Fintech

What are developing countries doing to improve access to finance?

Published

9 months ago

24 July, 2024

Now, with a focus on social and environmental impact, the term “fintech for good” has evolved from its initial meaning of charity. But it doesn’t stop there. This July, we’re on the hunt to discover how the fintech sector is doing “good” for local communities and the world, revealing current and future plans to make changes.

Lack of access to credit and finance can cause problems for people all over the world, no matter what country they live in. However, where the problem is most acutely felt is typically in developing countries, so we are now shining a spotlight on them to see how they are coping with improving access to finance.

In many ways, developing countries do not face the same barriers as developed countries in doing this, which means it may even be easier to make positive changes, he explains. My Friend Nicky SenyardCEO of Fintel Connection.

Nicky Senyard, CEO and founder of Fintel Connect

“Developing countries are actually great places for new ideas because they often don’t have traditional banks. In many African countries, most people use their phones to go online instead of having a regular home connection. This shift has led to a number of great advances in mobile banking and financial apps, making it possible for financial services to reach even the most remote areas.

“For example, in Kenya, the mobile banking solution M-Pesa has radically changed the way people access financial services, offering them a safe and convenient way to save, transfer and receive money without having to open a bank account.

“In Brazilthere is Nowa shining example of fintech innovation. Since many Brazilians don’t have access to traditional banks, Nu used digital technology to offer fee-free credit cards and a completely digital banking experience. This really caught on and now millions of Brazilians have an easy and efficient way to manage their money.

“Nu’s success demonstrates how developing markets can find financial solutions that address local problems and attract more people into the financial system.”

Troubleshoot data issues

Second My First Encounter with Nick Maynardvice president of fintech market research at Juniper SearchThe lack of reliable data sources has made improving access to finance a problem in developing countries.

Nick Maynard, vice president of fintech market research at Juniper Research

“In developing countries, the typical challenge to accessing finance has been the lack of credit scores and other third-party data that make lending easier in developed markets. As a result, it has been difficult for banks and mobile money services to offer credit.

“One important development we are seeing is that other data is being leveraged to make up the shortfall. For example, where mobile money services are provided by telecom companies, these services are using AI models to use their existing data to expand their lending operations. These kinds of initiatives, as well as formal government programs to improve access, will go a long way toward improving this situation.”

Improving financial inclusion

Mitchell DiRaimondo, Founder and Principal Project Manager of SteelWave Digital at SteelWave

Mitchell DiRaimondofounder and main project manager of SteelWave Digital at Steel Waveexplains how developing countries hope to reach the unbanked: “Developing countries are taking a multifaceted approach to improving financial inclusion. Governments are promoting digital payment systems and mobile banking services to reach unbanked populations.

“Regulatory frameworks are being adapted to support fintech innovations and foster an enabling environment for the growth of financial technology. Public-private partnerships are crucial, with initiatives such as digital identification systems (e.g. India Aadhaar) enabling easier access to financial services.

“Microfinance institutions and digital lending platforms are gaining traction, offering credit to small businesses and individuals who lack traditional collateral.”

Using mobile applications

“Developing countries are making great strides in improving access to finance,” he says. Mila Khrapchenkoco-founder and co-CEO of Ametee.

Mila Khrapchenko, co-founder and co-CEO of Ameetee

“They often progress more rapidly in financial inclusion than developed nations due to more acute financial accessibility issues, lower living standards, and lower market entry barriers. As a result, mobile applications and various payment methods are more widespread and growing rapidly.

“For example, mobile banking penetration is remarkably high in countries such as China, Kenya and Tanzania. These nations are adopting financial technologies to fill market gaps, leading to flexible and adaptable regulatory frameworks, unlike rigid systems in developed countries.

“Additionally, developing countries sometimes see substantial growth in microfinance services. Traditional banks struggle with high-risk borrowers, so microfinance companies step in, providing credit to individuals and small businesses. These institutions thrive in less regulated environments with high demand for financial services, addressing critical gaps in the banking system.”

Innovative solutions

Naeem SiddiqiSenior Risk Advisor at SASIt also states that developing countries are improving access to finance in several ways:

Naeem Siddiqi, Senior Risk Advisor at SAS, Access to Finance Naeem SiddiqiSenior Risk Advisor at SAS

“1. Create less regulated fintech playing fields that allow fintechs to lend with fewer restrictions than larger financial institutions. Because these fintechs tend not to be deposit-taking institutions, the systemic risk is seen as lower. They also tend to be micro and nano financiers, targeting low-income segments that are most in need of financial inclusion.

“2. Encourage the inclusion of non-traditional data in credit reporting agencies. This includes data from BNPL, rent payments, utility bills, online streaming services, any service or product that involves regular payments. Lenders can see a history of meeting payment obligations and are therefore more comfortable making small loans. This is not just happening in developing countries: in the United States, the inclusion of utility and rent payments will help millions of unbanked and underbanked people access credit.

“3. Using nontraditional data for lending. Micro- and nano-lenders often deal with borrowers who do not have bank accounts or credit reporting agency records. In these cases, many micro-lenders use mobile phone data to inform lending decisions. For example, variables such as screen resolution, presence of banking apps, and number and duration of calls have all been shown to be predictive of credit risk. There is also the use of “social capital,” i.e., endorsements from friends and neighbors, to make loans to microentrepreneurs.

“4. Opening branches and installing ATMs in remote locations and low-income neighborhoods can improve access to credit for underserved residents of those areas.”

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Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

9 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

9 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

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Fintech

M2P Fintech About to Raise $80M

Published

9 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

Source

Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

9 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

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Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”