access to traditional financial services. What’s more, that ‘under-banked’ population is concentrated in the developing market economies.
But that underserved banking population is a tier of customer that the mobile operator has successfully reached with its pre-paid mobile subscription model – in fact, in developing markets the majority of users (often more than 80 percent) are pre-paid subscribers.
There is an underlying strength in those mobile consumers that could help bridge the financial market divide. Crucially, the mobile operators have a solid relationship with this pre-paid customer base. These are people who typically top-up their balance
at least once a week, and the operators have the same visibility of a phone’s usage, its data consumption, spending patterns and the financial capability for these pre-paid customers to start building a payment history for the individual mobile number.
The economic opportunity
Banks, financial technology companies, and investors alike are beginning to realise the enormous opportunity that could be created by ‘including’ the underbanked within the global economic network. Bringing this underserved population into the formal financial
economy creates billions of dollars in potential revenue and drive significant economic growth.
This has led to countless industry players beginning to tussle for market share across the world’s emerging markets. For example, in June, the African Development Bank (ADB)
launched a fund focused exclusively on providing access to digital financial services for at least 320 million more Africans. Meanwhile, in the Philippines, the country’s seventh-largest bank has
partnered with Temenos to help rural banks offer digital banking to the underbanked in remote communities; while over in Brazil the credit bureau Quod is looking to leverage both
positive and negative consumer credit information to assess consumer creditworthiness.
But for financial institutions the core issue remains – large segments of the population they want to target across Asia, Latin America and Africa are still mostly invisible to their systems. Without knowing enough about the individual, the risks are too
high to provide them with a bank account or a loan. And the individuals themselves are unable to prove to wary providers that they are trustworthy. To top it all off, institutions don’t know where to even find these customers in the first place.
Some emerging fintech providers are attempting to create new credit scoring systems based on alternative data sources ranging from a customer’s social media profiles, to payment histories with utility providers or ecommerce platforms. These alternative data
streams, that are fragmented by market, do not provide the same reliability indicators around the propensity to make regular payments which form the key element for establishing creditworthiness and financial trust. By themselves, none of these alternative
sources have the depth, scale or rigour to truly engineer out risk and deliver enough impact to make financial inclusion a profitable business strategy.
The power of mobile
What many are coming to realise, is that the patterns of behaviour that can be associated with a mobile phone number, even in the pre-paid market, can go a long way towards building the financial identities that can unlock the market. However, extracting
that data requires both mobile and financial market expertise and understanding. Therefore, to access this alternative source of financial information and build new services, fintech providers need to recognise that mobile operators have the information they
need, and find a way to connect with them quickly.
Mobile operators certainly have a great advantage. Collectively, the operators and their shared network represent the largest distributor of consumer services in the world. The global mobile network can provide alternative data that will fuel of the future
of fintech services. It’s a great source outside of traditional banking with the scale, depth and quality of data that can enable financial institutions to expand their customer base and include underserved populations into the formal financial economy for
the first time.
Operators know an awful lot about their customers’ spending habits and their patterns of behaviour – such as when someone tops up, how much they invest at a time, and how low they let their balance go before topping up. They also know how they typically
use their mobile: just calls, text and internet browsing, or are they making purchases using their pre-paid mobile balance?
Collecting, understanding and analysing this highly valuable data and then being able to turn it into actionable information and insight represents an enormous new business opportunity for the operators and for their fintech partners. There is real strength
and value in the numbers, and in particular in the data within the numbers. The operators and their partners that best learn how to extract and use that information will be the ones that fuel a fintech future for hundreds of millions of customers.