A Decade of Tech Innovation Fuels Financial Progress for Billions

A Decade of Tech Innovation Fuels Financial Progress for Billions

Data Shows Great Strides Made, Yet Our Work Continues as Economic Worries Remain

By Arjuna Costa, Emmalyn Shaw and Tilman Ehrbeck

Just over a decade ago, the World Bank set out to survey 150,000 people across 148 countries to create the first Global Findex database, measuring how people make payments, save money, borrow and manage risk. In 2011, more than half of the world’s adults were totally excluded from the formal financial system – a finding that spurred tech entrepreneurs, regulators, policymakers, banking incumbents, and investors like us. With the release of the most recent data this past summer – the 2021 Global Findex Report – and news that three-quarters of adults now have a banking or mobile money account, it’s time to reflect, acknowledge the milestone, and recharge.

Financial inclusion measurement on a global scale is an incredibly powerful tool to inform global actors and inspire action. But for us, as managing partners at Flourish Ventures with more than a decade spent in fintech investing and financial inclusion, this has always been about more than statistics. It’s about financial security and wellbeing for all.

Financial instruments are easily taken for granted: a transaction account to pay for things and get paid; secure savings for a rainy day and old age; safe borrowing for big or unforeseen expenses; insurance to protect yourself and your home. Without these instruments, life is precarious. When you fall on hard times, there is zero protection. Sending kids to school is sometimes an impossible choice. Your small business may never grow. Buying a home? Forget it.

This is why we have long been proponents of the Global Findex, and why for the most recent data collection we helped fund the first-ever Financial Well-Being chapter. Now, for the first time since we entered this space 10+ years ago, there is data that shows the significant advancements and opportunities that fintech has brought to underserved individuals and small businesses across the globe.

This was our belief – but it was not entirely evident when we started out.

Mobile Money Leapfrogged Distribution Challenges

When the Global Findex launched in 2011, we were focused on addressing barriers to essential financial services, recognizing that traditional brick-and-mortar banking had failed to reach half the global population.

The incumbent system failed so many people because the economics of formal financial services made it difficult to serve poor households and microbusinesses. And yet, we could see how a powerful invention – the 2G feature phone – was transforming daily life in emerging markets. With this new tech infrastructure, we saw the potential to deliver far more adequate financial services to far more people at far lower costs.

Mobile money offered a way to unbundle retail financial services and leapfrog distribution challenges in emerging markets. So we invested in early digital wallets and over-the-top (OTT) solutions that delivered credit and insurance via the phone, hoping to expand access to the billions of people that the Global Findex report showed were excluded.

New Data Sources and Lower Costs

During the time between the 2011 and 2014 Global Findex reports, the global share of unbanked adults fell by nearly 10%. The decrease was largely driven by mobile money in Africa and Southeast Asia, India’s Aadhaar digital identity initiative, and China’s investments in digital payments. These advances were encouraging but limited, as they primarily focused on payments across a small number of markets.

While at Omidyar Network, we had started working with entrepreneurs who harnessed technology to lower distribution costs – an investment thesis we called Digitizing the Last Mile of Money. In parallel, we worked to disrupt the high cost of assessing credit risk for those without a formal credit history, turning instead to alternative data (a thesis we aptly called Big Data, Small Credit).

We believed in a market building approach to financial inclusion, investing in financial and technological infrastructure while promoting effective regulatory environments to encourage innovation and protect consumers, and funding research to better understand consumer behavior. We knew that it took more than technology to create systemic change in the financial sector.

Challenger Banks and Empowered Consumers

With the 2017 Global Findex report, data showed bank account access continuing to expand, but actual usage was lagging. The share of adults in emerging markets using digital payments had risen, but was still under half, globally. Those using formal credit had stalled around 16%.

Yet, with global smartphone penetration increasing, it wasn’t hard to imagine what financial products could look like in the future.

Digital financial services were gaining traction, yet consumers were not eager to piece together single-point solutions from a dozen providers. We believed there was an opportunity to re-bundle consumers’ financial lives.

We were early backers of challenger banks (called neo-banks in 2017), and invested in entrepreneurs leveraging behavioral science and human-centered design to give consumers “Pocket Einstein” apps for managing their financial lives.

We also invested in the fast-growing field of embedded finance and in 2019 we spun out Flourish Ventures to focus on the next generation of financial innovations for financial health in both the US and emerging markets.

Access Is Only Part of the Story

The release of the recent 2021 Global Findex report is deeply gratifying – especially as measured against our hopes and beliefs from a decade ago. Billions of people are now included in the formal financial system, with account ownership in emerging markets almost doubling from 42% then to 71% today.

The data supports our thesis that low-cost digital services not only improve access but also offer a more secure, cheaper, and better customer experience. Consumers who used digital payments or financial services for the first time during the pandemic continue to use them. New habits are forming.

In Sub-Saharan Africa, mobile money users no longer simply transact on the phone; 39% also build savings on their mobile wallets. In fact, 2021 was the first year that formal accounts were the leading method of saving across emerging markets. The gender gap fell to 6% (from 9%) and formal borrowing in emerging markets rose from 16% in 2014 to 23% in 2021.

It’s inspiring to see how many people use digital financial tools to better manage their economic lives – from Indian shopkeepers, to Kenyan farmers, to Mexican gig workers. And the sector-level change we sought at the outset of this journey is happening. Incumbent banks in the U.S. are now mimicking the no-overdraft fee model pioneered by challenger banks, and fintechs across the globe are reaching new, first-time customers.

Our decade-plus Global Findex journey has taught us a lot about how people use, access, and manage their money. Yet, we also learned that’s only part of the story. What ultimately matters is that people can leverage fair financial services to help live better lives. This is why we sponsored the 2021 Global Findex questions on Financial Worrying – to better understand respondents’ financial health and how they think about their financial future.

The findings show how much work remains: While only 20% of adults in developed countries are very worried about meeting expenses, that number climbs to 52% in emerging markets. Addressing financial worry and building financial resilience remains critical. Against this challenge, we remain both committed and humble. We will continue to work across the ecosystem, asking questions, leveraging data, and betting on technology that serves those still struggling the most.