FinTech companies are making financial services available to an increasing number of people by lowering fees and barriers to entry; but as we mentioned in a previous article, certain FinTech companies are committed to solving the most pressing social problems in their communities. Consequently, they simultaneously generate profits and social impact.
Financial exclusion comes with a high cost for both individuals and governments. Including entire disadvantaged communities into the financial system is a growing problem to be solved. After researching different FinTech companies around the world, socialfintech.org has identified more than seventy firms that fall under the social FinTech scope. We have categorized these companies into six different sectors: crowdfunding, eBanking, financial literacy, investments, microfinance and loans, and payments and transfers.
All of these companies aim to show the inclusive potential of FinTech, with ‘payments and transfers’ and ‘microfinance and loans’ standing out as the two leading sectors by size – 50% -.
One of the biggest challenges of starting a business today is finding funding. Crowdfunding allows individuals to raise monetary contributions from other individuals as an alternative financial solution. Website and app-based crowdsourcing platforms that focus on social change are gaining importance and providing people with funding that otherwise would not be accessible to them through traditional financial channels. The social crowdfunding sector represents approximately 10% of the social FinTech industry. Within the crowdfunding sector, there are different types of platforms: donation-based crowdfunding, equity crowdfunding, debt crowdfunding, and rewards-based crowdfunding.
An example of a social FinTech crowdfunding platform is ‘EdAid’, a London-based company that enables talented students to fund their expenses to higher education using the power of community capital; ‘M-Changa’, a Kenya-based platform that provides easy mobile management tools to enhance fundraising success, or ‘La Bolsa Social’,an equity social crowdfunding platform based in Spain.
There are many things that we take as granted – paying bills, getting credit, withdrawing cash, or sending money – that are still not available for many. According to the World Bank, around two billion people remain underbanked in the world today; therefore, there are a lot of opportunities for online banking to expand financial inclusion among developing countries – particularly among the poor and women. In most developed countries, eBanking is growing as a response to general distrust of the established banking system after the 2008 economic crisis.
Some eBanking companies focus on providing access to financial services to everyone in their community, like the Ecuadorian bank ‘Solidario Conmingo’; while other firms such as ‘Impak Finance’ work on differentiating themselves from the traditional banking values by implementing complete transparency, accountability, and impact investing goals.
Knowledge is power and certain companies aim to empower everyday consumers with financial knowledge in order to make personal finance management easier for everyone. Taking control of our finances gives us back the power, rather than having to excessively rely on the traditional financial entities.
Firms like ‘BLAK Fintech’ acknowledge the importance of financial education. This company provides a prepaid debit card to minorities, as well as access to an app with extended financial literacy content.
Some firms use robo-advisors, software programs that uses algorithms to help people make informed decisions and allow everyone to trade. These platforms offer much lower fees than typical banks or brokers, making these types of services accessible to everyone. US based ‘Wise-Banyan’s states that investing should be a right, not a privilege and offers free financial advice to all its subscribers. Within this sector, we can also find companies offering alternative investments, ‘Livestock Wealth’ offers the opportunity to invest in cows in Africa rather than in the traditional stock market.
Microfinance and Loans
This sector is very broad and the largest in terms of number of companies. Microfinance and loans goes from P2P lending apps, where ordinary people offer credit to those who need it, to microfinance firms offering fair interest rates in developing countries. Microfinance firms facilitate loans to those who are neglected by traditional banks, but want to start a new small business or become an entrepreneur.
Some firms include ‘Fig Loans’, designed and partnered with nonprofits, is a firm that helps low to middle class individuals get through financial emergencies offering affordable loans; or ‘Musoni’, a microfinance company that focuses on empowering rural women in Africa.
Payment and Transfers
Lastly, we find the second biggest sector within the social FinTech community and the most widely known by investors. In this sector, firms aim to alter how, where, and when payments and transfers around the globe are made.
For example, ‘MeraDoctor’ allows doctors all over India to accept all types of different forms of payment, even if patients do not have a credit or debit card, or ‘EastPesa’ a platform to send money to any mobile number in East Africa.
What might the future hold?
We are excited to discover more social FinTech companies around the globe within these sectors, but also believe that other areas of FinTech may increase in scope in the near term, such as insurance and blockchain. Both will have a strong impact on our society in the following years.
Becoming involved with the Social FinTech industry is one of the best ways for socially-conscious entrepreneurs to launch a business and we hope to welcome even more founders to our social FinTech hub soon to keep working towards financial inclusion.
By Marta Muñoz