Financial IDs for unbanked could boost APAC GDP by $75 billion

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Establishing financial identities for the unbanked population across the Asia Pacific region would add an extra $75 billion to annual GDP for the region, says a new report.

The report – written by global advisory firm Oxford Economics amd commissioned by Juvo – analyzes a scenario in which the world’s mobile operators offer “financial identity as a service” (FIDaaS) to the unbanked population. FiDaaS technology analyzes alternative data using machine learning to build financial identities, ostensibly allowing billions of unbanked and underbanked consumers to qualify for financial services, often for the first time.

In the FIDaaS scenario, mobile operators extend low-cost, low risk offers to their customers, such as airtime loans. Based on payback behavior, consumers gradually build up to larger transactions: and then access other financial services, via partnerships between operators, financial service providers and merchants.

The analysis found that resolving the financial identity problem across Asia-Pacific would deliver the following estimated results:

  Asia Pacific China India
Annual GDP increase   $75b $13b $7b
Increase in available credit to households   $132b $35b $18b
Increase in annual household savings   $223b $47b $30b
Average increase in GDP per person   $19 $9 $5

The Oxford Economics report identified the Philippines, Indonesia (both $15 billion GDP uplift), China ($13 billion), Pakistan ($9 billion) and India ($7 billion) as the stand-out markets for this growth.

According to the World Bank, 3.9 billion people around the world (68% of adults worldwide) are locked out of the formal economy due to a lack of credit history – and 849 million of these live in the Asia Pacific region, says James Lambert, director of economic consulting at Oxford Economics.

“Of this total, 172 million can’t join the formal economy because they lack a financial ID,” he says. “What’s notable is that of this number, 61 million adults may have the funds to engage with financial service providers – but they need a solution like FiDaaS to do so.”

The idea is that mobile operators can help unlock overlooked sources of cash to expand the global economy’s capital base by providing unbanked people with the means to have their own financial identity via the FiDaaS model, says Juvo CEO Steve Polsky.

“There’s a huge crossover between the unbanked and the world’s mobile phone users. With a financial profile in place, unbanked mobile users can tap into consumer financial services that wouldn’t have otherwise been available to them,” he says.

The report notes that the resulting figures are actually conservative estimates, because the research methodology excludes people who are underbanked – that is, people who have access to a basic account but are generally denied access to other financial services such as non-exploitative credit because their credentials are deemed insufficient.

The study excludes underbanked people because the actual number of such people is tough to quantify – either because they don’t realize they’re underbanked, or assume they are when in fact they aren’t. Without enough reliable data, Oxford Economics opted to stick with unbanked data.

That said, the report notes that in some regions the underbanked population outnumbers the unbanked:

To provide a sense of the scale of the underbanked problem, the World Bank estimates that 36 percent of the global adult population exists outside the radar of credit bureaux, which are the organisations responsible for tracking and aggregating individual credit histories. In some regions this is far greater than the population of unbanked, because a large population have accounts but no means to access to credit. For example, in Sub-Saharan Africa, 87 percent of the population lacks a credit history, compared to an estimated 63 percent who are unbanked. This is a marker of the size of the underbanking problem in low-income countries.

Consequently, the report says, enabling FIDaaS could yield even more economic gains than the estimates here.

The report is available here (form required).

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