The future of finance could be better if it was accessible to the majority of society. Broad-based financial inclusion is the enabler of Sustainable Development Goals, and achieving that goal is of paramount importance today.
Digitization spans the globe across different industries and verticals. The financial sector is no exception. We are rapidly moving towards a cashless future and digital financial operations. We think that’s for the best. Yes, that’s really the best if we say it in general, but not for all. Who does the current financial system usually exclude? You might be surprised, but that’s hundreds of millions worldwide.
All of these people don’t have checking or savings accounts. Therefore, they cannot benefit from digital financial disruption. Lack of paperwork, high costs, long distances and general distrust in the banking system are the most common barriers to opening a bank account. While this problem appears to be more severe in developing and underdeveloped regions of the globe, it also exists in countries with higher standards of living. For example, 7% of the population is still unbanked in the United States and 4% of British citizens still have no access to financial services. This negatively affects their lives and the economy in general. These people are out of the cashless society and out of the digital economy. Would the people there want to put the hundreds of millions aside? Most would say no. A sustainable financial future should be for everyone, without exception. Financial inclusion is a big step towards this better reality, and fintech has huge potential to make that happen.
What is financial inclusion and why is it important?
Financial inclusion is the provision of financial services that are equally accessible to everyone, regardless of income level. It also means bringing underserved individuals, entrepreneurs and SMEs into the formal economy, where they can thrive and integrate into a broader market. Both consumers and banks benefit. Financial inclusion empowers people to build wealth and allows banks to expand their customer base. Governments also benefit from financial inclusion, as a more connected society can accelerate economic and monetary growth.
Financial inclusion is important because it enables people to participate in the economy and improve their well-being by integrating digital technology into everyday financial activities. All of this creates an enabling environment for small businesses, allowing individuals to achieve their personal and financial goals while contributing to the prosperity of the country.
What happens to the financially excluded?
There are four basic types of financial products that have changed dramatically in recent years: loans, payments, savings and insurance. Almost everywhere in the world, people with low income cannot access it due to various factors. However, we already have the experience and digital technologies needed to make these services affordable to the broader population. The low level of financial inclusion leads to the following four negative causes related to the basic types of financial products.
Restrict access to credits Lack of access to financial services means that it is impossible to obtain credit and loans for small business owners. It acts as a barrier for them and prevents them from investing more and expanding their business. Investing more in small businesses can make them more profitable, improve the lives of many, and have a positive impact on the economy. Furthermore, banks remember these people as potential consumers.
There is no way to make/receive daily payments According to recent World Bank statistics, about 150 million people live in extreme poverty, mainly in rural areas. The majority don’t even have access to essential financial services, such as receiving or making contactless payments. Most of these people are small farmers selling animal products and vegetables. Among them, many artisans produce and sell items to local suppliers.
They are all stuck in the vicious cycle of an informal cash-based economy, without access to credit/debit cards and online money transactions. Deprived of mobility, they are also deprived of the opportunity to get rich using the perks of modern technology.
Inability to save money and build financial security
Without the ability to save money in bank accounts and online wallets, people are also unable to gradually build financial cushions and confidence in the future. Savings is an essential source of finance that can help people improve their long-term lives, start businesses, and fund their children’s education.
No access to insurance services
Another negative consequence of not being financially inclusive is that low-income people and small businesses do not have access to insurance services. Every business has to face ups and downs. Taking risks is a must for every entrepreneur, no matter the industry. Insurance can help them feel more confident in times of vulnerability and avoid financial shocks during recessions. In addition, this will allow them not to fall into extreme poverty thanks to the continuity of cash provided by insurance. How to achieve financial inclusion
Financial inclusion is often cited as a key determinant of the 17 Sustainable Development Goals and one of the ways to reduce levels of poverty worldwide. Financial institutions can achieve this through the following four modern financial approaches.
Increase financial literacy
Financial empowerment for individuals and small business owners is impossible without financial literacy. Educating clients and underserved youth can help them understand essential financial concepts and develop the skills needed to effectively manage money and achieve their financial goals. Finance was not always as complicated as it is today. While the economy was previously cash-based, today it is actively integrating electronic payments, credit cards, debit cards, and mobile transactions. As a result, finance is becoming more diverse and understanding key modern financial concepts is essential for full participation in the economy.
Communicate a completely transparent service offer
Transparency should be a key value in the minds of ethical banks, fintech startups, and other financial institutions. This means providing the public with relevant information on financial management strategies, policies and reviews in a timely, public and transparent manner. In addition, financial service providers should prioritize transparency in their messages to their clients to build a relationship of trust and encourage their trust. The language should be clear, transparent and simple enough for all consumers to understand and trust the company.
Closing the gap between rich and poor in terms of age, gender and race
On the path to financial inclusion, organizations should begin targeting previously financially excluded social segments. For example, banks can implement age-friendly programs to increase access to financial services for older adults and help them understand how they can benefit from services and products. Specifically.
Furthermore, we should take steps to close the gender gap in the banking sector. It is still difficult for women to get loans or credit in many countries. This is a significant hurdle for many female entrepreneurs looking to secure finance and start a small business. Racial inequality between rich and poor also occurs in existing financial systems. Race remains the main dividing line when it comes to credit withdrawals and loans.
Traditional banks and fintech companies can reduce gender and racial gaps by introducing new programs to stabilize consumer cash flows, build credit, and build financial resilience main. For example, a no-overdraft bank account, payday advance, and account maintenance can help smooth out income fluctuations. Fintech companies can help customers secure loans and credit using AI-powered machine learning and data analytics solutions. They can also help consumers increase their savings by offering savings accounts, automatic savings, and micro-investment features.
Applying fintech innovation
Emerging technologies and digital innovations are shaping a new vision of more inclusive finance. E-wallets and fintech mobile apps that enable online peer-to-peer payments are great examples of digital products that promote financial inclusion.
Today, many fintech startups are emerging with a mission to make personal finance easier. As a result, we can see more and more startups offering fintech solutions and services that encourage more conscious spending, saving and wealth creation. The most important thing: they are designed with inclusivity in mind and aim to make financial services more accessible to different sections of society.
Defining a new vision of the financial future
Financial inclusion is important. This is the main direction that traditional banks, financial institutions and startups should take to reinvent the current system that is missing a key consumer segment and contribute to a sustainable future. Generally speaking. Emerging technologies such as artificial intelligence, machine learning and biometrics are our allies to achieve this goal. We’ve got the digital innovations needed to bring financial inclusion closer to reality. Now there are a few steps to do it.