The underbanked population, which by definition has access to a bank account but nevertheless relies on alternative financial services (AFS) such as payday loans or money orders, is especially prevalent in the MENA and APAC, due to the significant number of migrant workers across the regions.
According to market research conducted by Stryber, the AFS market has a size of approximately USD 40bn in MENA, and USD 57bn in APAC.
The reasons for being underbanked may vary, but common factors include a lack of access to traditional financial instruments or limited financial literacy, which can have significant economic and social implications.
Commonly used services include mobile money accounts that allow individuals to send and receive money, pay bills, and access other financial services using a mobile phone. Additionally, services offered by microfinance institutions are widely used, which provide small value loans and other financial services to individuals who may not qualify for traditional banking services.
A quantitative study conducted among 500 low-income individuals in the MENA and APAC region, assessing the level of importance and satisfaction of financial services available to them, reveals the need for new financial solutions especially when it comes to salary advances and loans.
Approximately 80% of those interviewed are currently taking loans from friends and family.
Further qualitative research conducted supports the hypothesis that the needs of the underbanked are not being fully met, which for instance makes it difficult for the low-income working class to pay unexpected financial costs, e.g. medical fees. Such as that experienced by a hostess working at a hotel in the UAE:
“If you have a toothache, you need to see a dentist now and cannot wait until the end of the month. But you cannot afford to go immediately due to the low income. Access to lending services would be of great help to me.”
Corporate venture building can play a crucial role in increasing financial inclusion by leveraging the existing infrastructure, resources and expertise of established companies, to support the development and scale-up of innovative financial products and services. For example, a telecommunications company with a large customer base could create a fintech solution that provides mobile banking services to its underbanked customers (e.g. M-PESA by Vodafone).
Another angle on how corporate venture building can tackle financial exclusion is by increasing awareness through providing educational resources and training solutions. By improving financial literacy, individuals are better equipped to make informed decisions and are more likely to utilise financial products and services that meet their needs.
Globally, lending, payments and banking fintech startups received most VC funding to improve the situation for underbanked populations. When comparing VC funding volumes by region, it is clear that APAC and MENA are currently lagging when it comes to tackling the needs of local populations:
In order to tackle this challenge, Stryber has identified five promising business models that could be replicated across the APAC and MENA regions:
Among them are lending solutions that provide employees the opportunity to access their already earned wages throughout the month. Together with a client, Stryber has developed such a solution for the UAE market, called “Floos”. It provides employees with financial freedom, while having no impact on an employer’s own cash flow. This is an example of a venture that was identified, validated, prototyped, and then launched using Stryber’s methodology. It took less than five months to launch, from ideation until first transaction. Upon positive feedback from both corporate clients and their employees during MVP phase, the venture was carved out as an independent entity after a total operating time of nine months.
Please get in touch to learn more about Stryber, and how our services can help to make an impact.