One of the most stubborn challenges in financial inclusion has been getting past the famed “last mile” that stands between a well-designed service and the customer, particularly customers in tough-to-reach areas or who have traditionally been excluded from formal services. This is the case in much of China, where there are many remote, rural communities with people who have long been denied access to financial services that promise to boost household resilience and welfare.
But China is also home to solutions that, if pushed to a far greater scale, could get financial services to travel that last mile and generate the “first touch” on a smartphone screen that today represents the new age of products and services.
A wide range of approaches to solving the last-mile problem has been tried around the world. The most common has been the establishment of agents or shared service centers located within shops, employers, or even government agencies.
China is no exception. Regulators and local agencies have encouraged the deployment of shared service centers to augment the agency network established through the Postal Savings Bank. They have even provided subsidies to local businesses to provide these financial services. The effect is that, by 2018, the People’s Bank of China reported the existence of 914,000 rural service centers, covering 99.7 percent of China’s administrative sub-regions. Little wonder, then, that the World Bank’s Global Findex 2017 survey showed that just over 80 percent of China’s adults have a bank account, categorizing them as “included” by the most basic measure.
Explosion of Internet Access Offers New Access to the Excluded
Today, most last mile solutions target the 42 percent of Chinese who are not yet using internet or mobile payments. However, that proportion has already shrunk from more than two-thirds only seven years ago, while the share of people using mobile payments has more than tripled to 41 percent. For this large and fast-growing group, “first touch” solutions are required; that is, solutions provided on their mobile phones, bridging the tiny gap between the users’ fingers and their smartphone screens.
The question now is whether these solutions cut out the aggregators; the intermediaries that close the last-mile gap for traditional financial services.
A new white paper we’ve just released suggests that this is not the case: in fact, powerful new models of aggregation are emerging in the forms of mobile, app-based financial marketplaces. Created by large techfin companies like Ant Financial and Tencent Holdings, these marketplaces offer customers an expanding range of financial services—digital credit, mutual funds and insurance—offered by third-party providers. Customers can seamlessly transfer funds to providers in these growing ecosystems, and it’s far easier to choose and pay for additional services. It seems likely that these techfins—as new types of digital aggregators—will curate and recommend bespoke financial service solutions using artificial intelligence applied to the wide array of financial data collected, as clients browse and build their financial portfolios (see image above).
The Rise of the Digital Aggregator
These new digital aggregators hold great potential to advance financial inclusion by linking clients effectively to financial services that were out of reach before. By reducing the costs of distribution and administration from collecting even small savings, repayments, or premiums, they may make it cost-effective for financial providers to reach people with far lower incomes.
However, will greater choice necessarily improve a customer’s financial health? Hard to say. Financial health is a relatively new term, introduced by the Center for the Study of Financial Innovation (CFSI), and now widely used in the U.S. but less so in other parts. Financial health measures not just whether people have and are using a particular category of product, but whether they can achieve certain outcomes that are considered indicators of financial health; for example, can they meet daily expenses and save a lump sum that is large enough to cover an unexpected expense? Do they undertake longer-term planning of their finances? Do they feel anxiety about their finances? Research in the U.S. has shown that while most Americans today are financially included, a majority are not financially healthy by these measures.
The concept has not been measured or tested yet in China but it seems equally applicable in an environment with high levels of financial inclusion. In particular, as the use of digital aggregation grows, China has the opportunity to research the financial health outcomes from bundling different products for different segments of people. Given that they are now digitally connected and using apps and smart phones, the costs of experimenting with and measuring financial health is much lower than before.
Delivering (Financial Services) to the Deliverymen
In our white paper, we cite the example of urban deliverymen who work on a casual basis for e-commerce platforms like Meituan Dianping, typically receiving US $0.20 to $0.50 for each completed delivery. There are now millions of people across China performing similar “gig” work, and their incomes are relatively low (by urban standards) and volatile. Such workers can see their incomes dented at any time by change in their health, by the weather, or even by the day of the week. Many come from rural areas and often leave behind dependent family members. Without a residence permit in urban areas (hukao), these workers lack access to welfare services like health care. They are part share of China’s urban working low-income group. However, aggregated by employment platforms, these deliverymen offer an opportunity for a set of natural experiments; what financial products could they take up and use that would smooth their consumption, reduce their risk exposures, and perhaps even unlock loan or equity capital to start their own businesses at home if they establish a good track record.
Gig workers like these can now be found in most parts of the world. But in China the size of the group, and their existing use of digital platforms for their livelihoods, opens great opportunities to discover whether digital aggregation can travel that last mile to the first touch on an app that could deliver financial health on an epic scale.