The Global Citizens blog series has demonstrated that this ever expanding segment is continuously necessitating new forms of financial services. With traditional providers slow to cater to this audience, FinTechs have been quick to fill the space, launching innovative solutions to meet global citizens’ banking, remittance and payments needs – as discussed in the previous episodes of this series. While these are undoubtedly amongst the areas most penetrated by FinTech innovation, global citizens’ wider financial needs are now also being addressed.
Borrowing is one of the most underserved areas in financial services, with global citizens often struggling to obtain a loan in a foreign country. Whether it’s a student loan, a credit card or a mortgage, obtaining the required credit in a foreign country can be very difficult. When people move to a new country, they face the issue of Tabula Rasa, i.e. having to start from a blank slate in many aspects of life but none more so than the issue of borrowing. And this is true at any life stage, from being a student through to becoming an established professional and even to becoming a retiree. While gaining access to credit is very difficult without sufficient credit history, accruing sufficient credit history without a credit facility is virtually impossible. This vicious circle has been one of the main hindrances to financial inclusion globally.
Unlike traditional lenders, FinTechs have started addressing this gap. Today, a host of alternative lenders from around the world offer easy-to-access loans to underserved segments of society, including global citizens. While some have built huge local customer bases, facilitated loans worth billions of dollars/pounds/euros and grown to unicorn status (e.g. SoFi in the U.S., Avant in the U.K.), others focus more on the inclusivity of their services, extending loans to those whose applications were denied by all other providers. LendUp, for instance, uses a laddering system, charging relatively higher interest rates to those without a credit history (often the case for global citizens) on its short-term loans and credit cards, gradually improving terms as users build their profile through educational programmes and their repayment history.
With tuition fees continuing to increase, student loans are also an increasingly sought-after product. However, with more and more students opting for foreign universities, such credit is inaccessible for an increasing share of applicants. Prodigy Finance, a U.K.-based FinTech, caters to exactly this segment. As suggested by its name, the platform focuses on students starting out at top universities globally, offering student loans and refinancing options to applicants from 150 countries. As opposed to the traditional approach to measuring creditworthiness, instead of evaluating financial history, Prodigy Finance assesses applicants’ academic profile to forecast their future earning potential, utilizing this data to determine repayment terms, including interest rates.
Other start-ups focus specifically on the credit scoring process, enabling partnering lenders to make better informed decisions. Measuring credit risk is a particular challenge in the case of global citizens, where lenders are likely to lack sufficient information in order to create a profile of the applicant who are often new to the jurisdiction. Nova, a U.S. credit scoring service, enables immigrants moving to the U.S. to passport their credit score from their home country. The solution builds integrations with credit databases internationally and allows partnering lenders access to this data via an API-based infrastructure. Another example is Credit Kudos, which has developed an innovative approach to credit scoring, utilizing a wider, more flexible set of data sources to offer a fairer, more transparent measurement of creditworthiness. The U.K. FinTech works with partnering lenders, enabling borrowers, including those who have previously been declined credit or have no borrowing history, better access to credit cards, secured as well as unsecured loans. While, for now, these techniques are utilized primarily by alternative lenders, partnering with similar credit scoring start-ups could also be the way forward for incumbents to penetrate this segment.
Wealth management has also been a focus area for FinTechs, making investment into a wide variety of assets accessible to virtually anyone with a smartphone, regardless of the size of their wealth. For instance, start-ups such as Betterment in the U.S., as well as Moneybox and Nutmeg in the U.K., enable users to deposit their chosen amount to their investment account (either one-off, or via regular top-ups or purchase round-ups), with the FinTech taking care of the rest and investing the funds based on their preferences and risk aversity. Those who prefer to make their own investment choices are also able to do so via stock trading apps such as Robinhood in the U.S. and eToro in Europe, or even lunge into the risky world of cryptocurrencies with the help of trading platforms such as Coinbase. Still, most of the above start-ups, although very innovative in nature, remain largely confined to their home market, and are yet to truly solve realities that global citizens face.
Pensions are another area where traditional products are typically confined to a single market. However, with people increasingly changing jobs not just between employers but also countries and continents, maintaining continuity in their savings and making sure that amounts saved up in one country remain accessible when moving to another has been an issue. While some start-ups (e.g. PensionBee) enable users to easily combine their savings from different pension funds into a single pot, such solutions are also typically only applicable to savings from within a country. Nevertheless, with Open Banking gaining ground, particularly in Europe, wealth management solutions will soon have the opportunity to extend their services into new countries, catering also to the needs of global citizens.
Insurance is heralded as an industry that is built on a solid business model and one that has remained largely unchallenged. Still, globalization is catching up with this sector too, necessitating new approaches to the provision of services. Whereas incumbents have been slow to react, InsurTechs have started to fill the void.
Similarly to other areas of financial services, global citizens belong to some of the most underserved segments in respect to access to different types of insurance. For instance, Oscar, is capitalizing on the gap left by government-provided health insurance in the a U.S. The New York-based InsurTech offers digital health insurance to individuals and their families, regardless of their origin and social status. With quarter of a million customers and over US$1BN in revenues, the start-up is ranked amongst the highest-valued FinTechs globally.
Home insurance is another area which has seen some disruption. Lemonade, a U.S. based InsurTech, for instance, offers easy-to-access homeowner’s and renter’s insurance to those residing in the U.S., including immigrants. With its recently announced plans to launch in Europe, Lemonade is believed to have the potential to disrupt the global insurance industry. Similarly, the services of Coya, a Berlin-based start-up, are available to anyone residing in Germany. The InsurTech, which started out with flexible home contents insurance offering, claims to have plans to expand across Europe and extend its proposition to include a wide range of insurance products.
While most aspects of our lives are becoming increasingly global, financial services are still very much provided on a market level. One common excuse for this impasse is that regulation might vary significantly from country to country, let alone from region to region, making it difficult to expand financial services products beyond borders. Still, FinTechs, particularly digital banks, are demonstrating how this challenge might be overcome. With open banking gaining more and more traction, start-ups are increasingly able to interconnect with each other, including on an international level, and co-provide a complex set of personalized services to customers. This way, a wider range of product areas is expected to be disrupted by innovative solutions that work across borders, gradually making the management of finances, including for global citizens, easier.