Financial Inclusion: Startups giving the “unbanked” an alternative

A round up of startups in the Fin Tech industry that are practicing financial inclusion through innovative tech solutions.

According to the World Bank, there are two million people in the world without a bank account. More than half of adults in 40 percent of the poorest households in developing countries don’t have access to formal banking. What’s more, out of these so-called “unbanked” people, the gender gap in account ownership is growing. But with the emergence of financial technology, entrepreneurs are finding ways to democratize the services that let people save, run businesses and get access to loans. In doing so, many startups are redefining and expanding the idea of finance, making it more inclusive through existing and innovative technology.

This shift is largely propelled by the democratization of mobile phones and access to internet, the growing legitimacy of self-regulated platforms such as social networks, the expansion of peer-to-peer lending and crowdfunding, as well as the increased usage of deregulated currencies such as Bitcoin.

As mobile phones become more widespread, users in lower economic situations are geared with a new way of proving their financial credibility. From Kenya, branchless banking service M-Pesa is perhaps one of the most successful companies using technology to facilitate financial inclusion. Its mobile banking infrastructure enables users to deposit, withdraw and transfer money just by using their mobile phones. But getting a loan can still be a hurdle for small business owners. That’s why, Greenshoe developed an app that integrates with M-Pesa, and uses phone data as a tool for measuring credit rating. Information such as how regularly a user tops up and their data usage says a lot about their income cycle and how much they earn, which enables Greenshoe to calculate a maximum loan amount for the user.

Another avenue for alternative credit rating comes from social media. As giant social platforms such as Facebook become more integrated in everyday lives, users are releasing a lot of personal data to these companies. Although privacy concerns are not to be dismissed, this data can be used for good. In the Philippines, Lenddo is a financial lender that takes into account customers’ social network activity when determining their credit score. Similarly, Happy Mango will analyze social network testimonials and employment histories to give customers a fair credit rating. Another startup is Vouch, which uses social media to crowdsource small financial guarantees (from USD 25 per person) from a user’s friends and family.

In a similar vein, peer-to-peer lending has become a more robust, formalized way for users to gain financial support. Startups like Wayniloans, which was a finalist for BBVA’s Open Talent last year, enables users to loan each other money through Bitcoin. Aflore is another finalist from 2015, which focuses on bankless peer-to-peer lending by providing a network of informal financial advisors who people already know and trust in their community.

Lastly, crowdfunding through peers is another way low-income individuals can now get a head start. For many young people today, the housing market is increasingly out of reach, especially if they have student loans that hold them back financially. But a startup called Landed is now helping first time buyers crowdfund their down payment with the help of neighbors, bosses and colleagues, who receive equity on their first home in exchange. There is also WeFinance, another finalist of BBVA’s Open Talent in 2015, which let borrowers create loan listings describing themselves and their needs, such as paying for university tuition, and gain help through the social-first platform.

The BBVA Financial Inclusion Award, which occurs in conjunction with the company’s Open Talent competition, focuses especially on digital financial solutions for low-income customers or small businesses. The startups for consideration provide products and services for users in lower economic situations, empowering them and activating their financial goals. Winners will be able to participate in the immersion program with the rest of the Open Talent finalists in London and Mexico City, and interact with the local networks and BBVA executives.

Startups can now register for and learn more about BBVA’s Open Talent event this year.