Today the financial tide is turning as much-needed fintech solutions are entering the market. Global Economies are experiencing digital transformation and the size of opportunities for entrepreneurs along with financial partners. Financial inclusion is being deemed as the cornerstone that will lead to building an equitable society and a well-thriving economy. Due to the growing investment and broader interest, local governments and institutions are becoming increasingly supportive of fintech.
Traditional banking, along with financial frameworks, has historically catered to the wealthy. However, a new species of financial technology institutions– referred to as fintech, are now challenging this convention. Stimulated by the enhanced penetration of digital transformation in this ever-evolving world, fintech startups are beginning to disrupt the prevailing financial order in the markets to build an inclusive finance culture.
Global economies are witnessing this disruption that is enabling greater financial inclusion by approaching a credit gap that has hitherto impeded the growth of enterprises. This rising generation of FinTech companies is leveraging the use of enhanced tech and wider reach to help enterprises get ahead by delivering financial services to the unbanked. They are also finding innovative practices to lend and support a growing gig economy that equips people with basic financial literacy to save and invest.
This consequential equitable access to financial solutions like mobile money, peer-to-peer lending, and insurance will empower millions to not only manage their financial obligations with minimal bureaucracy but also to build a better tomorrow for future generations.
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Broadening Access to Global Population
Broadening access to credit beyond the wealthiest social class has been historically challenging for many reasons. However, access to credit and eCommerce infrastructure are the two critical drivers for broadening financial access to underserved populations.
This is where fintech organizations come into the picture.
Fintech organizations are emerging as the key players in boosting financial inclusion by leveraging the existing ecosystem and emerging technologies to create a simpler banking experience and make it more accessible as well as cost-effective for many. Governments globally are already laying the groundwork for the fintech industry to offer flexible and innovative digital banking along with other open application programming interfaces (APIs).
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Fintech enterprises are innovative and nimble but have lower operational costs than traditional banks. Here’s how fintech financial inclusion can assist them in leading the way:
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Take financial services to the farthest corners of the country
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Increase access to credit
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Innovate with velocity and compliance
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Promote a cashless economy
With access to alternative data and inclusive infrastructure, institutions can make better credit underwriting decisions. It will also assist them in building credit on ramps in a more digestible way, like extending smaller shares of credit initially and then iterating the models rapidly to authorize limits as they earn trust in a consumer’s ability to remunerate. To support consumers, digital payments need to accept different formats of payment the consumer might be willing to pay.
The broader objective of FinTech is to serve the unmet financial requirements of the different segments of the population that are not the core target of traditional financial services models. By building a sustainable ecosystem, the ultimate drive would be to provide a significant impact of financial inclusion on the country’s gross domestic product (GDP). Today, FinTech aims to contribute to the larger purpose of financial inclusion.
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Opportunities Abound as Economies Embrace Digital Transformation
The skepticism about traditional financial services is playing a significant role in access to finance. There is still a huge potential for alternative instruments to help many businesses become a part of the investment ecosystem. With technology enhancing constantly, it is possible for populations to have easy access to financial products and solutions that will likely drive financial inclusion to much higher levels.
The fintech sector is expected to undergo a digital transformation over the next ten years, and new opportunities will continue to flourish. This shifting role of fintech in financial inclusion in recent years has exponentially increased access to fintech services, thus establishing it as a true driver of financial inclusion. It is assisting in solving many societal issues like economic growth, employment, poverty, and income equality in developed and developing countries.
Here are key drivers that can be employed by these fintech startups to drive financial inclusion:
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Creating digital footprints for a large informal sector
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Easing qualifying norms and creating credit services that are consumer-friendly and less stringent
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Proposing quick liquidity solutions by fostering collateral-free lending mechanisms
These dual themes of improving access to credit and e-commerce infrastructure will emerge as the two core areas of innovation. But the progress on the commerce infrastructure side is still in its early stages.
Read more: Four Ways Traditional Finance is being Disrupted by Open Finance
New Technologies to Drive Fintech Financial Inclusion
The COVID-19 pandemic accelerated the creation and adoption of innovative technologies in the evolving financial landscape. Boosted by social distancing measures, in 2021, the number of contactless payment transactions in Turkey doubled when compared with the numbers in 2020, accounting for almost half of all in-store payments, and the payment amount increased three-fold, as per the data shared by the Interbank Card Center of Turkey.
Fostering financial inclusion and access to finance is assisting institutions in emerging as crucial contributions to economic development, thereby enabling social mobility along with ensuring that a maximum number of people can participate effectively in economic life.
As per the World Bank, financial inclusion indicates that individuals, as well as businesses, have access to valuable and affordable financial products and solutions to meet their financial needs – including payments, transactions, savings, credit, and insurance – delivered in a sustainable way.
With the world now seeking to make greater strides to close the financial inequality gap, businesses are turning to novel solutions and approaches to create a difference. The approach to financial inclusion is transitioning from businesses finding solutions for general problems to addressing specific requirements of distinct communities. To support financial inclusion, economies need to develop strong fintech ecosystems that will assist in making fintech financial inclusion services more accessible to an increasing number of people.
Key Highlights
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Fintech is changing the way businesses, and the common man can transact 24X7 in real-time.
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Financial inclusion today is emerging as the key to building a fair, equitable, and thriving economy.
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The rise of the new age of fintech is leading to the rolling out of innovative solutions employing low-cost technology.
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It is also supporting the launch of new digital products or digital-only banks.
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However, there are still challenges to fostering financial inclusion, particularly in developing economies.
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New technologies are assisting in improving access to affordable financial solutions.
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Government intervention through the operationalization of FinTech policies is also leading to the launch of initiatives like smart cities and portals for quick approval of loans for small and medium-scale enterprises or SMEs.
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In Conclusion
Over the years, fintech has been able to offer businesses the required convenience, user-friendliness, speed in communication, and transfer of data, thus simplifying the process of accessing financial inclusion with user-friendly technology. Networks play a pivotal role in their spread. It is crucial that people are offered the same platform for technology, data, and money transfer to seek business success as well as to induce productivity for consumers, firms, and the government.
Fintech players are fast innovating to prove that with the right use of tech and intent, businesses can build inclusive financial ecosystems. These new developments in the finance sector engendered by fintech startups are exploring new investment avenues and offering an optimistic outlook for SMEs globally. However, it is fundamental that these innovations are complemented with a suitable regulatory framework.
A flexible, agile, and risk-based enabling environment will enable these pioneering fintech organizations to build an inclusive socio-economic fabric. There is an exciting future that awaits that will likely increase access to fintech solutions for the unbanked and underserved populations that require it the most, thereby improving financial wellness across the globe.
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