Financially including a billion more

HI-TRAC
The author's shorthand for Happiness Index, Infrastructure, Talent, Regulations, Access and Capital. The six pillars that make UAE a great place for a startup. This week's article is about a venture that is focused delivering significant change in banking infrastructure and processes.
According to World Bank's Global Findex, "worldwide, approximately 2.5 billion people do not have a formal account at a financial institution". The report further goes on to point out that "three-fourths of the world's poor do not have a bank account, not only because of poverty, but also due to costs, travel distance and the paperwork involved".
This stark disinterest of the banking industry to do much about financial inclusion is not surprising. It is just not profitable. The refrain from bankers is that technology and operational costs cannot be lowered to serve the marginal, low value account. At the same time, the State of the Industry report from GSMA indicates that the mobile money companies run by telcos have on-boarded over half-a-billion low-value accounts via 260+ operations leveraging a network of over 4 million mobile money agents. Although the mobile money players have proven their case, banks pooh-pooh the idea and say that the former are incapable of running full-fledged banking operations. In Europe, that is no longer open to debate. PSD2 regulations have forced the industry to confront the reality that the much larger distribution capabilities of telcos like Orange, Telenor and O2 could make the banks irrelevant to a consumer population that has been weaned on Facebook and WhatsApp.
In most other geographies, the financial regulators have played a key role in keeping the banking industry front and centre in the area of payments and consumer financial services products. An interesting lesson in control comes from the introduction of cane toads in Australia. At the behest of sugarcane growers, the government there imported these amphibians from Hawaii in 1935 to regulate the cane scarab, a widespread pest. Cane toads, on the other hand, were not particularly impressed with the native scarab and decided to expand their choice of victuals to Australia's other much more impressive and delectable offerings. Soon enough, the cane toads had decimated local insect species and with no natural enemies, they themselves became the one of the biggest pests in Australia.
In the current phase of evolution, there is much support for the model that involves the collaboration between the banking industry and fintechs. However, the innovators in fintech learnt DAM (digitisation, agility and mobility) from the telcos. A quick assessment seems to indicate that the number of successful mobile money operations and telco-led digital financial services companies exceeds the number of truly successful digital banking operations. It's not that the banks cannot play catch-up. Banks have highly astute business strategists running them and they will find a way but it requires transformative thinking and courage to embrace the kind of change that is required.
FRS Labs is one of the two winners of the FinTech Abu Dhabi (FinTechAD) Innovation Challenge that were announced during the inaugural fintech Abu Dhabi event in late 2017. Shankar Palaniandy, founder and CEO of FRS Labs, says this about the company.
"We are solving an age-old problem of opening a bank account - by proving who you say you really are - but one that has profound value and socio-economic impact for millions of people."
Not unsurprisingly, the FRS Labs story began with a telco. "The journey really began in 2010 with support from a major telco to develop and scale a fraud management solution that is self-learning (read, no rules to be configured) and which requires little or no training (intuitive and easy to use). The truth is, one thing led to another and we steadily added great talent and attracted top customers in a short span of time," says Shankar.
FRS Labs' objective is to provide customer onboarding and fraud prevention solutions for a financial inclusion customer base that is estimated to be a billion unbanked and underbanked people globally. According to Shankar, the company is working towards simplifying the account opening process from branch visits, paper documents and intrusive compliance checks to a digital onboarding process that takes just a couple of minutes. Their 2025 financial objective is simple - to make a revenue of a billion dollars from a billion individual end-users. Shankar thinks its achievable. Says he: "In pure monetary terms, this is a $100 billion opportunity to transform institutions that haven't changed for a 100 years." In reality, this industry hasn't changed much for close to half-a-millennium. The company got a boost in 2014 from the digital transformation journey in India. According to central bank statistics, banking penetration increased from about 50 per cent in 2014 to close to 95 per cent currently. On the back of national identity credentials and eKYC.

Revenues come from annual licence fees and professional services fees. The stated go-to-market plan is to scale the solution to every financial services company in Europe and MEASA region by 2020 and globally by 2025. Shankar is thankful to the team and early clients who were willing to take the solution on-board.
According to Shankar, "Remaining bootstrapped for long has given the team the seriousness of an adult with a child's curiosity to create new products without the burden of investors or ROI on the shoulder. However, solving problems does not stop with mere curiosity from individuals; it requires unflinching commitment, teamwork, relentless focus, planning and direction to get the version out that gives what customers really want. This has been the daily grind for the past five years and defines who we really are - modest but serious problem solvers with a goal to touch the lives of a billion people."
The writer is founding partner at BridgeDFS, a bespoke digital financial services advisory firm (www.bridgeto.us). Views expressed are his own and do not reflect the newspaper's policy. He can be contacted at sanjiv@bridgeto.us.