Financial exclusion is a daunting challenge that impacts many across the globe. The critical relationship between fintech and financial inclusion must be considered when taking on this challenge. Fintech offers tangible solutions to provide communities globally with the financial services they need.
Financial Exclusion Realities
Financial exclusion happens due to various reasons, such as a lack of banks in the area or a lack of trust in banks. With financial exclusion, large numbers of people all over the world lack access to essential financial services such as basic savings or access to credit. This often leads these individuals to rely on alternative financial services that are more expensive and less secure. Fortunately, fintechs are poised to help bridge the challenges of financial exclusion.
How Does Fintech Aid Financial Inclusion
Flexibility
Meeting compliance standards have made it difficult for banks to be on the cutting edge for innovation in financial technologies. These compliance standards limit established banks' actions when addressing the needs of an increasingly digital and global economy. Fintechs do not have this issue with compliance standards nearly as much. This enables them to offer financial services more flexibly and often at a much lower cost to users.
Some fintechs have even created consumer-centric lending platforms that enable those who have typically only used cash to access credit. Of course, this preference for cash comes with unique challenges. Still, fintech, unlike banks, can quickly create customized solutions to meet these challenges. The adaptability of fintechs is at the core of the critical relationship between fintech and financial inclusion.
Transparency and Inclusion Driven Solutions
Additionally, some fintechs work to provide communities that mistrust banks with transparent and easy-to-access options that allow them to save their money and access lines of credit. Finally, Fintech solutions for fraud protection have also been developed to stop the exclusion of low-income households from the digital economy.
Assisting Existing Banks
Fintech is also providing existing banks with new tools and technology. Together these allow banks to create more accessible digital banking options that are more effective for those historically lacking bank accounts.
AI
Fintech has effectively leveraged AI technology to care for much of the backend work for financial services. With widespread automation, these companies can offer financial services at even more affordable prices and make those same services much more accessible to those that have been excluded from financial services. AI can also work to provide people with helpful financial advice as it quickly and efficiently collects and analyzes data to provide the user with a clear view of their financial reality.
AI-based solutions also allow for tremendous degrees of personalization. This enables fintech to offer custom solutions for individuals or communities that can address their unique challenges. These customized financial services for the unbanked or underbanked are another component of the critical relationship between fintech and financial inclusion.
In addition, AI allows fintech to more easily use non-traditional data when assessing a customer's credit risk. For example, many of those that do not have bank accounts do not have credit histories or other documentation necessary to obtain a standard loan. But with new data and fintech, these people can have access to credit.
Real World Results
Studies have shown that the digital-based methods of fintechs significantly help drive financial inclusion. This is especially true for poor or rural communities that banks traditionally underserve. These studies demonstrate the critical relationship between fintech and financial inclusion.
In many markets worldwide, mobile payment networks have overtaken cash transactions. This demonstrates the potential that fintech can have by replacing currency altogether for everyday transactions.
Consumers all over the world are favoring prepaid services offered by fintechs. This is because prepaid services are fast to use and are very adaptable. Additionally, users are easily able to keep track of their spending as opposed to subscription-based services.
Emerging Economies
The critical relationship between fintech and financial inclusion is even more essential for emerging economies. Recent studies indicate that digital banking can easily add trillions of dollars to the economies of emerging economies.
In fact, in some countries such as South Africa or Nigeria, the overwhelming majority of financial inclusion in recent years has been due to fintechs offering new digital banking and financial solutions that are easily accessible. They accomplish this with digital payment services, mobile POS devices for businesses, and low collateral credit accessible to poor households. Additionally, millions of people across Latin America have been able to engage with financial services thanks to the innovative solutions from Latin American fintech. Latin American fintech has offered easy savings, credit, and fraud protection options to users across the region, enabling millions to participate in the digital economy and access the financial services they need.
It is important to remember that financial inclusion is something that all countries need to strive for, not just emerging economies. While most Americans have bank accounts, millions still lack access to financial services.
Challenges Ahead
The critical relationship between fintech and financial inclusion has resulted in many globally finally accessing financial services. Yet many challenges remain for fintech dealing with financial inclusion.
Internet Access
Access to an adequate connection and data is a challenge for many worldwide. Until these communities can access phones or computers with sufficient bandwidth, it will be challenging for fintech to reach them with financial solutions.
With the spread of 5G, financial inclusion with fintech-created mobile finance will likely explode. Users will have faster and easier access to the services they already use. With more bandwidth, available fintechs could offer much more complex financial services. The potential for providing complex financial services such as loans or insurance demonstrates the potential for the critical relationship between fintech and financial inclusion.
Trust and Financial Literacy
Many potential users are intimidated, do not understand, or do not trust the financial services offered by fintech. To meet this challenge, fintech must work with users in underserved communities to create effective and trustworthy solutions.
Fintechs must be transparent and provide quality service and explanations to those more hesitant to use financial services. If users understand what is happening and view the fintech as trustworthy, they are likely to use the service. Tackling these challenges is the path forward for the critical relationship between fintech and financial inclusion.
