As my taxi meandered out of the Kolkata International Airport parking lot and into the dimly lit streets, I was suddenly overcome by emotion of a new reality I have never endured. The night sky smelled putrid from the heavy monsoon humidity, human sweat and smoke from coal burning stoves that still feed the masses of poor people in this enigmatic city where Mother Teresa’s work was first noticed by the outside world. My senses were overwhelmed by the chaos from blaring horns, traffic congestion, streets overcrowded with people and cattle and stray dogs, all vying to move somewhere in the heart of the developing country of India.
As the taxi rolled on, I wondered why so many people in the world live in poverty. And it’s not just undeveloped countries that fail to lift their citizens to acceptable living standards. Even in the United States, more than half of us have less than $1,000 in savings, according to a 2017 GoBankingRates survey. Nearly one third of baby boomers had no money saved for retirement in 2014, when they were on average 58 years old, according to the Stanford Center on Longevity. College debt has piled up to a record $1.5 trillion, Forbes reported last year. The rich are getting richer, and the ranks of the poor have grown, according to a CNBC report last year.
But while in India, I noticed something interesting. Almost everyone — rich or poor, young or old — had a cellular phone. And this very fact could help spur a new financial and technological revolution that creates mass scalable solutions to lift billions of people out of poverty.
FinTech (financial technology), a recent buzzword in the world of finance, is a new, fast-growing model combining technological innovation with financial products and services to offer financial tools, digital solutions and platforms, accessible from the palm of your hand. Want to get approved for a mortgage? Digital platforms such as Rocket Mortgage from Quicken Loans allow you to do so within minutes on your phone. Left your credit or debit card at home? You now can make most purchases in seconds using apps such as Venmo and Square. Do you want peace of mind with your personal finances? Mobile banking and investment advisory services allow you to track your finances at any place, at any time.
The expansion of FinTech is altering our behavior, allowing financial processes that might have taken lots of time, energy and even money to be completed much faster and easier, at our convenience. Traditional banks have been forced to rethink how they operate with retail branches at risk of no longer being needed.
But even more enticing is the potential of FinTech to assist those around the world who have never had access to these financial services. About 10 percent of the world’s population lived in poverty in 2015, with 736 million people living on less than $1.90 a day, the World Bank reported. And in 2018, about 1.7 billion people did not have a bank account or access to one, according to Forbes. The reasons often cited for these dismal numbers are the unaffordability of traditional financial systems, the distance from a bank, the lack of necessary documents and the lack of trust in financial service providers, according to the World Bank. Without a local bank, people in such areas lack the ability and knowledge to build savings and net worth. In addition, the absence of a bank forces local populations to sustain life on a cash-only — creditless — economy, which restricts those people from the ability of purchasing a house and other necessities that would significantly improve their quality of life.
FinTech innovation may soon make financial inclusion a reality for those living in developing countries and economically disadvantaged areas in the western developed world, as access to financial services as simple as opening a bank account and getting approved for a loan becomes more available. The cost of a mobile device continues to fall, allowing for greater access within those demographics. People in those poverty-stricken areas who once were excluded from economic equality may now be able to get a loan, start building savings and improve their financial situation.
The power FinTech has to lift masses out of poverty is extensive and promising. For example, Kenya’s M-Pesa, a text-based payments system launched in 2007 that allows users to store and exchange money via mobile phones, is used by 96 percent of households in that country, according to Georgetown University. That same system has contributed to Kenya’s growth in financial inclusion, from 26 percent in 2006 to more than 75 percent, reports Deutsche Welle. On a more social level, M-Pesa benefited women by allowing them to build savings and shift their occupations from the lower-paying agricultural jobs to higher-paying careers in business/retail services and bring their families out of poverty.
Other examples of FinTech’s widespread growth are India’s Paytm digital payments system, backed by Alibaba and Berkshire Hathaway, now used by more than 300 million people, and Japan’s Softbank, which has provided financial access to millions of people who would otherwise be left out of the mainstream banking system.
And this is only the beginning of the FinTech revolution. Investments in FinTech companies reached an all-time high of $112 billion in 2018, and the number continues to increase, according to KPMG International. Tech giants also are getting in on the action. Earlier this year, for example, Apple partnered with Goldman Sachs and Mastercard to launch Apple Card, a credit card designed to be compatible with Apple Pay on Apple devices. Similar efforts are underway at other major financial institutions, which are teaming with business models that already reach or promise to reach billions of people, bringing them into a new world of financial access. More locally, these efforts promise to benefit millions of Californians in rural counties without access to retail bank branches, cellular coverage or financial solutions.
With the growth of FinTech, for the first time in my life I see hope that purports to restore the basic dignity in life by ensuring no one is destined to a life of poverty.
Sohil Varshney, an incoming senior at Oak Ridge High School in El Dorado Hills, is the CEO of the 501c3 nonprofit Financial Literacy for You, which he founded in 2018. His interest in business and finance inspired his passion for financial literacy and his mission to spread it across the country and around the world. Sohil is the son of Comstock’s Editorial Board member Sanjay Varshney, a senior vice president at Wells Fargo Private Bank.