Going the whole nine yards to serve the last mile

February 7, 2020

There is growing concern for the large number of underbanked and unbanked in Southeast Asia, which currently stands at around 300 million[1]. That is a staggering 3 in 4 adults. 

Those underbanked do have a bank account but suffer from insufficient access to mainstream financial services and products, typically offered by retail banks. These include basic credit and insurance. Those that are unbanked do not own a bank account and typically do not have any type of professional money-related services. This leaves them out of the financial system altogether.

Why is this important? According to the e-Conomy SEA Report 2019 released by Google, Temasek and Bain & Company earlier this month, a key trend for this year is the growth of digital financial services[2].

The precursor to fintech success is digital inclusion 

Whilst such stories paint a glorious nirvana for fintechs, being able to truly capitalise on the opportunities the unbanked and underbanked present depends on the technology being in place to achieve digital inclusion.

Fundamentally, there are four areas where fintech could  bridge the divide on the region’s emerging economies through digital technology: 1) Providing basic mobile banking services and remittance services; 2) Using mobile behavioural data to determine credit worthiness for the underbanked or unbanked, allowing digital lending based on digital credit scorecards to individuals and small businesses underserved or excluded from the traditional financial system; 3) helping small businesses better manage cashflows with short-term loans, allowing them to be profitable during seasons of high demand and 4) Employing data and analytics to help small businesses make better decisions.

For example, many financially excluded individuals don’t have the track record banks traditionally need to accurately verify a consumer’s identity, which banks rely on to support their lending decisions. Development of new underwriting and credit scoring analytics to assess lending risk is one way of reaching the unbanked in this area.  

Digital inclusion may be the springboard fintechs need to properly serve unbanked and underbanked consumers in Southeast Asia. However, from the outset, there needs to be critical digital infrastructure in place to provide universal Internet access and drive mobile adoption. Southeast Asia has a long way to go, with less than half (42%) of the total population currently able to access the Internet.

A recent Business Times report points to the “sobering reality” fintechs recognise that serving the unbanked would be a loss-making endeavour, whereby the cost of client acquisition could outweigh any potential revenue from serving the low-income segment. 

Internet access is just the entry point

In an age where more people hold mobile phones than bank accounts, it is not simply Internet access that will foster financial inclusion through digital finance. To accelerate access to digital finance for the unbanked and underbanked population, governments need to put in place an ecosystem and regulatory framework for digital finance.

For example, they would need to build national databases for digital identities, with a built-in authentication system enabling individuals and businesses to conduct digital transactions in a secure and convenient manner.

To this end, countries such as Malaysia, Indonesia, Thailand and the Philippines have either put together plans or started to build out their national digital ID systems, an undertaking that would require significant investment of capital and time.

Furthermore, there would need to be a licensing regime in place across the various jurisdictions to enable fintechs to conduct e-KYC (electronic Know Your Customer) processes for the unbanked population that reside outside of the urban regions. The cost of building a compliance team could be rather prohibitive to startups so the option to virtually verify customers’ identities in keeping with global anti-money laundering laws is one that could help fintechs stay afloat serving the underbanked and unbanked demographic.

Besides giving the unbanked basic access to financial services, one fundamental aspect that will transform the livelihoods of the underserved population is credit. With digital inclusion, lenders can now base their assessment on digital scorecards[3] based on the applicant’s digital footprint. For this to take off, it needs to be accepted as a mainstream solution for credit assessment. If governments and policymakers could lend support to the creation of a robust credit bureau based on these digital scorecards, more will gain access to the financial services value chain that have eluded the underbanked and unbanked segments.

Ultimately, for fintechs to go the whole nine yards to serve the last mile, more needs to be done to lower their operational costs for it to be financially viable for them to serve the unbanked over the long term at an affordable cost.


  1. https://fintechnews.sg/34248/studies/southeast-asia-booming-internet-economy-to-boost-fintech-growth/
  2. https://www.businesstimes.com.sg/garage/south-east-asias-internet-economy-poised-to-hit-us300b-by-2025-e-conomy-report
  3. https://www.ey.com/Publication/vwLUAssets/ey-alternative-credit-scoring-of-underbanked-consumers/$FILE/ey-alternative-credit-scoring-of-underbanked-consumers.pdf


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