Unlocking the Unbanked: How cyber ID data can advance financial inclusion and ecommerce in emerging markets
Imagine living a life without any digital or financial footprint. Your bank account? Gone. Your credit history? You never had one. What if you disappeared tomorrow? Nobody beyond your immediate network would know. Your life history would vanish with you.
If you’re reading this article, the thought of existing without any footprint is unfathomable – but for billions of people around the world, it’s an everyday reality.
Today’s Digital Footprint: Traditional Identity Data
Today, our financial systems heavily rely on footprints – credit data, banking, histories, employment patterns and past loans – to determine whether a person can shop online, buy a house and ultimately participate in our economy.
The challenge with these frameworks, however, is that they aren’t “perfect” definitions of trust. Because the underbanked lack the documentation necessary to comply with Know-Your-Customer (KYC) requirements that stipulate procedures to open bank accounts, transfer money and apply for credit, they’re classified as risky. KYC policies were established to prevent money laundering, bribery and corruption in the lending industry. However, they have become a barrier for people in developing countries and new immigrants to the Western world.
Imagine the woman in Africa who walks four miles a day to pay her electricity bill – or the recent American immigrant who works two jobs to make ends meet for his family. Although these individuals would be deemed “trustworthy” in most people’s eyes, companies that make risk assessments based on today’s footprint are unable to transact with them. This is because they live in a physical cash economy, where value is stored and transferred through tangible assets, such as cash, jewelry or livestock. Transactions made in a physical cash economy leave no digital record of their financial history, which prevents companies from serving this customer segment.
The Federal Deposit Insurance Corporation (FDIC) estimates that nearly one-third of the United States population – 106 million people – is either unbanked or underbanked. Of these individuals, it’s estimated that 25 million don’t have a credit score.
Global forecasts place the ranks of the unbanked around 2.5 billion – approximately half of the world’s adult population. In reality, however, this number is almost impossible to measure.
Our financial systems have created a global population of forgotten citizens who are excluded from the basic ability to transact. As our world becomes increasingly digital and data-driven, the gap between the banked and unbanked is positioned to grow wider.
So, how do we bridge this cash-digital divide? One solution is cyber ID data, including advanced analytics from social networks, mobile, ad networks and ecommerce sites.
Tomorrow’s Digital Footprint: Cyber ID Data
Here is the reality: over the last decade, the web has evolved from a largely anonymous space to one that closely links our digital and offline identities.
Cyber ID data (CID) provides a digital footprint from sources, such as social networks, ad networks, mobile and ecommerce sites, which can be used to address the very basic question, “Is this person who he claims to be?”
CID has the power to radically impact financial access for unbanked citizens. For instance, in China – which relies on alternative social networks to Twitter, Facebook and YouTube – there is a strong link between social media and how people use their money. Social media plays a significant role in Chinese commercial life, with peer recommendations driving purchases of products and services. As Leesa Schrader, consultant at the Consultative Group to Assist the Poor, points out, applications and services that connect social data with payments are growing at a significant pace, albeit under rigid state controls.
Mobile technologies create the bridge to bring more people online. Bank of Tanzania governor Benno Ndulu explains that thanks to mobile, Tanzania has surpassed its mobile inclusion targets. Mobile financial services were initially seen as a tool for making payments, but people began to utilize their phones as a resource for saving money.
Tanzania’s story is only part of the global picture – the number of mobile subscriptions in use worldwide grew from fewer than 1 billion in 2000 to over 6 billion in 2012, with nearly 5 billion of those in developing countries. According to The World Bank, mobile money and electronic transfers could bring financial services to 2.5 billion underserved people. As the volume of mobile money transactions continues to grow, providers will have access to a deeper well of data, which will help create an accurate cyber ID profile of the customer relevant for financial services.
This new type of ‘footprint’ creates a catalyst for trust online.
In Digital We Trust: CID Provides Entry into New Markets
Ecommerce marketplaces are rapidly evolving ecosystems. However, the most advanced, data-driven ecommerce leaders like Amazon and eBay are still unable to ship to developing markets due to risk. The challenge goes back to the “trust issue” – no footprint means no trust.
These ecommerce giants are in the best position to innovate and leverage CID to create data-driven consumer profiles for the unbanked population. If they’re successful, the woman from Africa will be able to open a bank account using her trusted cyber ID profile, and she will no longer have to trek four miles each day to pay for electricity. Using her mobile phone and bank account, she will be able to buy and sell on eBay or Amazon and participate in the global economy.
Trust is what has and always will connect us as humans. So it comes as no surprise that the Internet’s “trust layer” is ecommerce’s biggest business opportunity. At the heart of it all is verified identity. If the major players in finance and ecommerce take advantage of CID tools, it could have profound implications for financial inclusion, and for the development of an inclusive digital economy.
Stephen Ufford is founder and CEO of Trulioo.