Disruption of consumer lending market and financial inclusion


Cross-border transfers, quick loans, personalized financial advice from artificially intelligent apps and managing your personal budget through a mobile phone with zero or minimum cost – sounds like a distant bright future. But today, thousands of startups around the world make this possible. Yet, not everyone has equal access to finance. According to The Global Findex, a quarter of the world’s population does not have bank accounts. Unequal access to financial services today is one of the most important issues on the agenda of many countries.

According to various researches, the financial inclusion of the so-called underbanked population would yield 1-3% of GDP growth. But most importantly, inaction in this situation can be costly for both the state and its citizens. After all, the use of unofficial and even illegal financial services makes people vulnerable. They are deprived of legal protection and any guarantees. However, for various reasons, people opt for such services.

At the same time, people who do not use the financial services of banks and non-banking organizations are not necessarily completely excluded from the financial system. They simply for one reason or another preferred the informal sector to solve their problems. For example, the reason may be easier access or lower costs. Thus, the struggle for inclusion is not only about educational projects and providing access to the financial mainstream. It is about how legitimate players can transcend the informal sector.

The financial industry has remained quite conservative for a very long time. It was always difficult for new players to get into this market, where large companies already established interaction with regulators, have a large customer base, and the resources to survive even in difficult economic conditions. But with the development of technology today, the situation has changed dramatically. So-called disruptors appeared. Disruptors are companies, often start-ups, that are rapidly developing and focused on innovative technologies and processes in any field: from mobile payments to insurance.

Making a disruption, even in a small niche, is not easy. Moreover, disruptors are aimed at high profit and quick market conquest. Consumer lending sector remains one of the most profitable in the world. New players use the online-only model to cover millennials and other segments in this market. They fulfill an important social function, giving underbanked access to finance. A significant part of people cannot get a loan from a bank for various reasons. In such circumstances, fintech companies become the only way to get the necessary funds for many.

Why fintech is capable of doing this? Thanks to new technologies, the disruptors are more flexible and offer better customer experience and greater convenience at a lower price. They using innovation to create products that are more approachable for the everyday consumer. The penetration of the Internet and mobile phones makes finances accessible even to those who are far from bank branches or ATMs.

Automation of processes reduces the cost of providing finance. Here, the future lies with cloud computing, which will make the growing financial transactions fast and seamless, as well as artificial intelligence, which analyzes Big data. Technology is developing rapidly and people who previously did not have access to the financial system instead of a being risk group for banks have become a business opportunity for disruptors.