Technological advancements, such as those resulting from the adoption of artificial intelligence (AI) and machine learning (ML), are providing enterprises with more effective tools to discover insights from ever-expanding and complex data.

However, the solutions do not lie solely in technology. Financial services providers must leverage strategic thinking, embrace collaboration, and be committed to responsible innovation.

Consider the issue of financial inclusion. An estimated 1.5 billion people worldwide are still unbanked, leaving them vulnerable to economic shocks and limiting their opportunities for growth.

Expanding financial inclusion is not only a moral imperative but also a significant economic opportunity.

Inclusive financial systems foster economic growth, reduce inequality, and create more resilient communities.

Using alternative data for financial inclusion

This is where AI and alternative data come into play. Traditional credit risk models rely heavily on established data sources, such as credit bureau scores.

While these models have served us well, they exclude individuals and businesses without formal credit histories.

Alternative data, such as online behaviour, utility and rent payments, and even mobile phone usage, can provide a measure of creditworthiness for the unbanked and underbanked.

By integrating this data with advanced ML techniques, we can build better models and provide an increased level of access to credit for many unable to do so in the past.

AI and ML are better at processing and analysing vast and complex datasets such as digital footprints and transactional history.

The more complex ML algorithms can uncover patterns in these datasets that traditional methods might miss.

However, not all alternative data is complex. For example, a consumer who regularly pays rent or utility bills on time is creditworthy but is not able to demonstrate this to lenders today.

Reporting such data to the credit bureaus, and incorporating them into risk models and decisions, can expand access to credit for underserved populations while maintaining the underlying integrity of risk assessments.

Of course, data quality and governance remain critical to ensuring that the insights derived are both accurate and fair. In particular, online behaviour data, such as what you like and follow on social media, can be highly correlated to race, religion, nationality, and other prohibited factors.

As such, building models on this data requires human oversight as well as clear ethical and legal guidelines to avoid unintended biases that could perpetuate existing inequalities.

Ethical AI practices, supported by human oversight, are essential for building trust with consumers and regulators alike.

Addressing housing inequalities

Housing disparities, fuelled by lending inequities, highlight how AI and alternative data can be used to overcome systemic issues.

Given the history of South Africa, many communities faced discriminatory practices where access to loans and credit was denied or limited based on racial demographics.

This perpetuated economic inequities, limiting home ownership opportunities and generational wealth creation for millions.

By analysing vast datasets using AI, financial institutions can identify patterns of inequity and take corrective action.

For instance, a study conducted by the Center for NYC Neighborhoods in partnership with SAS revealed clear disparities in housing outcomes across different neighbourhoods in New York City.

Leveraging AI-powered analysis, the study demonstrated how alternative data could pinpoint areas of systemic inequity and inform strategies to address them.

When used responsibly, AI and alternative data can help create a more equitable housing market, fostering long-term economic resilience and inclusivity.

Collaboration and innovation

The future of financial services, in a world of vast complex alternative data and powerful AI algorithms, will be shaped by our ability to harness technology responsibly and collaboratively.

AI and alternative data offer immense potential, but their success depends on collective efforts involving regulators, technology providers, and industry peers.

For example, reporting utilities and rent payments to the credit bureaus securely can enable better credit risk assessments within an already trusted framework.

Existing regulatory, governance, and ethical practices at lenders must be adapted to new and challenging types of data as well as algorithms that are not as explainable or transparent as previous ones.

Trust is the cornerstone of any financial system. Consumers must trust that lenders are not only sourcing their personal data ethically but also using them in models with a high degree of oversight that results in fair and unbiased decisions.

Fundamentally, the goal is clear. We must collaborate to create a financial ecosystem that is resilient, inclusive, and sustainable.

By leveraging the power of AI and alternative data, we can not only address the challenges of today but also build a foundation for a more equitable future.

Adeola has been active in the IT sector for almost a decade and has experience starting and expanding technology-driven businesses in the fintech sector. Born and bred in Lagos, Nigeria Adeola started his entrepreneurial journey by starting an EdTech company immediately after university. Currently, he leads as the Growth manager of AjoCard.

Please, describe your entrance into the technology industry

Adeola Ajayi (AA): I was exposed to programming and software development because I studied computer science in college, but I wasn’t sure what I could do with it. Growing up, I saw both of my parents—who are teachers—face extremely difficult obstacles at work. Following my graduation from college, I made the decision that the first product I would create would be for teachers, in an effort to make the jobs of educators like my parents easier. This led me to start an education technology company called Schoolpix. It was a SAAS record management platform that automated the school’s daily administrative tasks. I built the company over the course of five years, increasing the user base to over 50,000 monthly active users.

What does “financial inclusion” mean?

Adeola Ajayi: Banking the unbanked is the most straightforward way to define financial inclusion. The word “bank” in the sentence, however, can be extremely misleading. People typically picture a large structure housing money when they hear the word “bank,” but there is more to it than that. Banking simply means getting people access to formal financial services. These services may include lending, investing, and insurance. I’ll give you an intriguing example of how to bank people.  the poorest residents of South Africa who reside in wooden homes (Shantis) can purchase affordable fire alarm systems from Lumkani for a monthly subscription; in return, Lumkani guarantees that every household will receive replacement property in the event that any belongings are lost to fires. In such neighborhoods, it was a problem that if one house caught fire, the entire neighborhood did as well, leaving everyone homeless. By installing a fire alarm in each home, Lumkani lowers the risk of fire hazards. The consumer is actually paying for insurance without even realizing it. Lumkani is a prime example of an innovative way of banking the unbanked.

How did you get started in this industry?

Adeola Ajayi: I first encountered financial inclusion after joining Accion Ventures Lab (AVL) as a fellow in 2019. My only goal at the time was to launch a fintech business because only those startups were getting funding. My first question to the program director at AVL after being accepted was “why are fintech so important?” She replied, “We live in a world where nothing goes for free, we have to pay for things every day in order to stay alive.” This is what makes fintech so valuable because they help us stay alive. I was exposed to businesses like Lumkani and many others during the six-month program, and I fell in love with the industry because they were solving extremely challenging and painful problems while having a profound impact. I was certain that this would be my life’s work.

What connection exists between mobile money and financial inclusion?

Adeola Ajayi: Mobile money has revolutionized many people’s lives in Nigeria and around the world.

There are 1.7 billion unbanked people worldwide. In Nigeria, mobile money has transformed the financial landscape by facilitating access to affordable financial services for those who were previously shut out of the formal financial system.

Customers no longer need to go to a bank in order to save and manage their money, transfer money, access loans and pay their bills. Instead, they can easily access a mobile money agent. The business is expanding so quickly in Nigeria because they are relatively cheap and simple to set up; all one needs is a POS machine and some cash to get going.

What recent trends have you noticed in mobile money?

Adeola Ajayi: Mobile money has different applications in different countries. Because cash is king in Nigeria (82% of transactions there are cash-based), customers primarily use mobile money to receive and send cash (CASH IN – CASH OUT). According to a GSMA report, there are approximately 1.2 million mobile money agents in the nation, and we are beginning to see a growing trend of mobile money operators layering additional services on top of their standard CASH IN-CASH OUT offerings and delivering unique products like savings accounts, loans, and various insurance options.

Finally, please share your top three pieces of advice for college students or professionals who want to work in the fintech sector.

Adeola Ajayi: Stay up-to-date with the latest technology and trends in finance and technology: The fintech industry is constantly changing, so it’s critical to keep up with the latest developments, innovations, and trends in both the financial and technology sectors.

Develop a solid understanding of both technology and finance: To be successful in fintech, it’s important to have a good understanding of both finance and technology. This can be accomplished by enrolling in classes, going to conferences and workshops, and gaining practical experience through internships or working on projects.

Network with industry professionals: building a strong network of contacts in the fintech industry has been important for me.

Attend events, participate in competitions like hackathons, incubators and accelerators, join professional organizations, and reach out to professionals in the field to expand your network and learn from their experiences.

This will also help you keep abreast of new developments and opportunities in the sector.