The fintech industry has come a long way in a short period of time. While financial technology has been around for decades I think we can all agree that in the past few years it has really come of age. And since the coining of the term fintech we have seen an explosion in innovation. Things that were considered impossible a decade ago are now commonplace, almost expected today.
But we can and should do more. While most of the innovations happening today are making a real difference I would argue, to paraphrase Steve Jobs, they are not yet making a dent in the universe.
On the small business side more companies have access to more funding options than ever before and that is starting to really help. Companies like Kabbage, OnDeck and Funding Circle are providing new credit options that have never been available from traditional finance. On the consumer side companies like Lending Club, Prosper, SoFi and Marlette are also making a difference, saving the US consumer many millions of dollars annually. But this is just the tip of the iceberg.
We Need to Turn Our Attention to the Global Underserved
I was listening to the Breaking Banks podcast the other day where host Brett King was in Kenya. It was one of the most fascinating podcasts I have listened to in a long time. Kenya has this incredible payments system called M-Pesa that basically everyone in the country uses. It has completely changed people’s lives. People who were excluded from the financial system, with no bank account and no way of paying anyone except in cash, could now use their phone to pay any person or company in Kenya. And we are not talking iPhones or Samsung Galaxys here, this can be achieved by an old fashioned flip phone.
This relatively simple fintech innovation has meant that millions of people are no longer underserved. They can access financial services such as credit and payments for the first time in their lives. And to give you an idea of how much of an impact this has had: over 40% of Kenya’s GDP now flows through the M-Pesa network. Now, that is making a dent in the universe.
I don’t expect all fintech innovation to have the same impact as M-Pesa but my point is this. There are huge opportunities in creating services for the underserved. In fact, I would argue that there are more opportunities there than in providing services for the already served. Don’t get me wrong I love companies like Lending Club and Prosper – I have a significant part of my investment portfolio in the loans originated by these companies. I am just saying that I think the bigger opportunity is with the underserved.
Companies like LendUp, Elevate and Applied Data Finance are doing good work providing access to credit for the underserved in this country. And I think if you talk to the CEOs of these companies they would say their segment of the market is far less crowded than the prime consumer. I would also argue that they are making a bigger difference in people’s lives.
Financial Inclusion is My New Passion
For the first time ever we are running a financial inclusion track at LendIt this year. I have worked hard over the last several months putting this track together. In the process I have spoken to dozens of people who have dedicated their careers to helping the underserved. I have learned a great deal about the many companies doing great work in this area. At the same time I have become something of a convert. I truly believe now there is immense opportunity both in the US and globally in helping those people who do not have access yet to financial services.
I was on a LendIt panel prep call this afternoon with among others the CEO of Accion and the people from Quona Capital, their VC fund. Quona focuses on fintech opportunities in emerging markets and something they said really struck me. When we discussed the competitive VC landscape in the countries they operate in they said they often go in alone. When it comes to fintech investing in emerging markets there are very few companies looking to provide equity capital.
This is All About the Bottom Line
Some people think about financial inclusion and dismiss it as a non-profit activity or at least something that is not focused on the bottom line. What I am telling you today is that the opportunity here is massive. Most of the world’s population remains underserved when it comes to financial services.
If you haven’t listened to my interview with Jeff Stewart, the Chairman of Lenddo yet, go ahead and do it now. His company is making a real difference in emerging markets around the world. They have figured out how to underwrite consumers accurately when literally no credit data exists. And they are changing people’s lives in the process.
Again, I am not saying we should abandon the prime consumer in the USA. But I would like people to become more aware of the fact that it is a big world and the majority of the world’s consumers lack access to traditional finance. I am confident there will continue to be innovation in countries like the US and UK. I am less confident that there will be innovation for the underserved consumer in Mongolia, Uganda or Nicaragua.
For those companies that start early the returns could be enormous. The fastest growth in the coming decades will come from the emerging markets and the reality is today there are few companies competing there. If you want to make a dent in the universe you should think about your global strategy now.