TO GO WITH Indonesia-transport-traffic-Internet,FOCUS by Nick Perry This picture taken on June 11, 2015 shows a motorcycle driver with Indonesian start-up Go-Jek waiting for customers along a street in Jakarta. A popular motorbike-hailing app by Go-Jek is putting a new, two-wheeled spin on smartphone taxi services in the Indonesian capital, with thousands of motorcyclists in distinctive green jackets and helmets offering commuters an escape from Jakarta's notorious traffic gridlock. AFP PHOTO / ADEK BERRY (Photo credit should read ADEK BERRY/AFP/Getty Images)

The unbanked: How startups are taking financial services to the streets

It’s estimated about 2 billion people are ‘unbanked’ and not using traditional banking services, but Mark Thomas finds startups are creating a new financial services industry – often outside the watchful eye of regulators.

How much longer will the traditional banks exist? An estimated 25,000 people from over 100 countries came to the Singapore FinTech Festival last week to find out.

This included Christine Lagarde, managing director of the International Monetary Fund, Queen Maxima of the Netherlands, the UN Secretary-General’s special advocate for Inclusive Finance for Development, and the chairs and CEOs of many leading global organisations  – including New Zealand’s Xero. It’s only the second time the festival, hosted by Singapore’s Reserve Bank, has been held.

But most came not for the big names, but to discover the next big thing. On offer is the opportunity of providing financial services to the two billion global citizens who are “unbanked” (not using traditional banking services), and in doing so spread more financial democracy in regions such as Asia.

In among the set speeches and panel discussions were the showcase areas for established companies promoting their wares, and a special zone for startups. The New Zealand industry association, FinTechNZ was there, supported by NZTE,  touting New Zealand’s $10 billion technology sector and export credentials.

But there were really several different conferences going on. On one side are the established players including the banks and their networks, and on the other are the newly successful and the emerging financial services crew.

China, and the rise of e-commerce, dominated many of the conversations. A week before the conference, I had been in China on “Singles” day (held annually on the 11th day of the 11th month) when e-commerce giant Alibaba racked up almost half the New Zealand Government’s $80 billion annual income in 24 hours on their self-created sales day. Impressive as that was, the fintech interest was greater in the 256,000 payments per second they transacted in the opening minutes. (New Zealand’s payments record hit a new high in December last year at 171 per second).

Alibaba’s international chief was there, explaining the numbers to an impressed and a little bewildered crowd. The ‘China-is-another-country’ astonishment happened regularly throughout the week, not least because four of the world’s top 10 fintech companies hail from China, the most of any country. China may only score 15/100 on Freedom House’s annual political and civil rights index, but Alibaba and its mobile payment competitor WeChat have have helped transform the economic freedom of a country with only the 80th highest GDP per capita on earth.

The festival was chock full of other businesses that are expanding the fintech landscape and making finance more accessible, such as Go-Jek, a seven year old transport and services company from Indonesia. Go-Jek has become a truly mobile finance business, utilising 200,000 motorcycles – originally designed to cope with Jakarta’s chronic traffic congestion – to collect cash from people to deposit into online wallets. New businesses like this are creating financial anarchy through bypassing both banks and the prevailing regulatory system. Go-Jek has 25 million customers using its Go-Pay wallet, many of whom were previously unbanked.

Singapore based fintech company Quoine has become one of the largest bitcoin exchanges in the world by transaction volume. It offers financial services powered by blockchain, an online accounting ledger which by publicly displaying transactions allows new value to be agreed and created. Quoine exceeded $USD12 billion in transactions in the past two years. Bitcoin, a blockchain-based currency established in 2009, has increased in value more than eight times this year. Blockchain has been called a new internet, and its potential was a key theme at the conference. Its open, transparent nature builds a new form of trust which establishes new value – including that upon which bitcoin is based.

CardUp, established in 2016, allows people to make credit card payments to organisations that currently do not accept credit cards. You pay CardUp with your credit card and earn air miles and cashback rewards. CardUp then makes a bank transfer to your payee on your behalf. Ftcash is a 2014 Indian start-up that is making it easy for what they call micro-merchants, and other small businesses to use mobile payments. Silent Eight is a pioneering developer of AI powered solutions for customer screening and transaction monitoring covering anti-money laundering and combating terrorism financing. And so the list goes on – 20 emerging business like these presented the changing face of financial services. Trust, the core of the banking relationship, is being newly established, particularly impacting the 70-80% of the unbanked developing world. And much of this has happened either outside existing regulatory rules or because no rules existed.

Most banks are not taking this lying down, with 30 institutions in Singapore opening “innovation labs” last year. In May this year, Southeast Asia’s second largest bank OCBC became the first in the region to open its platform to third parties so they can integrate the banks’ products and services into their own applications. In New Zealand, there appears to be no big bank enthusiasm to substantially join the trend. Despite gigabytes of talk and some bank digital transformation action, the on the ground action, particularly in Asia, is not being driven by banks.

In retailing, US behemoth retailer Walmart’s billion dollar surge into e-commerce is showing early signs of success in response to the Amazon juggernaut. But there was no banking equivalent of Walmart at the festival to take on Alibaba.

Yet for the talk of opening up banking happening in some conference rooms, in others people were recounting the struggle to let go. At one event, the boss of a global business said that nearly 50% of a group of leading global financial services managers did not expect significant change in the next five years. Meanwhile, citizens in countries who have never had a bank account are discovering they may never need one.

Mark Thomas leads a smart cities enterprise based in Singapore. He spent six years as an elected member within Auckland Council.


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