By: 10 April 2024

He believes that fintech holds the key to solving financial inclusion issues faced by millions

Jeremy Baber on fintech and financial inclusion

In recent years, financial inclusion has become indicative of global development, featuring in eight of the UN’s 17 sustainable development goals. Since the onset of the pandemic, significant growth has been evident in the adoption of digital financial services with over 80 million adults in India making their first digital merchant payment.

Despite this, in 2023 1.4 billion adults across the globe were still without access to traditional financial services, representing the unbanked sector. As traditional banking and its subsequent inaccessibility dwindles in popularity, fintechs are making meaningful progress in not only serving the unbanked but also in fostering financial inclusion and literacy.

Traditional banking and the unbanked

Often associated with developing countries, the unbanked and underbanked is a widespread issue challenging societies across the globe. According to the Corporate Finance Institute study, one in four UK citizens are low-income individuals who in turn have limited access to financial services. Steep fees levied by banks in exchange for services combined with required minimum balances are a couple of the many factors excluding the unbanked or underbanked from the security and convenience a bank account offers.

The associated baseline financial literacy and well-being that typically accompanies bank account ownership enables customers to fully leverage and optimise the range of services available to them. Nonetheless, despite the younger generations’ essential role in driving economic growth and stability, numerous barriers hinder their ability to establish relationships with conventional banking. These obstacles may stem from factors such as insufficient funds or gaps in education.

Data generated from the unbanked often goes unacknowledged and subsequently unaccounted for by mainstream financial organisations as tracking transaction reports for cash payments proves to be challenging. Consequently, many are denied the opportunity to establish credit history and score, necessary for facilitating larger purchases and loan applications. As a result, financial freedom and independence is compromised leaving the unbanked vulnerable to unsustainable funding alternatives, such as payday loans, to cover expenditure shocks.

Disrupting barriers to the unbanked

While traditional banking tends to cater primarily to the financially stable who have access to physical branches, fintechs are flocking to the opportunities presented in simultaneously leveraging technologies and capturing market share whilst catalysing financial inclusion.

The evolving landscape of cross-border payments facilitated by digital wallets has become increasingly competitive in recent years, making the real-time transfer of money between geographic locations possible. Benefitting all mobile phone users regardless of bank account ownership, personal transactions and those vital to the upkeep of small enterprises, have proved crucial in the development of economies and reduction in poverty.

As well as facilitating money transfers, digital wallets also provide access to financial services most valuable to those living in rural areas with limited access to branches. Features like budgeting tools, available 24/7, educate on the importance of savings, provide detailed reports of user spending and make financial goals more manageable. Credit options and miniloans are also becoming increasingly accessible to those who may not qualify from a traditional bank.

Financial inclusion: a work in progress 

As fintechs continue to demonstrate their ability and success in serving the unbanked, there remain hurdles to overcome before total financial inclusion is achieved. A significant challenge arises from the dependency on mobile phones, meaning the lack thereof technically renders digital wallets and their services redundant. However, with the collaborative efforts of governments and charitable initiatives, over time broader access to such technology is to be anticipated.

By catering to and acknowledging the financial needs of the unbanked, fintechs are poised to drive promising advancements in both financial literacy and digital adoption at a global scale. Not only will this benefit economies but also enable societies to prosper in the face of reduced poverty, the emergence of small enterprises and financial empowerment irrespective of gender.

Guest editorial by Jeremy Baber, chief executive officer of Lanistar.

Image: Jeremy Baber LinkedIn

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This article was produced specially for Fintech Intel by an expert guest contributor.