Financial Inclusion: Breaking Down the Barriers with Fintech

Financial inclusion, defined as availability and equality of opportunities to access financial services, is a critical driver of economic growth and social development. However, around the world billions of people still remain unbanked or underbanked without access to basic financial services such as savings accounts, credit or insurance. Financial services landscape is being transformed rapidly by the rise of financial technology (fintech) which breaks barriers and brings previously underserved populations into the fold of inclusive finance provision. This piece will look at some ways in which these innovations are driving this process, what challenges still exist and where do we go next with fintech for more inclusive financial ecosystems creation.

Financial exclusion remains a significant problem despite considerable gains in expanding coverage over recent years particularly in developing countries. According to World Bank data 1.7 billion adults across the globe still do not have bank accounts. People without formal banking often get excluded from mainstream finance because they might lack access points; institutions can be too far away from them or because transaction fees are high among other reasons like complex regulatory environments that surround traditional banking practice.

There are several barriers that contribute towards excluding people from accessing financial services:

• Geographical Barriers: Many rural areas have few if any brick-and-mortar banks making it hard for individuals residing there to reach banking facilities. The cost associated with setting up branches in such places also discourages these banks.

• Economic Barriers: Low-income earners may face high charges on transactions coupled with minimum balance requirements which may push them away from using formal finance systems altogether. Accessing loans and other forms of credit can also prove difficult due to lack of credit history for those living below poverty line.

• Regulatory Barriers: Developing nations sometimes put very strict rules around new products or services thereby stifling innovation especially in financial technology. Such laws limit ability of fintech companies to operate and expand their operations.

Fintech refers to a wide array of technologies aimed at enhancing and automating financial services provision; these are the very same tools that are being used to bring down walls between people and their right to access use enjoy benefit from money matters. This section will highlight some key areas where this is happening.

Arguably one of the most important contributions towards achieving inclusive finance by fintech is through proliferation mobile banking as well payment systems which work on them. The idea here was simple: if you can’t take people to banks, why not take banking services closer to them? Through mobile phones individuals have been able to make deposits, withdrawals transfers etcetera all without necessarily visiting any physical branch belonging to a particular bank.

Example: Kenya has recorded significant strides when it comes to this aspect thanks largely its famous platform known as M-Pesa; indeed many consider this revolutionized inclusion in that country. With M-Pesa one can deposit money into account send or receive funds pay bills as well get micro loans among other things using only their handset. Rural areas particularly have benefited from such initiatives because they would otherwise never have had an opportunity like others living towns where traditional banking infrastructure is readily available.

Another area where there has been massive change brought about by fintech is around credit creation through P2P lending crowdsourcing schemes. These platforms connect borrowers with lenders/investors directly thus cutting out middle men like banks so as reduce cost borrowing while making it accessible even those who may not meet stringent criteria set by conventional lenders/financial institutions

Example: Platforms such as Kiva enable people to give out small amounts of money to businesspersons and small enterprises in developing nations. These entrepreneurs can then use the soft loans to start or expand their businesses, raise their living standards and contribute towards economic growth within their locality. Peer-to-peer (P2P) lending and crowdfunding platforms are filling the gap between financial institutions and people who lack access to credit facilities by providing what would otherwise be unavailable funds.

Another challenge of reaching out to the underprivileged with financial services is that most do not have formal identification. Many residents in third world countries lack official documents hence making it difficult for them to operate bank accounts or borrow money from any lending institution. However, fintech firms have come up with digital identity solutions which simplify this process through know-your-customer (KYC) technologies.

Example: In India, millions of people got access to financial services for the first time ever when Aadhaar system was introduced as a means of biometric identification verification. Herein, fintech companies use Aadhaar based simplified KYC processes thereby enabling individuals open bank accounts easily besides accessing other financial products offered by different providers. Thus, digital identity solutions are widening inclusion in finance since they reduce barriers associated with verifying one’s true identity before transacting through formal systems.

Insurance is another area where technology has helped bring low-income populations on board; especially those left behind due to income disparities among other factors preventing them from joining insurance schemes offered traditionally by players within this sector who mainly target middle class individuals upwards. Through various digital platforms Microinsurance products provide cover against specific risks at very affordable premiums thus making sure everybody gets protected financially even during hard times like accidents or illnesses.

Example: Bima offers mobile-based microinsurance covering health life accident risks in Ghana where many people live below poverty line levels despite being vulnerable medically too should anything happen unexpectedly. Therefore, this platform allows customers purchase insurance policies and file claims using their phones hence making it easy for the majority who are not well off financially but need such coverage urgently due to lack or limited access to medical services as well financial resources required catering for these eventualities when they occur thus mitigating them effectively through provision tailored towards meeting different needs arising out of peculiar circumstances faced daily life by individuals residing within these areas characterized high levels poverty coupled with limited opportunities for employment among other things which predispose them towards higher risk factors associated with illness accidents emergencies generally speaking.

Public-private partnerships (PPPs) are crucial when it comes scaling up fintech solutions so that they can reach those who need them most therefore collaboration between governments, banks and tech companies is key for success in this area. Such an approach will require regulatory backing as well funding support mechanisms from various stakeholders involved including financial institutions like banks where necessary infrastructure may have be developed ensure all citizens benefit equally from such initiatives regardless their geographical location or social status.

Governments have a role to play in promoting inclusivity through creation enabling environment which supports fintech innovation through friendly regulations aimed at fostering growth digital financial services provision thus reducing gap between different segments society based on income levels etcetera but also ensuring that all players comply with set standards while operating within given legal framework so as not compromise security people’s personal data especially when dealing electronic payment systems involving large volumes transactions across borders easily accessible by criminals seeking launder money evade taxes among other illicit activities deemed harmful state interests Example: Payments Banks initiative was introduced 2016 Reserve Bank India (RBI) allowing non-bank entities offer banking services such deposits remittances particularly rural areas where there were no previous options available because traditional commercial could not reach out unbanked masses due various reasons ranging from lack awareness concerning benefits having account providing suitable products designed meet specific needs these individuals hence contributing towards achievement universal coverage.

In Mexico, BBVA Bancomer partnered with Clip, a fintech company that specializes in mPOS systems for small businesses. The partnership allowed such enterprises to accept card payments, which in turn boosted their sales and enhanced their financial inclusivity. These types of alliances blend old-school banking with financial technology to foster greater inclusion in the finance industry.

In terms of the future, what will drive financial inclusion through fintech are on-going invention, increased digital framework and extra collaboration among players. There are a number of crucial trends that are seen as instrumental in advancing financial inclusion via fintech.

With the growth of internet and mobile phone subscriptions more people will be able to access digital financial services. This will allow fintech firms to reach out to populations that were previously underserved especially those in remote areas or rural settings.

Improvements in Artificial Intelligence (AI) plus Machine Learning (ML) Systems
AI together with ML is projected to have an increasingly huge role when it comes to inclusiveness of finance by enabling provision of personalized and more efficient financial services. Under this innovation, customer data can be analysed by financial technology companies which helps them evaluate credit risks as well as designing products for unbanked communities.

For instance; AI based credit-scoring models could evaluate the creditworthiness of individuals without formal credit histories using alternative data sources like social media activities, mobile phone usage or payment history records. This approach may therefore give loans to persons who would have otherwise been excluded from accessing them through formal systems.

As fintech expands further there will arise greater needs for enhancing literacy levels about money matters among various populations worldwide too.Digitalizing knowledge on how best people can use these services towards their welfare maximization is paramount if we want maximum benefit realization from this sector concerning global inclusivity vis-a-vis finance.

Fintech is radically changing everything by providing innovative solutions that bring financial services within reach for marginalized communities worldwide while also breaking down barriers to entry into traditional banking system.Mobile banking platforms such as Mpesa in Kenya provide secure saving avenues and easy access credit while peer-to-peer lending offers capital mobilization opportunities Microinsurance can protect smallholder farmers against weather-related risks like droughts floods thus enabling them participate more actively in national economic development.Against backdrop of these achievements there still exists great potential for creating wider inclusive ecosystems through further development education around innovations within space.