Financial inclusion is a goal that many countries are struggling to achieve, primarily due to the high cost structure that traditional banks currently have that makes it financially unviable for them to reach out to the underserved and underbanked population. This is true even in countries like China, which has made great strides in economic growth and technological capability in the past decades. 80.2% of adults in China have a basic bank account while 61% have used mobile payments. However only 9% of Chinese could secure funding from financial institutions in 2017, quoting a World Bank report. “[The report shows] many having to turn to their friends and family to borrow money, while others even lack funds for emergencies.”
The rise of digital banks, which operate online without physical branches could solve the problem. Significant results have been seen in the past four years with WeBank, China’s first digital bank launched by Tencent Holdings Ltd in 2015.
Statistic shown 75% of the bank’s customers are blue-collar workers who might not be able to get credit facilities from traditional banks, partly because of their low-income profile. WeBank has been able to provide them with small consumer loans of relatively short durations. “If you look at our loans, the [average size] is about RMB8,100 (RM4,860) and the average duration is only about 50 days. About 72% of these loans carry an interest amount of less than RMB100.
According to a china banker “If I were to ask traditional bankers if they wanted to take up these loans, most of them would decline.”
As a digital bank, WeBank has the capability to introduce products to the market quickly. The bank’s best time-to-market record was 11 days. “A new product, from its ideation stage to actually delivery to the market, only took us 11 days. That happened in 2017 and the record is very hard to beat. We talked a lot to the industry players and they told me it would probably take them more than 11 days to assemble their people and hold a meeting to talk about a new product,”
You may ask how is it done?
Technology is a key enabler that helps WeBank to drive down cost and increase efficiency to serve the unbanked and underserved
For instance, WeBank leverages facial recognition technology (part of AI technology) to conduct its know-your-customer process. This eliminates the need for WeBank to open physical branches to onboard customers by scanning tens of millions of faces over the years and have achieved a very high accuracy rate. In fact, the false recognition rate (used to measure the error cause by the facial recognition technology) is less than one in a million. In comparison, the rate of error of the human eyesight is 0.8%. Machines are already doing a much better job than humans when it comes to facial recognition.
Besides that, WeBank utilises blockchain technology by running a shared ledger with its partner banks so that all transactions that run between them are communicated in real time. “Transactions that happen in WeBank are completely recorded digitally and don’t have paper contracts