Mobile momentum to power financial inclusion in Malaysia

According to the World Bank, there are 1 billion adults in Asia that are unbanked. While these individuals do not have a credit score, they do have a mobile device – in fact, there are over 2.7 billion mobile subscribers in Asia, a figure that’s rising at an incredible pace. With growing mobile network coverage in more rural areas and increasing affordability of both mobile devices and tariffs, in India and China alone, it has been predicted that there will be more than 200 million and 70 million new subscribers to the global mobile market by 2025.

Born out of the growing number of mobile handsets, a proliferation of mobile money services has triggered significant progress towards financial inclusion in Asia. In fact, in 2017, for the first time, most industry growth came from outside Africa which has long been hailed as the epicenter of mobile money.

South Asia saw the highest year-on-year growth in the number of mobile money accounts (47%) and now represents 34% of registered accounts globally. This rapid take-up has gone some way to improving access to financial services for the unbanked but, the current state of digital finance means the identity crisis remains unsolved.

For financial services, providing loans to the unbanked can be a chicken and egg problem: without a credit score, the unbanked can’t access credit; without credit, the unbanked can’t establish a financial identity. Banks are unable to vet individuals, without knowing anything about them.

A jewel in the crown that is Asia

It’s the same story even for digital finance frontrunners like WeChat. It’s a mobile payment app that’s usage runs into the millions across Asia, most notably in China. This year, it launched in Malaysia but in onboarding new users, it still relies on a verified identity via a traditional bank account. Without the ability to show identification and a healthy credit history – or any credit history at all – the financially excluded are still locked out even from the newer, digital offerings that are supposed to drive access.

In spite of this, Malaysia is a jewel in the crown that is Asia, achieving one of the highest levels of financial inclusion among Southeast Asian countries. The reason? According to the same World Bank report, this is in part down to the introduction of policies which recognize the unique potential of mobile in solving the identity problem for governments and banking agents looking to expand access.

For example, in 2001, the Government introduced a compulsory identity card for Malaysian citizens aged 12 and above, named ‘MyKad’. MyKad was the first smartcard in the world designed with six main functions: identification, driver’s license, passport information, health information, and most importantly, an e-cash function. By reconciling historical data within a single point of identity, Malaysian individuals are able to establish and prove creditworthiness easily.

Replicating this success: enter the mobile operator

Emerging economies like Malaysia have tended to be cash-based, so historically, there has been no easy or systematic way of collecting, aggregating and disseminating financial data on these individuals. Malaysia’s effort to drive financial inclusion addresses the identity crisis by reconciling data from a number of different sources, creating a mechanism through which the unbanked can forge a robust and credible financial identity.

The truth is, no single industry can financially include billions of people. Financial institutions have the technology and services to change the way people borrow, save, insure, send and lend money in emerging markets; however, even an industry of the scale of the financial system doesn’t have the reach to change the world.

The only industry with that reach is the mobile industry. Billions of financially excluded people own a mobile phone but 80% of the world’s mobile users are currently prepaid subscribers. This is where mobile network operators (MNOs) come in. A smartcard is one approach but mobile is the natural fit. MNOs have the data – call detail records, billing system records – and they own the delivery channel.

But there is a central irony here: MNOs have too much information to leverage rationally, leaving them with at once too much and too little information. Advanced telco systems were not typically designed to manipulate their data in use cases beyond their core business model. And here lies the opportunity: the data is there, it’s just not often utilized from a viewpoint of “financial inclusion” or “financial identity.” With that in mind, MNOs have begun to invest in data science as a way to reach populations that haven’t had financial access in the past. This effort yields deeper, identity-based relationships between mobile operators and their subscribers.

So, how does this work?

As with most complex problems, approaching the issue of financial identity starts with one small step: in this case, a new approach to airtime credit extensions. Rather than the normal model of issuing these extensions to a small, proven group of people after they’ve run out of balance, data science gives telcos the ability to target the bulk of their subscriber base, without interest or fees, before they run out of airtime.

The central bet here is that people will find that the convenience of consistent airtime (and less frequent top-ups) outweighs the inconvenience of defaulting on what, to start, is a small airtime loan. As subscribers continue to pay back these airtime loans, they gain access to larger amounts, thus increasing both their own convenience, and their loyalty to their MNO.

This progressive financing model creates a pathway to more impactful financial services, such as handset financing, insurance products, and small business loans. For the telco, it creates a lasting and loyal customer relationship, as well as more predictable revenue streams than the prepaid SIM card business line.

Providers can utilize predictive analytics and algorithms to not only identify anomalies in behavior, but also train a computer to figure out when and where millions of people are at their time of need. For example, with advances in machine learning, an MNO could be notified that a prepaid subscriber has a low balance and so pushes an alert to the user with a real-time credit extension offer.

Services can be offered at a time of need in a predictive and proactive manner. Traditional methods of identifying responsible individuals tend to overlook the bulk of the unbanked population, by necessity: the data points simply weren’t there. Now, with sophisticated artificial intelligence (AI), there are new ways to identify and reach this previously underserved population: AI enables an approach that is continuous, context-driven, and ultimately, more accurate than traditional credit scoring.

The power of MNOs

Taking a leaf out of the Malaysian government’s book, the potential power of MNOs to transform the lives of the financially underserved cannot be overstated. With their reach, mobile service providers are uniquely positioned to reach the seemingly unreachable: they have the distribution, and they have the data.

With these together, operators can establish an identity-based relationship with their anonymous subscribers and move them up the path to financial inclusion by offering access to progressive mobile financial services for the first time.