This is an era of open innovation. There is a massive opportunity for FinTech businesses and FinTech start-ups around the world right now. Research shows that there are currently about 3 billion people around the world who don’t have access to adequate financial services. They are undeserved in some way. Research indicates that there are somewhere between 2.1 and 2.5 trillion dollars of funding that is currently not available for small and medium customized businesses around the world. That means that there is a massive market opportunity to serve these individuals and small businesses along with opportunities to incorporate them in the financial system. Combined with this demand is the emergence of a new kind of supply and that is FinTech.
Solutions through innovations coming from emerging markets in the area of FinTech
The use of Alternative Data and New Data for credit scores:
A massive population around the world is, but their credit scores aren't reflective of that. More importantly, a lot of people don't have credit scores at all. That means they are un-scored and not able to access financial services and a whole list of other services despite their credit quality. FinTech helps support businesses that contribute to solving such a problem. Companies are dealing with Behavioural Credit Scoring online to supplement and complement existing credit scores.
Therefore if someone is on the cusp of getting or not getting a loan, these companies conduct an online behavioural interview and potentially put the customer into the borrower pool. There are also other companies which use the lending institution’s existing data and mobile and different kinds of data to improve scoring; create proxy scores for the potential borrowers.
The fundamental problem that FinTech is helping to solve is the information asymmetry issue. Large incumbent financial institutions in a lot of these markets may want to serve this class of borrower be it an individual or a small business. But they don't have the infrastructure to help them, and they also don't have the information they need to underwrite them; in the case of credit.
FinTech businesses and FinTech start-ups are coming in to help by using solutions like New Data and Alternative Data. There are an estimated 2.1 to 2.5 trillion dollars of a credit gap for micro and small-medium businesses in the world. And a lot of innovations are happening around using the internet to identify, acquire and ultimately underwrite small businesses the world over. Lots of such companies are looking for ways to use New Data and partnerships to serve potential borrowers.
It's high time, finance-based organisations comply with the Anti Money Laundering (AML) regulatory Act. Over the years, millions have been fined by the financial regulators across the globe. Although these organisations have already spent millions to curb money laundering activities, financial institutions still get in customers that are declared financial risks by nationwide or worldwide watchdogs.
Eventually, before the AML officer can track down the particular watch list or sanction list, the money would already have been laundered. Fintech courses provides a solution to this problem by conducting real-time background checks relevant to AML compliance, something that used to be a time taking process under the manual review system.
In the under-served markets like India, East Africa and Mexico; fundamental forces like mobile phones, internet penetration, cloud computing, social media are setting the grounds to access financial services. Also, the financial institutions at large incumbent financial institutions in these markets are beginning to partner with early-stage FinTech businesses to expand their access as well. Therefore it is quite an exciting time to invest and support FinTech businesses.