How FinTech is propelling Financial inclusion

Written by Aaron Barker, MSc FinTech Student, UWE

What is financial inclusion?

Despite progress in recent years, financial exclusion remains a significant issue today. Many people, particularly those from low-income backgrounds or living in countries with weaker infrastructure, lack access to basic financial services.

According to the Financial Conduct Authority (FCA), London alone accounts for 20% of the unbanked population in the UK. These are people typically living in low-income areas and with poor credit ratings unable to enjoy the same level of access to technology most of us take for granted. The effects are significant and far-reaching, as individuals without access to basic financial services are unable to save for long-term goals or acquire funding through loans for core activities such as buying a house, car or starting a business.

Examples of those who suffer from financial exclusion include:

• People holding an immigration status such as refugees and immigrants lacking documentation, perhaps where English isn’t the first language

• Elderly who struggle travelling to a local bank branch or perhaps have sight issues

• Ethnic minorities who don’t have access to specific needs (eg, Islamic finance)

• People with disabilities

• People living away from cities where the internet isn’t very accessible at good speeds

• People simply lacking basic financial education or technology awareness

Fintech for good

The development of FinTech in the last decade has been key in addressing financial exclusion by providing those who do not have access to traditional banking services the financial tools such as mobile banking applications. FinTech companies have created a multitude of platforms and services that allow people who have been left out of the traditional banking system to open accounts and start saving or repair their credit rating. This has increased access to financial services for many people and has helped to bridge the gap between the financially included and excluded.

FinTech companies based in the UK and around the world are actively working to promote financial inclusion. For example, companies such as Revolut are expanding their services to countries like Mexico and Brazil, providing more people with access to mobile banking, insurance, currency exchange and many more benefits. Similarly, companies like Monzo and Starling are making it easy for people in the UK to set up bank accounts quickly and easily. We also have some great examples in the South West such as LOQBOX who help improve credit scores.

Other ways that FinTech companies are improving financial inclusion includes education, many cryptocurrency exchanges offer the ability to learn about the uses behind some of the potential coins that you can invest in. Similarly, Acorns for example, gives its users access to videos and articles to learn about budgeting and investing.

In addition to providing access to basic financial services, FinTech companies are also working to level the playing field for retail investors. By offering access to the same complex trading strategies that institutional investors use, companies such as Stratiphy are helping retail investors to gain an edge in the markets. This is an important aspect of financial inclusion, as it allows people to participate fully in the economy and take control of their own financial futures.

FinTech clusters have started to appear globally and are getting larger each day. With reference to the image below (taken from https://gfi.findexable.com/fintechs) it is evident that there is a large cluster of FinTech companies working in Brazil and an up-and-coming cluster in Colombia. It is key to pay attention to countries where financial inclusion is high as they will be a good indicator on FinTech’s ability to onboard those who do not currently have access to financial products.

What is next for FinTech?

It is still early days and there are many challenges yet to overcome such as startups having regulatory issues and data privacy challenges following risk assessment criteria, but the future is looking brighter with regard to addressing those underserved communities.

FinTech is always evolving and making new breakthroughs with cutting-edge technology such as Blockchain, allowing transparent peer-to-peer transactions without an intermediary and AI helping to push users to using the right products fit for their purpose.

As FinTech becomes increasingly mainstream, the number of people left out due to the listed reasons above will shrink. The key for improving financial inclusion will soon be mostly limited to getting mobile devices to those in need.