Since 2018, one of the themes of the Singapore FinTech Festival is financial inclusion in Asean. The Asian Development Bank points out that the effect of leveraging digital technology to bank the unbanked could boost GDP by 2% to 3% in markets like Indonesia and the Philippines, and 6% in Cambodia.
In a report last year, Bain & Company estimated that banking penetration in Southeast Asia is only 50% on average, compared with the 95% banking penetration rate in the US and the UK. “More than seven out of 10 adults in Southeast Asia are either “underbanked” — they have no access to credit cards or have no long-term savings product, for example — or are “unbanked”, without access to a basic bank account. In addition, millions of Southeast Asia’s SMEs face large funding gaps,” Bain says.
While Singapore’s unbanked population is minuscule, the Covid-19 crisis has shown that certain categories of foreign workers have limited access to low-cost financial services.
In a webinar in July, Pearlyn Phau, group head of consumer banking products & ecosystem partnerships at DBS Bank, says that 250,000 foreign workers did not have access and could not do banking transactions. “So there was a sudden surge in registration for migrant workers, and we supported this initiative and we opened 41,000 accounts for migrant workers,” Phau says, referring to the “circuit breaker” period.
POSB has collaborated with the Ministry of Manpower (MOM) since 2014; it has invested in the integration with MOM’s work-permit portal, which has enabled information to be transferred digitally and for account openings to be processed more quickly. POSB Jolly, a digital app for foreign workers, was rolled out in 2017. Linking up the bank’s systems with that of MOM drastically reduced the cost of service by allowing the bank to bypass layers of red tape, enabling it to open more than 40,000 accounts for migrant workers within a single week.
“POSB Jolly’s app is in five languages and provides migrant workers a way to do simple transactions such as checking account balance and doing remittances. Seven million financial transactions have been done on the app,” Phau says. “We have also embarked on use of alternative forms of data to assess credit-worthiness for the underbanked,” she adds.
The collaboration with MOM enabled DBS to provide basic banking services to the foreign worker population in Singapore at a lower cost to DBS. Piyush Gupta, CEO of DBS, says without collaboration within the financial system, it would be prohibitively expensive to develop such products, deterring banks from serving this market segment.
“We have made as much progress in the past two months than we have in the last five years,” says Gupta, speaking on June 26 at the webinar organised by the Monetary Authority of Singapore (MAS). If the whole financial system works together to reduce costs by streamlining regulatory processes, he says, financial institutions would be able to create very competitive and value-added products that are not a financial burden on the financial system.
DBS has also managed to introduce new services such as instant money transfer and remittances due to resolving financial infrastructure challenges hand in hand with the government, resulting in an exponential increase in account activities by migrant workers over the past two months.
Newer players in the financial markets, such as FinTech companies, have also helped ease the process by which migrant workers can send money home. Sopnendu Mohanty, chief FinTech officer at the MAS, points at FinTech startups like MyCash, which has developed a wallet-to-wallet remittance system that allows workers of Bangladeshi origin to send money home in real-time. This provides quicker and more hassle-free options for workers in addition to more established service providers like banks.
Sopnendu further believes that financial institutions need to create a set of bespoke financial products targeted at low-wage migrant workers to help them save sufficient funds for a rainy day. He recommends the development of products like “micro-savings plans” that allow migrant workers to grow their small savings to tide them through tough times.
“If we don’t do much in the micro-space, by 2050 there will be two billion people who will be around 60 [years of age], and the bulk of them will be in Asia and they will have no pension to live on,” Sopnendu warns. He calls for the financial industry to invest in the backend and asset management infrastructure to meet this demand and provide financial support to this demographic in their old age in the absence of state-driven initiatives. Governments in developing Asia often lack the fiscal space to provide these services, requiring the intervention of the private sector.
With financial institutions often having to manage their bottom line, management often lacks the incentive to invest in developing innovative solutions for “unprofitable” product segments like vulnerable demographic groups. By working to make such services less costly to provide, however, financial institutions may be incentivised to develop the new and innovative solutions that Sopnendu envisions to provide much-needed finance to those who have been underserved.
Financial inclusion is an important aspect of FinTech because it improves lives, which in turn, if adopted throughout Asean, would lift GDP, benefitting all its members.
