Jovi Overo from Unlimit delves into the topic of financial inclusion and how Banking-as-a-Service (BaaS) revolutionises access to financial services, bridging the gap globally
Over the last ten years, increasing global access to the internet and smartphones, and the rapid growth of ecommerce and independent businesses in countries with low ban account penetration, have put a strain on traditional banking structures trying to offer digital financial services.
Among the most popular initiatives to increase financial inclusion, Banking-as-a-Service (BaaS) appears to have the most potential. BaaS’s potential stems from the fact that it makes it possible for any company to offer financial products that are tailored to the needs of their customers, without having to obtain a banking license.
Technologically, its Application Programming Interfaces (APIs) can be integrated into any business quickly, allowing businesses to begin using their licenses to leverage their regulatory frameworks and resources. BaaS providers are notorious for their white label products, which give any non-bank or fintech company leverage of brandable cards that hold a retailer's branding, whilst the product is manufactured by the BaaS provider. The benefit of this is that it aligns with other fintech products, bringing reliability, speed, and simplicity.
When analysing financial inclusion in society there are three main things to consider: access, quality, and usage. There are also several factors in the payment chain that we need to take into account, including the beneficiary, institutions, businesses, and the current conditions of the global market.
Following the introduction of Banking-as-a-Service products, there has been a spike in financial inclusion because end users and businesses are provided with a multitude of options to pay, store funds, and access credit. Now that the use of financial services is not limited solely to a provision from traditional banks, there is greater access to resources and services which holds greater impact alongside the growing accessibility of internet and mobile phone penetration.
Globally, there are around 1.4 billion adults who remain unbanked and the primary reason cited by the unbanked for not having bank accounts is financial. Unbanked individuals and households have struggled to meet the minimum requirements to hold a bank account, including minimum payments and account fees. Due to limited access to secure methods to store and manage finances, individuals have turned to alternative means to manage their money through fintech products and services, including prepaid cards, online payment services, neo-banks, and alternative currencies.
Studies have shown that the percentage of unbanked households varies significantly by income level and race/ethnicity; with 11.3% of all black households being unbanked and 9.3% of Hispanic households, whilst unbanked white households sit at 2.1%. Additionally, there are socio-political factors such as government ruling and general societal trust issues that have deterred communities from managing their funds through banks and stashing cash at home. Another reason numerous households and individuals remain unbanked is that they are deterred by bank fees. Nearly 30% of unbanked consumers stated that they steer clear of a bank account due to frustration around paying to hold funds in a bank.
Whatever the reason, the impact of financial inclusivity has been shown to lead to inequality, economic stagnation, and poverty. The growing conversations around the lack of access and inclusion and the visible segregation globally resulted in the drive from fintech companies to use technology to create products and services that are accessible through a number of channels, such as mobile apps, online platforms, and in-store options. Additionally, fintech offerings, such as BaaS, have made quick and meaningful strides to offer financial services whilst bypassing the limitations and constraints of traditional banks.
BaaS models provide flexible solutions at a lower cost that are scalable to the growth of businesses and global ecosystems. Loaded with an offering that exceeds a traditional bank, the
Banking-as-a-Service model goes beyond the present and prepares businesses for future growth that is relevant to end-users who manage money in multiple ways. Whilst BaaS does not service the end-user directly, it brings the provision of ever-developing technologies to BaaS clients who are then able to reach new regions and open opportunities to untapped markets. This trickle effect will support financial access as a long-term solution that is a catalyst for driving change through a highly flexible, cost-efficient, and continually developing technology.
Financial inclusion is not only about creating and offering new products but also about enhancing the financial and non-financial services that already exist. By doing so, the use of technology is simplifying processes and creating inclusivity in our current demographics and structures. This opposes the complex approach of reconstructing a new financial world of new processes and technologies that require new learnings that would overwhelm many. Instead, the seamless integration of BaaS products into both traditional banks and non-financial services, such as ecommerce sites or social media platforms, drives a more inclusive ecosystem.
With ecommerce and m-commerce rapidly gaining popularity — the ecommerce industry is set to reach USD 6.3 trillion globally by the end of 2023 and m-commerce is projected to exceed USD 510 billion by the end of 2023 — BaaS integration offers a greater sense of financial inclusion as it opens up numerous channels and connects merchants with end users who are able to partake in regular online activities without the limitations of a traditional bank account.
In this era of the digital revolution, we are seeing fintech products spurring the use and adoption of financial literacy tools, but as younger generations of Gen Z and millennials grow into working age, we will see the shortening of the distance between the world of finance and young users. We are already seeing the gap close, and with the removal of intermediaries along with the influence of ethically driven, digital brands - we can expect the financial inclusion gap to close. The shift will take place on a global scale, with fintechs settling across the world to offer borderless technologies that offer easy-to-use, interactive, and intuitive technologies to players of all levels and capabilities.
Jovi Overo has over 20 years of experience across Fintech, Payments, Banking and Lending-as-a-Service space. Currently, Overo is responsible for creating solutions from scratch and building them from the ground up for the new BaaS division at Unlimit.
Founded in 2009, Unlimit is a global fintech company that offers a large portfolio of financial services, including payment processing, banking as a service (BaaS), and an on-ramp fiat solution for crypto, DeFi, and GameFi.
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