Banks and FinTechs See Collaborative Opportunity to Reach Emerging Market Consumers

Brazil proves boosting financial inclusion and giving underserved populations bank account access is a smartphone away.

PayU Global Payments CEO Mario Shiliashki said it will take full-scale, joint efforts between traditional and nontraditional financial services players and regulators to bring financial services to those underserved populations and help them move beyond cash-based transactions.

For the 1.7 billion unbanked and underbanked consumers and 200 million unbanked and underbanked small businesses, financial inclusion requires more than just technology.

“It takes an ecosystem,” Shiliashki told Karen Webster.

And that ecosystem can only take shape as regulators pivot a bit and expand their frameworks governing data collection and use. He explained that it isn’t just the FinTechs that are innovating new products and services to meet their needs.

“Banks are trying not just to catch up, but to collaborate with FinTechs to provide better services” he said.

These joint efforts make it easier for consumers and enterprises to adopt new accounts that are backed by banks but are not necessarily “run” by banks, he said. The transaction accounts then become the springboard for new experiences and services.

“Standards need to catch up in order to also increase the adoption of these services and the ability for FinTech to scale,” he said, which then paves the way for mass adoption of new offerings.

From No Bank to Mobile Banking

There are already several examples of the ways collaboration between banks, FinTechs and regulators can bolster financial inclusion, he said. PayU, which enables cross-border commerce and payments functionality through a single integration, has seen growth in Brazil. And in that market, Pix, the instant payment system implemented by the Central Bank of Brazil in 2020, is now being used by 70% of Brazilians across billions of transactions.

“The adoption has been phenomenal because adoption has been pushed by the government, by established institutions” and by FinTechs in what has been an “under-carded market,” he said.

People who otherwise might have cash — but not cards in their (literal) pockets — and don’t have steady access to bank accounts now can purchase goods and services online.

“This has been a lifesaver not just for consumers but also for businesses,” he said, noting that even the smallest of small businesses are seeing increased sales as a result. “Merchants that you never would have thought are joining the digital economy [and] are doing so by accepting Pix.”

Finding New Financial Springboards

The instant payment system is also serving as a springboard for financial institutions (FIs) and FinTechs to layer on additional offerings and value-added capabilities to improve financial inclusion. He pointed to peer-to-peer (P2P) payments, buy now, pay later (BNPL) and other financing options (including small business financing) as examples that eventually lead to opportunities to provide financial education and credit underwriting.

PayU, he said, has been investing in payments innovation for small- to medium-sized businesses (SMBs) and for new consumer-facing credit solutions.

Regardless of the service or product being offered, he said, the user experience is key.

“As an industry, we’ve made tremendous strides in making the experience better, but we are still not where we need to be, especially in emerging markets,” Shiliashki said.

Despite the important progress, fraud detection and protection still need to improve, and so does identity verification, which in turn reduces friction at checkout and can improve conversion rates, perhaps by as much as 30% to 40%.

Looking ahead at 2023, PayU’s focus will be on offering additional payment methods at the point of checkout for its merchant community and improving access to credit. And although 2023 might well be a year of uncertainty at the macro level, Shiliashki cautioned that regulators and FIs should not fall back on financial exclusion (rather than inclusion).

“Even through the tough macro waters,” he told Webster, regulators and FIs “need to help with innovation — and to collaborate with the FinTech community. The FinTechs are nimble, and they find solutions.”