There is wide recognition that financial inclusion is necessary for inclusive and sustainable growth, and that technology could play a pivotal role in accelerating its progress. With 1.7bn people still unbanked globally, financial inclusion remains a major challenge for policy-makers and financial institutions.
Financial inclusion is often defined as access to financial services, but a more meaningful view of it should go beyond access. Exclusion can be voluntary, where an individual or business chooses not to use the service, or involuntary, where the cost to use features of the service – such as transaction fees – is too high. The quality of services offered and substantive use of these should also be considered.

Advancing financial inclusion can boost economic growth by encouraging saving behaviour, promoting entrepreneurial activities and helping households manage risks. Technology-enabled financial innovations, or fintech, can transcend barriers to financial inclusion that traditional modes of transaction have struggled with. Fintech solutions provide cheaper access through products better tailored to the needs of excluded individuals. Flexible and decentralised service delivery through tech-based platforms expands coverage beyond what physical, brick-and-mortar institutions can reach.

The private sector has led much of the development of digital financial services in some countries, especially in places where in-app payments services took off. China is a prime example of the mobile payments boom. A projected 32.7% of point-of-sale payments are made via mobile, double the figure in the UK (15.3%) and US (15.0%) (Figure 2). The People’s Bank of China reported a 36-fold increase in the volume of mobile transactions to 61bn in 2018 from 1.7bn in 2013. The country’s two dominant mobile payments platforms, Alipay and WeChat Pay, account for 93% of these transactions. Their ubiquity, ease of use and convenience, coupled with their integration with other in-app services, have established them as key players in the Chinese payments system.

Both Alipay and WeChat Pay have sought to expand in neighbouring Southeast Asia, but face stiff competition from local players like GrabPay and GoPay. Mobile wallets succeeded in part because they originated from separate digital services for which there was already a high volume of transactions, providing a natural incentive for adoption. Alipay enabled mobile payments for e-commerce giant Alibaba. WeChat Pay facilitated transfers between contacts on a messaging app. GrabPay and GoPay are offshoots of ride-hailing services Grab and Gojek.

Uptake of digital payments and services has accelerated in the last decade alongside improvements in telecommunications infrastructure. China, Japan, Singapore and South Korea, global leaders in 5G deployment, have high-quality digital infrastructure that encourages use of mobile wallets and other digital services. Southeast Asian countries like Indonesia, Malaysia, the Philippines, Thailand and Vietnam are not far behind, having had to scale up telecom infrastructure to connect fast-growing, smartphone-wielding populations.

The digital transformation in these countries, pushed by organic demand for specific digital service platforms, created an ideal landscape for exploring digital financial services. Their progress in developing digital solutions reflects populations’ preference for technology, convenience and digitalisation of services. Countries with a greater affinity for technology and mobile solutions could provide models for others in the region.

This is an extract from the OMFIF and AWS report, Enabling financial inclusion in APAC through the cloud. Click here to download.