Banking the Unbanked Through Enhanced Identity Verification and Mobile Solutions

Ayan Kumar  |  August 12, 2021   |  Credit & Lending  |  ID Verification  


Microsoft Founder Bill Gates once said “Banking is necessary, banks are not,” and fintechs have stuck to this mantra since then. Banking mainly serves the purposes of receiving money, paying for goods and services, lending, saving, and investing. These services are designed to simplify financial access, however, millions of people still lack access to financial services. For example, globally, 31 percent of adults are unbanked, of which nearly half live in 5 South East Asian Countries. Fintechs are focused on banking the unbanked through mobile banking and enhanced identity verification solutions.

Smartphones and the rise of mobile banking solutions

Over the years the mobile phone has led to a rapid change in the cash-based economy. Innovators have recognized this divide in access to banking facilities and have developed a distributed banking infrastructure. Smartphones and feature phone (IVR and USSD) based mobile payment solutions have revolutionized access to banking solutions in countries like India and Africa, where villages had access to phones way before they had proper access to electricity. As of December 2018, two-thirds of total global mobile money transactions were driven by users in sub-Saharan Africa, with values exceeding $25 billion.

As of December 2018, two-thirds of total global mobile money transactions were driven by users in sub-Saharan Africa, with values exceeding US$25 billion.

The revolution of mobile money in Africa is an example of how financial services can flourish in a low-resource environment. Mobile money is a digital platform that allows transferring money between cellphones without the Internet or a formal bank account. This has helped them grow resilient to unforeseen circumstances where lending or borrowing money in case of disaster has been difficult. Additionally, M-Pesa, Kenya’s mobile money platform, has helped households improve their ability to save by roughly 16 to 22 percent. . The adoption of technology by women has helped elevate 2 percent of the population out of poverty. 

Over 90% of Indian households have bank accounts, but about 50% of those residing in rural areas prefer to keep savings at home.

Improving banking access in India

India is another example of such a story where the rural population does not use banking services because of traditional mindsets, distant bank branches, and most importantly limited financial literacy resulting in poor access to banks. The government’s effort to open bank accounts under Jan Dhan Scheme has successfully helped with banking the unbanked by providing millions access to a savings account, credit, and insurance. In addition, it brought financial literacy and streamlined timely payment under the MGNREGA program. But, recent studies show that about one-fifth of the accounts are inoperative, which shows there is still room for improvement. 

There is a growing need for digital disruptors in India, which can come from mobile financial services solutions that are frictionless, simple, convenient, personalized, and accessible. Given that an average rural farming household earns only about $1400 a year in India, solutions need to be easy and cheap to set up and should be mobile-based, given the growth of internet services in India.

The absence of identity verification documents and payment histories

Some B2B2C fintech companies are using AePS (Aadhar enabled payment services) to carry out microtransactions and facilitate services such as credit, withdrawal, recharge, payments, and travel booking. The fintechs use voice or fingerprint biometrics to carry out these transactions. Most of these fintechs enable agent tie-ups via a POS at an existing retail store with gateway access to banks.

In all of these scenarios, identity verification remains a concern for the underwriting bank because many of these account holders are thin-file customers who have little to no identity verification documents. Additionally, these consumers often have a history of borrowing from local lenders, however, it’s been difficult to access their past payment patterns to support credit decisioning. These challenges have led to loans being provided in the forms of a shared guarantee or via a self-help group.

Banking the unbanked with alternative data

To combat the issue of inadequate identity verification documents and payment histories banks and lenders can incorporate alternative data sources into their processes. Utility bill account data can provide financial institutions with the information they need to better access consumers’ creditworthiness, in addition, to accurately verifying their identities. 

Urjanet’s automated and direct access to thousands of utility providers can provide a robust system to help meet India’s needs for banking the unbanked. Its rich data source can help fintechs gain access to historic telephone and electricity bill data for verification and decisioning. To learn more, contact one of our experts today.

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About Ayan Kumar

Ayan is an Assistant Manager at Urjanet, assisting with content development, GTM strategy development, and execution. When he is not working, he enjoys reading about tech, playing cards, board games, and traveling.

Tags   Alternative Data   |   Credit   |   Financial Services   |   FinTech   |   Identity & Fraud   |   Identity Verification   |   Lending   |   Non-Traditional Data   |   Urjanet   |   Utility Bills   |