How FinTech Can Support Financial Inclusion

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The quick adoption of smartphones and FinTech is helping people benefit from and easily access financial services, but 28% of the population still feels locked out of the financial system.

Traditional banking systems have often left a significant portion of the population underserved, excluding them from accessing essential financial services.

As per a recent report by Plend, “Financial Inclusion Report 2024,”

Report by Plend

FinTech emerges as a game changer in financial inclusion. It plays a major role in expanding access to financial services at affordable costs, irrespective of users’ net worth.

By fostering economic development, FinTech aims to address the limitations that exclude people from participating in the financial sector.

How is FinTech Shaping the Financial Inclusion Landscape?

Traditional banks require extensive documentation for the borrowing process, while FinTech offers a simple and quick method.

Using AI, FinTech firms can analyze the risk profile of clients with limited or no credit history. They will use other factors, such as income and spending patterns. This approach enables the provision of microfinance services to users, empowering them to make significant purchases and investments in their capital.

Moreover, unlike their traditional counterparts, these firms offer greater compliance flexibility. This reduces capitalization, identity verification, and consumer complaint redressal obligations.

FinTech firms can swiftly introduce new features and products using secure sandboxes while ensuring adherence to laws and data protection. This agility enables them to rapidly and securely offer robust products and services.

Five Ways FinTech Helps Support Financial Inclusion

  • Mobile Money

Mobile money platforms do not require a bank account or a physical branch. They allow users to store, send, and receive money using just a phone. They can also access other financial products like savings, loans, insurance, and remittances. While these platforms are convenient and cut transaction costs, they are readily accessible to underserved populations in remote and rural areas.

Example:

M-PESA is Africa’s mobile money service. Due to its safety and unmatched convenience, it allows users to make payments across the continent, both for the banked and unbanked.

Now, the platform serves more than 51 million customers across seven African countries. It offers a safe, secure, and affordable way to send and receive money or get short-term loans.

  • Digital Identity Solutions

Digital identity solutions verify and authenticate users’ identities online. They also enable users to control and share their personal and financial data securely.

These solutions increase trust and confidence among users and service providers and reduce fraud and identity theft. They aim to offer formal financial services for people who do not have traditional identity documents or records.

  • Financial Education Tools

These tools help users learn and improve their financial skills and knowledge via interactive, gamified, or personalized methods. These platforms also give feedback, guidance, and incentives to help users achieve their financial goals. While helping overcome behavioral biases, these tools also boost user awareness, confidence, and decision-making abilities. They promote liable and sustainable financial behavior and habits.

Example:

Piggyvest is a savings and investment app in Nigeria. It educates users on savings, investments, and budgeting and rewards them with interest and bonuses. The tool has helped over 4 million customers achieve their financial goals by making it easy to save and invest.

Also read: How Fintechs Can Drive Inclusion and Foster Financial Literacy

  • Alternative Credit Scoring Models

Alternative credit scoring models use non traditional data sources to check users’ creditworthiness and risk profile. The sources include mobile phone usage, social media activity, and psychometric tests.

These models also use AI, ML, and big data to process and analyze the data. These models offer credit access to users without formal credit history or records. It also provides more accurate, fair, and transparent credit decisions and rates.

Example:

Tala bridges the digital and cash systems to help customers seamlessly manage their financial lives, all within one app. This includes instant credit, easy money transfers, and a wide range of bill payment options. Tala uses AI and ML to provide a personalized and rewarding financial experience.

Their proprietary data tools aim to provide crucial access to individuals whom traditional financial systems have overlooked. Tala has served over 9 million customers and delivered USD 4.5 billion in credit access.

  • Peer to Peer Lending Platforms

Peer to peer lending platforms connect borrowers and lenders directly without intermediaries. They can use smart contracts, Blockchain, or other tech to facilitate and secure transactions.

These platforms reduce the cost and complexity of borrowing and lending. Moreover, they increase the speed and convenience of accessing funds, offering more choice, flexibility, and customization. Also, they foster social and community ties.

Example 1:

Prosper offers an alternative to traditional banking institutions. Borrowers can apply for personal loans, while investors can fund portions of those loans as a way to earn interest.

Founded in 2005, Prosper introduced US customers to an innovative approach to personal finance called peer-to-peer lending. It has helped over 1.7 million customers achieve financial well-being through a comprehensive suite of products.

Example 2:

Kiva focuses on expanding financial access to improve the lives of four key groups affected by forced displacement: refugees, internally displaced people, people at risk of forced migration, and impacted host communities. Kiva has reached 5 million people and has funded a USD 2 billion in loan.

Conclusion

FinTech represents a pivotal shift in how financial services are accessed, particularly in supporting financial inclusion. By using AI and mobile platforms, FinTech is breaking down traditional barriers to financial services.

Whether through mobile money services like M-PESA, digital identity solutions like Kiva, educational tools like Piggyvest, or innovative credit scoring models such as those used by Tala, FinTech enables more equitable access to financial resources.

This empowers underserved communities by giving them a foothold in the financial system. It also stimulates economic growth and development on a broader scale. As the FinTech industry continues to evolve, its role in fostering financial inclusion will continue to expand, paving the way for a more inclusive global financial ecosystem.

Check Out The New TalkFintech Podcast.

Apoorva Kasam
Apoorva Kasam
Apoorva Kasam is a Global News Correspondent with TalkCMO. She has done her master's in Bioinformatics and has 18 months of experience in clinical and preclinical data management. She is a content-writing enthusiast, and this is her first stint writing articles on business technology. She specializes in marketing technology, data-driven marketing. Her ideal and digestible writing style displays the current trends, efficiencies, challenges, and relevant mitigation strategies businesses can look forward to. She is looking forward to exploring more technology insights in-depth.
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