Analysis Featured

Financial Inclusion for the Middle Class in the Digital Age

financial inclusion middle class

On the first day of LendIt USA 2017, Anju Patwardhan, senior partner of the CreditEase Fintech Fund, gave a presentation titled “Financial Inclusion for the Middle Class in the Digital Age.” Her presentation centered on the premises that the unbanked and underbanked population is not necessarily those living in poverty. Rather, the problem has penetrated much of the middle class, even in the United States.

Patwardhan came to the U.S. from Singapore in 2016 and has spent 25 years in banking. She noted there are 2 billion adults  globally that fall into the unbanked category. That’s 38% of the global population. Ninety-five percent of that, however, are in developing countries. More than 1 billion are women.

“We’re essentially talking about the case economy,” she said.

In another category, Patwardhan said the underbanked included anyone with a basic bank account but who may not have access to other financial services. These include insurance, credit, savings, and other financial services, which she called the “full range of financial services.”

“Therefore, they have to go to informal channels and pay a lot more financial services,” she said.

Other Contributors to the Underbanked Equation

Small business makes up half the global GDP. Yet, 60% to 70% of them do not have access to credit from traditional financial institutions. That’s about 250-300 million small businesses worldwide, a third of the global GDP.

“MSMEs are the goldilocks of digital banking,” Patwardhan said.

Another aspect of the underbanked problem worldwide are those who have no legal identification. A small part of that population are refugees. The people who fall into this category need to have some form of legal identification established, which include a birth certificate, Patwardhan said. These are some of the markets that a technology-enabled lending ecosystem can solve.

While there are significant numbers of unbanked and underbanked around the world, Patwardhan said there has been progress.

“I was quite surprised by a study published by the federal government last year,” she said. The report indicated that 27% of the adult population are underserved. That amounts to 16 million unbanked, about 7% of the population, and 51 million underbanked, 20% of the adult population. In the Eurozone, only 5% are unbanked.

The problem with being unbanked or underbanked, Patwardhan said, is that it often also impacts physical and mental health. In the old economy, people in their 20s and 30s would take out a loan to buy a house or a car.

“What has changed,” Patwardhan said, “Is the top quartile of income earners saw an increase in income since 2000. For everyone else, it went down. There are a lot of people in the 1099 economy who are working multiple jobs to make ends meet.”


Can Technology Solve the Underbanked Problem?

“I’m a big believer that technology can help,” Patwardhan said. “A lot of solutions are coming from emerging markets (china, india, kenya, other places).”

Those emerging markets include China, India, Kenya, and other developing countries. However, in the U.S., marketplace lending platforms are rising up to the occasion. One thing that is driving this, at least in emerging markets, is mobile phone penetration.

“There are more than 1 billion mobile phones in China and India,” Patwardhan said. “In the U.S., the number of mobile users surpassed the number Internet users on desktop and laptop computers just in the last year.”

The underlying infrastructure of the Internet will solve a lot of the problems with the underbanked. With 4 billion people worldwide without access to the Internet, which is more than half the global population, as people gain access to the Internet, more financial services will become available. Phone will get cheaper, barriers to connectivity will fall, and that will help everybody.

China has the largest Internet finance sector in the world where they have implicit support from regulators. In India, growth is spurred on primarily by the government.

“In China, you can start a savings account with as little as 1 rmb, which is very popular with consumers,” Patwardhan said.

Some of the drivers of this emerging online market for consumer lending include robo-advisors for wealth management, P2P lending–again, China’s is the largest sector in the world–and digital payments. China surpassed the U.S. last year in the size of its digital payments sector. With P2P lending, it’s mostly the middle class and small businesses gaining access to credit.



The bottom line is this: While there has been some progress in serving the unbanked and underbanked populations, there is still a long way to go, even with the middle class. As more people gain access to technology, the technology will be able to facilitate more people gaining access to financial services. This should lead to a rise in marketplace lending, small business lending online, digital payments, and FinTech services overall. That doesn’t mean innovators in these spaces should wait for the technology to open the floodgates. Opportunity is nothing more than opportunity.



Allen Taylor
Allen Taylor


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