Financial inclusion presupposes equal access to affordable and reliable financial services for all individuals and businesses. Unfortunately, many people around the world are still excluded from the formal financial system.
In this post, we'll explore how Fintech is driving financial inclusion and helping to break down the barriers that have traditionally prevented people from accessing financial services.
Supporting financial inclusion became one of the top trends in financial services in 2022, and it’s for a good reason.
Basic things that many people take for granted, like having a bank account, are beyond the reach for some. But a bank account is crucial to securing one’s financial stability. Unbanked people struggle to get access to credit, save money, and face an increased risk of falling prey to high-fee financial service providers. While it’s obviously a dangerous situation for an individual, the financial exclusion in your country also affects its economy—and you.
A lack of access to financial services, among other things, hinders one’s ability to invest and acquire assets and thus accumulate their economic superpower—wealth. As our wealth grows, we get higher returns on investments, spend more, and stimulate the economy to thrive on our spending. So, the richer each of us is, the more prosperous we all are. That’s exactly what Fintech helps achieve, starting with ensuring the basics of financial inclusion.
As I mentioned above, the more accessible financial services are, the more significant the economic benefit. Reaching the aim of full financial inclusion is no cakewalk, and there are several goals to achieve. Below I explain how Fintechs drive change by helping achieve financial freedom for individuals and businesses.
Fintech startups are leveraging technology to offer digital banking services accessible to people with limited access to traditional banks. Mobile banking apps like Chime or Varo and online banking platforms make it easier for people to manage their finances and access financial services.
Also, fintechs support many Community Development Financial Institutions (CDFIs). These serve the communities in need, including rural and Native, by providing them with essential access to banking services: opening accounts, getting loans, etc. However, the gap between the demand and the capacity to deliver is often enormous for these entities. So, we see more and more partnerships between CDFIs and fintechs, where the former streamline their operations and diversify their capital access, and the latter get more clients and improve their underwriting criteria for them.
Getting a pass for a loan can get tricky if your credit score is far from perfect. No credit score can be even worse. That’s why financial inclusion aims to create alternative criteria for those who have never applied for loans or have no credit card.
Fintech startups use alternative data sources—like social media and online sales data—to evaluate creditworthiness and offer loans to people who may have been excluded from the formal banking system. For instance, Altro, which recently got an investment from Jay-Z, can extract credit score material even from your Netflix, Spotify, and Hulu subscriptions.
Microfinance institutions like Pacific Community Ventures or CDC Small Business Finance Corp provide small loans and other financial services to people who don't have access to traditional banking services.
Fintech startups are using technology to make microfinance more efficient and scalable, which could help to bring more people into the financial system. One of the recent Fintech trends that revolutionize microfinancing includes mobile banking and agency banking, where individual agents backed by technology extend the institution’s reach to areas that lack physical branches.
Fintech has the potential to drive financial inclusion and help to break down the barriers that have traditionally prevented people from accessing financial services. By leveraging technology and innovative business models, fintech startups are creating new opportunities for financial inclusion and helping to build a more equitable financial system.