Fintech and Financial Inclusion: Closing the Gap in a Digital World – Banking & Finance News

– By Manoj Kumar Dronadula

Much of the world’s population still has restricted access to the traditional financial system, despite enormous efforts. According to World Bank estimates, 1.7 billion people worldwide still only have restricted access to traditional banking and financial services. Businesses that provide financial technology (FinTech) have a significant potential to close this gap. These companies’ remarkably unique tech-based strategy provides quicker, more affordable, and customized financial services, which are helping to increase financial inclusion on a worldwide scale. Stated differently, FinTech companies are bringing revolutionary shifts in the financial industry that will include bringing a portion of the underbanked or unbanked public under the financial safety net.

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With 25% of the world’s total population unbanked, the significance of FinTech firms in ensuring financial inclusion couldn’t be overemphasized. FinTech solutions that combine digital platforms, mobile devices, and advanced data analytics are now playing a crucial role in meeting the banking demands of underserved populations. As noted by the World Bank, the technology-led approach of FinTech is proving extremely beneficial in cross-border payments, and thanks to the combined efforts of all these platforms, the percentage of people holding an account (bank or mobile) has risen quite significantly within a decade.

FinTech Role in Bridging the Divide

FinTech platforms have brought major benefits to the global financial system. These technology-driven services are increasing financial inclusion worldwide and spurring tech innovation in finance. In India, FinTech has been transformative in expanding banking access – around 80% of Indians now have a bank account, up from far lower levels before FinTech emerged. With over 1,300 thriving FinTech startups that have attracted $5.72 billion in investment since 2014, India has become a major hub for financial technology innovation and adoption. Even on cross-border remittances, the significant impact of FinTech platforms is very apparent. By enabling access to simplified banking solutions, credit facilities, and peer-to-peer lending, FinTech solutions are effectively contributing to ensuring financial autonomy for the masses aligned with the Sustainable Development Goals (SDGs) of the United Nations.

Challenges and Risks

Fintech-enabled financial inclusion brings opportunities as well as challenges. Chief among them is safeguarding consumer data. Collecting and analyzing sensitive financial information necessitates robust data security and confidentiality measures to build trust and prevent breaches, given the high costs of data leaks; the Ponemon Institute found the financial industry’s average data breach costs $5.72 million.

Furthermore, unequal connectivity exacerbates financial access inequalities. As per the International Telecommunication Union, about 47% of the global population, or 3.7 billion people, lack internet access. While fintech solutions gain popularity, governments enact regulations to ensure financial system integrity. Such oversight, though necessary, must strike a balance between controlling risks and promoting inclusive access to financial services.

Collaboration and Opportunities

Fintech startups, lawmakers, and financial institutions must work together to further the goals of financial inclusion. Legislators have the authority to institute a regulatory structure that safeguards consumers and fosters creativity. Financial institutions working together with fintech companies can improve their offerings and reach. Fintech’s cutting-edge technologies, for instance, can help traditional banks enhance their fraud detection, risk assessment, and customer service.

According to Accenture research, 82% of bank executives believe that collaborating with fintech firms is essential to their success. Fintech companies' innovative solutions and experience can be leveraged by banks through partnerships, investments, or acquisitions.

Conclusion

No one can deny the crucial role played by the FinTech platforms in propagating the cause of financial inclusion among the masses. These new-age firms are becoming instrumental in widening financial security, and by offering the masses efficient, cost-effective, and faster financial services, these platforms are rewriting the tenets of the conventional banking system. To realize the full potential of FinTech platforms, all the stakeholders must come together and collaborate to promote digital literacy, cyber security, and financial inclusiveness so that a better and more secure financial future can be created for our current as well as upcoming generations.

(Manoj Kumar Dronadula is the Senior Director – Product Management and Head of Loans, Moneyview)

(Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.)