MODERN DEVELOPMENTS IN FINTECH ARE PAVING THE WAY FOR GREATER FINANCIAL INCLUSION.
Banking and other financial resources needed to store and build wealth aren’t traditionally considered inaccessible to the general public. However, few may know just how many individuals in a given population are unbanked or underbanked.
In fact, six percent of the U.S. population (around 14.1 million Americans) have been revealed to be unbanked, according to the most recent survey conducted by the FDIC. In developing countries, these disparities are often far more staggering.
With this in mind, the fintech industry has achieved impressive feats in serving these populations in recent years. Understanding these achievements, the potential obstacles the industry faces, and what we may expect to see in the future will better prepare us to aim for even greater goals moving forward.
WHY IS ACCESS TO BANKING AND CREDIT SUCH A PROBLEM FOR MANY?
Traditional finance comes with many barriers, which dictate who can and can’t reap the benefits that financial resources offer. This can be traced to the origins of many financial institutions, which aimed to provide services only to those who could produce the most returns for the company.
However, the factors that contribute to the unbanked population are due to much more than just the above. These include:
- Lack of Financial Literacy and Education: Knowledge of banking, loans and personal finance plays a critical role in finding the proper financial services for people’s needs. Without a comprehensive understanding of how to manage their funds or which solutions they need to turn to, it can be challenging to even access financial products—particularly credit lines—let alone responsibly manage them.
- Distrust and Security Concerns: Those who have had negative experiences with banks or other financial institutions in the past may be reluctant to enlist the help of a new institution for their banking needs. Personal data has also made its way to the forefront of public consciousness, and distrust is another common concern.
- Lack of Resources and Services: A lack of funds is often at the center of why so many go unbanked. Not all banks are transparent with their fees, and high fees can prevent those with lower incomes from getting the support they need.
- Inaccessibility: Inaccessibility can be a major issue, leading some to scramble for ways to build their wealth. This can come from a lack of physical institutions near them or simply access to financial services in general due to poor financial history or other issues.
For individuals in need of financial services or small businesses and enterprises (SMEs) in need of funding, these factors make it extremely difficult to meet their needs through traditional finance. This is where fintech comes in.
HOW FINTECH IS CONTRIBUTING TO GREATER FINANCIAL INCLUSION.
Fintech is by no means a new industry. Still, the innovation that the industry has experienced in recent years (especially in the face of the COVID-19 pandemic) has propelled its mission forward by leaps and bounds.
But exactly how is the fintech industry opening the doors to financial inclusion across the board? Some of the most relevant developments include:
- The Addition of Online Banking: Online banking services like Varo and banking alternatives like PayPal Cash Cards make banking more accessible for those unable to shoulder the fees and rates of traditional banks.
- Access to Credit for SMEs: Companies like Alipay and Ant Financial make it possible for SMEs without an established financial history to receive funding for their business. This is especially important for those who live in areas where banking is far less accessible to the general population. Crowdfunding and microloans are similar financial services that are supporting individuals and small businesses today.
- Prepaid Services: Prepaid services such as prepaid phones and utilities eliminate obstacles that those with insufficient credit frequently face. With the use of prepaid services, individuals can fulfill some of their most basic needs without the stress of paying more or being turned away. While some of these prepaid services may be more popular or available than others, their impact is undeniable.
- Cryptocurrency (and Related Traditional Finance Services): Cryptocurrency has quickly become a popular investment for those seeking massive returns, but where its true value lies is in the underlying technology. Blockchain paired with decentralized stablecoins makes it possible for families to send money across borders while avoiding the high transaction fees and delays associated with banks. However, regarding fintech, services that assist users with these same features in their native currency may be more popular for them.
THE FUTURE IS NOW.
Fintech has become more relevant than ever. With obstacles like the rising costs of basic goods and wage inequality in our day-to-day lives, fintech provides the necessary solutions. Although the industry is faced with unique challenges like credit default risks as well as changes in data sharing and other regulatory measures, the future of financial inclusion technology holds great promise.
