When financial services and products such as opening a saving account, money transactions, bill payment, health premium, insurance facility, etc. are accessible at an affordable cost to every person in a society irrespective of his economic status or place of residence, such a society can be said to have achieved financial inclusion.
The absence of a bank account in a state-regulated bank alienates a person from the mainstream financial system. Such people fall into the hands of unsecured and unregulated financial practices and are often vulnerable to economic frauds. A bank account also inculcates saving habits, which further enhances loan repaying capacities and better credit allocation.pl,
In rural areas, where banking facilities are beyond the reach of a poor, villagers often avail loans on the high rate of interest and continue to repay for generations. Sometimes they even lose their land to moneylenders and become landless labor. Even government schemes don’t reach them due to inefficiency in the bureaucratic process, leading to a negative impact on the financial health of the country. In addition to this, any state, which is dependent on more cash transactions, bears a cost of 0.5% to 1.5% of GDP, as printing of physical money is expensive to produce. Besides this, in a developing economy, the menace of black money and illegal economic activities are due to cash transactions.
On the other hand having a bank account and the move towards cashless transactions drives financial inclusiveness. By virtue of just having a bank account, underprivileged can manage their financial needs better, get direct benefits from the government schemes, invest the savings and enjoy a decent standard of living.
What can FinTechs do to bring financial inclusiveness?
Well-known economist and the Ex- Governor of Reserve Bank of India Raghuram Rajan, while talking about financial inclusion, focused on its key elements, i.e.,
Broadening of financial services to those people and enterprises who do not have access to financial services,
Deepening of financial facilities for those who have minimal financial services and
Greater financial literacy and consumer protection
As far as the broadening of financial services is concerned, financial technologies can play a greater role in bringing financial inclusion. Experts believe that digitization not only makes finances available to everyone, but it also lowers the cost of financial services and creates opportunities as well. Technologies such as M-Pesa in Kenya, Paytm in India, etc. have revolutionized the payment system.
Your physical money gets converted to electronic money with the help of technology and stored on your smartphone so that wherever you go, and whatever you do, you can fulfill your financial needs with a swipe of your finger, it’s convenient, affordable and transparent. This electronic currency saved on your mobile can be put to many uses. You can transfer money to your friends, relatives, and colleagues if they need it urgently. You can buy products and services and pay for it without going anywhere. If you want to convert this electronic money into physical cash amount or vice versa, you can do it without any hassle.
This digital revolution has given freedom to people to make the financial transactions and money transfer at their ease and comfort. Technologies can bridge the physical distance between the bank and the customers; they can now open a bank account without visiting the branch. Some of the benefits generated by the FinTech players in the banking arena are detailed below
Electronic loan application and banking service allow quick credit decisions and loan disbursal. It’s quite efficient and cost-effective in micro financing.
Money transfers through mobile phone around the world can be cheaper and faster.
It’s easy to have a credit history of a person if financial transactions take place through electronic means
While cash payment is risky, cashless payment is simple and secure
Regulation will further drive FinTech growth
Many experts believe that the Digital revolution will not be successful by itself if responsible regulation and credible institutions do not back it up. Digital connectivity is the beginning of the story and consumer’s interaction with banking channels through technology very well achieves the first goal, however, to keep it running smoothly; digital financial technologies need regulatory support.
One of the ways that come to my thoughts is for Governments to promote mobile and software companies to tie up with commercial banks to function as their extension and provide payment services if not complete credit functions. By marrying the best of both the worlds, customers can instantly have safe and convenient financial transactions. Another area would be to update the rules to reflect the new ways of doing business, while in the United States of America, UK, and many European Countries, bank accounts are opened with a digital signature and biometric authentication, many developing countries are yet to accept such digital practices in the banking norms. The Governments of these countries can give impetus to FinTech startups by improvising the laws, thereby driving home the gains of financial inclusiveness in the society as a whole.
Opportunities galore for FinTechs
According to a report, 85% of transactions in Southeast Asia are done in cash even today because people don’t have even bank accounts. About 25% of the total adult population has a bank account in ASEAN countries. According to a survey conducted by Gallup, in 18 sub-Saharan African countries – Kenya, Zimbabwe, Nigeria, Uganda to name a few – 81% adults don’t have any personal bank accounts. In a country like South Africa, 50% adults still don’t have any personal account. However, in comparison with the previous years, there has been major progress as well.
While in 2011 2.5 billion people (51% of world’s adult population) had the bank account, the figure went up to 3.2 billion (62%) by the end of 2014. Progress, however, has not been uniform,” says The Boston Consulting Group’s Sustainable Economic Development Assessment. “Over the past decade, significant gains in financial inclusion have been made in East African countries such as Kenya, Uganda, and Tanzania. The growth in mobile and internet connectivity accounts for much of those gains. India and China have also made significant strides. From 2011 to 2014, 185 million people in India and 188 million in China became first-time bank account holders.”
You would have noticed that these reports indicate that a vast population still doesn’t have saving accounts, which is the first step towards financial inclusiveness. According to World Bank’s summary measure of financial inclusion, financial inclusiveness can be measured by the number of bank accounts or mobile money accounts opened by adults in a country. The FinTech companies have an excellent opportunity to bring a huge number of customers through technological revolution to the mainstream of the financial system, making the world inch closer to poverty reduction and equality, it goes without saying that FinTechs can play a great role in bringing financial inclusiveness.