Embedded Finance for
Cashless Society

Designing Sustainable, Equitable, Intelligent, and Investable Infrastructure in Financial Systems

Transitions to Cashless
Society is increasingly embracing cashless transactions due to the convenience offered by digital payment methods. The proliferation of smartphones and the internet has made it easier than ever to make payments electronically. Businesses are incentivizing cashless transactions through discounts, loyalty programs, and other perks, further driving the adoption. Governments and financial institutions are also encouraging the shift towards cashless societies to streamline transactions, reduce the risk of fraud, and enhance financial inclusion. As a result, traditional cash-based transactions are steadily being replaced by digital alternatives, marking a significant societal shift towards a cashless future.

The Importance of Financial Literacy
The widespread integration of embedded finance means that financial instruments will become ubiquitous, yet many individuals may struggle to fully comprehend their intricacies due to limited awareness and education. There is a notable lack of understanding about the mechanisms behind capital generation, further compounded by a deficiency in educational efforts by financial institutions. Consequently, there is a pressing need for these institutions to recognize their social responsibility in educating and informing the community about these financial instruments to promote greater financial literacy.

 

Challenges of Transitioning to a Cashless Society

How will systems effectively partner with finance institutions to address the multifaceted challenges of moving towards a cashless economy while ensuring inclusivity, privacy, and security for all?

 

Barriers

  • Digital divide

  • Limited financial literacy and fear of privacy

  • Traditional members of a community may prefer cash

  • Economic barriers to adoption

  • Risk of excluding marginalized groups who rely heavily on cash

 

Infrastructures Needed

What support do we need to build equitable futures?

 

Systems have an abundance of data, but how do we best harness it? Building equitable infrastructure for embedded solutions in rural areas and among marginalized communities is imperative. The project looks towards investable infrastructures to build as fixed assets that have the capacity to generate contracted cashflows for multiple years.

This lays the groundwork to create access to banking services, credit, and insurance that currently remain limited. The development of financial infrastructure without an equity lens can perpetuate cycles of poverty and hinder economic development. Additionally, there may be disparities in the quality of financial services available to different segments of the population, with marginalized groups often receiving less favorable terms and conditions.

 

Objectives to Drive Inclusive Finance

As we transition to a cashless economy, how can we prevent the inequalities of the traditional financial system from being replicated in future systems?

System Goals

  • Accessibility

  • Inclusivity

  • Financial Literacy

  • Economic Resilience

  • Intelligent Data Utilization

Values

  • Sustainability

  • Community centric

  • Empowerment

  • Equity

  • Cultivate Trust

 

Embedding Intelligence for Equitable Finance

Considerations to take the current state of financial systems to the desired state.

 

The desired state of the future archetypes

 
 
 

Archetypes

Archetype 1: Enabling Financial Agency
Bridging the gap towards sustainable financial decision-making

Traditional financial services primarily cater to well-established and financially privileged groups, leaving underserved communities struggling to participate in the existing financial ecosystem.

This archetype focuses on establishing a renewed ecosystem that caters directly to the needs of underserved communities, rather than expecting them to adapt to an incomplete system to ultimately advocate for a more inclusive approach to accessing financial services.

 
 
 

On-Demand Nano Loans

How can short-term borrowing contribute to long term financial stability?

Roadblock
Marginalized groups often require additional financial support due to unpredictable income streams. They fall prey to predatory lenders out of necessity trapping them in perpetual cycles of debt, underscoring the urgent need for equitable financial solutions.

Feature Summary
Designed specifically for small purchases, these loans are tailored to the cost of essential items and can be requested in real time, either before or after a purchase. This feature also incorporates the use of photos or QR codes for added transparency and context in loan requests.

 
 
 
 

Save to Spend

How can we embed opportunities to build sustainable economic behaviors?

Roadblock
Many individuals and families struggle to develop effective savings habits due to a lack of personalized guidance and difficulty identifying savings opportunities in non-essential spending.

Feature Summary
"Save to Spend" leverages real-time geolocation data to encourage users to save a percentage of a non-essential purchase. This approach promotes smarter spending and sustainable habits, helping individuals build emergency funds and invest in their futures for improved financial well-being.

 
 

Community Supported Profiles

How can risk management leverage new data sources to be more inclusive?

Roadblock
Traditional credit profiles often miss other indicators of financial responsibility and disproportionately affect marginalized groups lacking traditional credit histories.

Feature Summary
The Community Profile generates credit scores from non-traditional data such as rent or phone bill payments, and also incorporates a peer recommendation system to assess financial trustworthiness through social connections.

 
 
 

Archetype 2: Redistributing Capital
Fostering shared power and prosperity

The financial sector often prioritizes financial resources over broader societal values, creating a gap between fund allocation and community needs. This extractive approach erodes trust between communities and financial institutions, exacerbating barriers to access and inclusion.

Redistributing capital reimagines the flow and generation of capital, placing the community at the forefront. This approach enhances financial access, builds trust, and creates opportunities, addressing essential needs and promoting financial security for underprivileged groups. It fosters inclusive growth and active participation, investing in community relationships and ensuring fair distribution of economic benefits.

 
 
 

Community Incubator

How can we generate co-benefits from shared aspirations?

Roadblock
Local businesses, often lacking resources and expertise, struggle to navigate complex financial systems, hindering wealth generation and leading to the rise of informal businesses that also struggle to grow.

Feature Summary
The Community Incubator enhances the local economy by supporting business growth with resources like compliance guides, mentorship, and advanced fraud detection. Tailored for businesses at all stages, it leverages networks to promote sustainable growth.

 
 

Community Investment

Could crowdfunding platforms drive community growth by incentivizing profitable local investments?

Roadblock
There is a lack of accessible funding through traditional financial channels for startup community projects. Many innovative and socially impactful projects struggle to secure capital from conventional banks and investors, who often deem these ventures too risky or not sufficiently profitable.

Feature Summary
Crowdfunding addresses this gap by broadening access to capital, allowing a wider range of investors to support projects they believe in, fostering community involvement, and enabling diverse ideas to flourish outside traditional financial constraints.

 
 

Archetype 3: Democratizing Access
Building alternative pathways for inclusive financial engagement

In the financial sector, issues like limited accessibility, strict identity checks, and unequal resource distribution have marginalized some communities. This situation is worsened by daunting environments and widespread financial illiteracy, which further deter potential users.

The "Democratizing Access" archetype transforms embedded finance into a tool for social equity, aiming to make financial services accessible and trustworthy for underserved communities. This strategic shift broadens participation and enhances the societal and economic impact, creating a more inclusive financial environment.

 
 
 

Adapted Defi

How Defi transform the way people interact with traditional financial services?

Roadblock
Embedded finance faces challenges such as stringent regulatory compliance and the need for robust data security in a sector dominated by large institutions, highlighting the urgency for decentralization to build trust.

Feature Summary
Decentralized Finance (DeFi) is revolutionizing financial accessibility and efficiency with blockchain and smart contracts, providing underserved communities with fast, transparent, and secure transactions. DeFi allows anyone with internet access to utilize diverse financial tools, significantly reducing costs and dependency on intermediaries.

 
 

Digital Twin

How can virtual practice pave the way for real-world financial empowerment?

Roadblock
Transitioning to formal financial institutions can be intimidating for those unsure about their financial knowledge. Traditional methods often fail to meet the specific needs and preferences of marginalized communities, resulting in outdated financial mindsets and distrust in financial systems.

Feature Summary
The "Digital Twin" feature offers a risk-free platform for practicing key financial behaviors in a simulated environment, enhancing literacy and confidence. It mirrors users' habits, allowing institutions to provide personalized and culturally sensitive educational content. This approach motivates modern financial practices, fostering trust and inclusivity in financial education.

 
 
 
 

Alternative Identification Card

How could an accessible finance-based ID, change communities relationship to finance ?

Roadblock
Obtaining an official ID has challenges that can occur to under-served communities such as permanent documentation requirements, education limitations, systemic discrimination, and more. This further perpetuates economic disparities.

Approach
Banks could implement a finance ID card to non-registered users, with data protection measures, along with transparent policies communicated to users. ID cards could be used to gain financial credit worthiness while fostering community.

 
 

Bank On Wheels

How can embedded finance forge deeper relationships and drive community empowerment?

Roadblock
Marginalized communities often struggle to access financial services due to long travel distances or complex urban navigation. Traditional banking models frequently fail to serve these areas effectively, restricting opportunities for financial transactions, education, and resource access.

Feature Summary
The "Bank on Wheels" initiative brings mobile banking directly to marginalized communities, offering financial transactions, education, and resources. It features a library of financial tools to enhance literacy and supports tailored services through local collaboration. This model simplifies access, builds trust, and fosters community engagement and economic resilience, especially for those without digital access.