How to Create a More Diverse – and Inclusive – Fintech Landscape

Inclusive innovation means including more fintechs from more places. Here's how it can become a reality.

According to the most recent Global Findex data, 1.7 billion people worldwide are currently underserved by the financial sector. But fintech companies from China to India to Silicon Valley aren’t just challenging the status quo; they’re upending it. As a result, many of these companies are generating record levels of buzz and excitement in the commercial and impact sectors alike.

Those of us who care about financial inclusion for the poor must ask if this excitement is translating into real change for those who are, and have historically been, underserved. As Greta Bull, CEO of CGAP, wrote in a recent essay: “Poor people…remain central to the story but are easy to lose sight of in the excitement around technology and innovation.”

How, then, can we channel the excitement around fintech to drive not only innovation, but inclusive innovation, which delivers real value to the poor and underserved? It’s a complex challenge.

Investment in Fintech: Highly Concentrated and Highly Uneven

Certainly at least part of the equation is understanding how capital and investment are flowing into fintech. While we know that a lot of capital is flowing there, when we look at how this happens, we see two challenges: investment is currently highly concentrated among a relatively small group of investee companies, and there is a lack of understanding of how to define and measure inclusion, even among those concerned with impact.

Digging into the first challenge, we find that fintech investment is highly concentrated in part because it can be challenging for investors new to fintech to sort through the large number investment opportunities available, especially as many fintech companies are at an early stage and are developing largely untested business models. This pushes investors to rely on pre-existing networks and contacts for sourcing their investment pipeline.

It can be challenging for investors to sort through a large number investment opportunities.

Unfortunately, this process leaves out most entrepreneurs, especially in developing countries. For instance, in East Africa, Village Capital found in 2017 that 72 percent of all venture capital in the region went to just three startups, and 90 percent of that capital went to companies with at least one expatriate founder. This does not necessarily mean that these startups aren’t inclusive. However, the concentration of capital based on access to traditional networks creates a risk that investors will overlook local entrepreneurs who are creating innovative solutions to local problems, undermining the goal of financial inclusion.

Data Can Help Address this Disconnect and Drive Innovation

We at MIX are in the process of designing a new data solution to attract capital into inclusive fintech. To understand how such a solution can be best designed to meet the needs of both fintechs and investors, we’re conducting several rounds of interviews. We’re finding varying degrees of awareness of the problem of high concentration of capital. While investors may be aware that a large portion of the available capital is going to specific regions and companies, with a few exceptions actively addressing the challenge, most investors don’t see this concentration as their problem. Since there are so many fintechs out there, the pipeline of each investor is full. This fact – combined with the restrictions, requirements, and specific risk appetite in place at each investment firm – leaves little room or incentive for an investment officer to find fintechs outside of the small circle of known, relatively safe bets.

How can data help address this disconnect? Our hypothesis is twofold.

  • We can use data to highlight gaps in current investment flows, surfacing new, promising companies with founders who have non-traditional networks.
  • We can use standardized data on fintechs to create benchmarks that make it easier to define and measure inclusion.

This type of data can provide investors with the tools they need to make the case that investing in a broader range of fintechs will close industry gaps and accelerate inclusion.

About Inclusive Fintech 50

Inclusive Fintech 50, a competition implemented by MIX to recognize promising early-stage fintechs driving financial inclusion, is providing insight into the broad and diverse landscape of fintech companies. The competition is funded by MetLife Foundation and Visa with support from Accion and IFC. Enthusiasm by fintechs to submit shows that even early-stage fintechs can and will share data to demonstrate financial performance and inclusion.

Even early-stage fintechs can and will share data to demonstrate financial performance and inclusion.

An early look at the applications has shown us that fintechs come from a wide range of geographies, with more than 70 countries represented and wide global distribution: nearly 30 percent of the applicants come from Sub-Saharan Africa, between 10 and 15 percent each from East Asia and the Pacific, Latin America, south Asia, Europe and Central Asia, and North America, and around 10 percent from the Middle East and North Africa.

You Can Help us Create a More Inclusive Fintech Landscape

Our next step is to combine the data and insights from Inclusive Fintech 50 with the insights from our interviews with investors and fintech companies to design a data solution that can help drive investment to create a more diverse and inclusive fintech landscape. We hope that you’ll get involved: we’re looking investors and fintech companies to provide feedback on our approach and to test the standardized data categories and key performance indicators (KPIs), which we’ll use to benchmark both financial performance and inclusion. Together, we can ensure that fintech delivers on its promise to deliver affordable, accessible, and innovative financial services to everyone, everywhere.

To learn how you can get involved, please email fintech@themix.org.

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