In 2019, the World Bank, in collaboration with the ASEAN Working Committee on Financial Inclusion (WCFINC) released a report titled, 'Advancing Digital Financial Inclusion in ASEAN'. A key finding from the study was the potential of digital financial services to overcome barriers to full financial inclusion in the region.
According to Fitch Ratings, Southeast Asia is home to an unbanked population of an estimated 290 million people - individuals without access to formal financial services. The twin crisis of a health pandemic and economic lockdowns has hit these communities the hardest - severely affecting livelihoods, broadening income inequalities thereby bearing the economic brunt of the socioeconomic consequences of the pandemic. Indeed, developed countries are not immune to financial exclusion. More critically, there is mounting evidence that the work in Asean around financial access has been severely crippled by the COVID-19 pandemic, potentially setting back years of work towards achieving its financial inclusion goal.
A Pandemic of Inequality
But how did we reach here in the first place?
Despite decades of progress towards reducing poverty and bridging financial inequality, a large portion of ASEAN's population still struggles to attain a minimum standard of living. This situation was further exacerbated by the sweeping consequences of the pandemic, bringing about a renewed focus on the debate around bridging the financial divide.
There exist millions of people in the Asean region involuntarily excluded from the financial system due to inefficiencies - not theirs, but ours.
The high cost of serving individuals in rural areas and information asymmetries due to a lack of traditional financial identities has historically hindered the financial services industry's appetite and process to lend. Addressing the requirements of the perceived 'unprofitable' or high-risk category gave rise to a practice of unintentional discrimination. This has in turn led to domestic financial market underdevelopment, credit market frictions, macro-economic distortions - resulting in financial inequality and a deep imbalance in access to credit.
However, with Asean markets making rapid strides in digitalisation, the unbanked and underbanked population now provides a massive addressable business opportunity for the financial services industry - and an even bigger opportunity to make social amends.
Today, it is not just traditional banks clamouring for this revenue, but also technology behemoths and fintech upstarts. However, they still struggle to effectively unlock the key to driving sustainable financial inclusion - building credible financial identities. This is where mobile devices, telcos and telco data play a pivotal role in the region.
Mobile as a crucial enabler
Most countries in the Asean region successfully leapfrogged the PC revolution to mobiles and smartphones, which collectively represent a critical delivery channel to drive financial inclusion in the region. More crucially, it can be the starting point for the establishment of financial identities for the unbanked segment in rural areas who own a smartphone but do not have formalised access to credit.
Airtime advances and telco data have become the natural pathway to create an addressable market for micro credit servicing first-time users to formalised credit. In ASEAN, many proactive telcos have taken their first forays into partnering traditional financial institutions.
Through data insights and advanced analytics solutions, telcos can now deliver proactive customer-oriented digital services to individual subscribers. Real-time decisioning can help them upend the vicious cycle of the credit invisible and rural population slipping through the cracks by leveraging alternative credit scoring and airtime advances.
Microservices can also be built as invaluable adjacencies to the central mobile service, elevating the potential for convenient and seamless customer access to services such as e-commerce purchase financing and others - bringing velocity to drive sizeable impact for financial and digital inclusion in Asean.
Telco big data as a social leveller
How can we enable an equitable approach through which financial and micro-credit services can be accessed by the unbanked and the underbanked, whilst ensuring sustainable success?
The latest e-Conomy Report 2020 states nearly 40 million people in the SEA region came online for the first time in 2020. Many of these new users came from non-metropolitan areas in the region; reinforcing how there is a real and realisable opportunity to enfold more individuals in the rural areas of development into formalised credit. There's no better time to start harnessing non-traditional sources of data at scale to create credit risk profiles to re-energise the financial inclusion endeavour.
The ability to offer personalisation at scale through mobile devices, map customer journeys and needs by design, are expanding, intensifying and furthering the real value of telco data in Asean and indeed, across emerging markets. Its development is extensive, led by the support of market regulators in the provision of guidelines, coupled with consent driven regulations for transparency and data security protection.
This trust will fuel financial inclusion for those who have been shut out by traditional financial services. As more telcos advance and broaden their relevance to broader microservices such as insurance and e-commerce, we are witnessing an era where the broad digitalisation of economic activity can now be more inclusive.
Even in a developed market such as Singapore, we have seen inspiring examples of how telcos helped mitigate unforeseen disruptions. For example, during the Circuit Breaker period, telcos played a key role in supporting the migrant workers with new consumer initiatives and support packages such as remittance service, micro credit airtime advances, WiFi and mobile data needs. These telcos were able to address the needs of prepaid subscribers through efficient data analytics and faster decisioning to help minimise disruptions to their personal lives.
Moving the dial on financial inclusion
Deploying data for good, analytics for inclusion, being customer-centric, and addressing the impact on lives and livelihoods, digital financial inclusion can be a transformative movement and play an important role in mitigating the economic and social impact of the ongoing pandemic.
This crisis is a test of our resilience, and the financial services landscape could change permanently during the recovery. The pandemic managed to 'lock down' the world's economy. The promise of harnessing telco data and decisioning to drive better financial inclusion and equitable opportunities can help us 'open up' - this time sustainably and resolutely.
The writer is the managing director for Southeast Asia and Regional Innovation, Experian Asia-Pacific