Fintechs Accelerating Financial Inclusion
Worldwide, financial inclusion is mainly driven by the governments and monetary institutions seeking to provide financial services to underserved and unbanked cohorts. Despite financial inclusion being deemed necessary to lower poverty and boost economic growth, according to estimates around 1.7 billion adults remain unbanked globally.
As per the World Bank data, up to 80% of Indians have access to bank accounts. At a first glance, this seems like a robust figure – until one realizes that the unbanked population numbers almost 191 million.
The Advantage of Fintech
The high number of unbanked people may be due to varied factors such as low financial literacy, lack of adequate access and unaffordability as well as inadequate trust in these entities. Such statistics reveal that the demand-supply gap in financial services offers a tremendous opportunity for BFSI players universally. Yet, India’s traditional financial services entities have not been able to address this gap satisfactorily. In such a scenario, fintech firms are proving their capability in extending financial services to major sections of the unbanked and underbanked cohorts.
As a country, India has the world’s second-largest segment of active internet users. Thanks to rising internet penetration backed by online banking capabilities, fintech companies have been able to reach out to people in remote regions where brick-and-mortar bank branches are difficult to establish. By allowing access to basic financial products and services (such as savings instruments or credit), fintech firms permit people in distant areas and low-income, unbanked sections of society to save, multiply their funds and avail official subsidies and programmes.
To elaborate, fintech basically refers to financial services companies that leverage technology in providing fiscal offerings to customers. These services can cover payments, lending, savings, investments, insurance, online trading, etc. Accordingly, fintech players can be instrumental in expanding financial inclusion by leveraging the prevalent financial mechanisms in combination with the latest technologies. As a result, they make banking simpler, more cost-effective and accessible for millions of Indians.
Benefits of Fintechs driving Financial Inclusion
The World Bank Group perceives financial inclusion across the triple prism of access, usage and quality of fiscal services. Here, fintech firms have the wherewithal to curb costs while boosting accessibility and speed, thereby permitting more bespoke financial offerings that can be scaled conveniently. Apart from mobile money services, fintechs have revealed their capability in domains such as cross-border remittances and government-to-person payments.
Initiatives for promoting financial inclusion through fintech has significant positive follow on effects. Prodded by the increasing threat from fintechs, legacy companies have launched new digital products or digital-only banks and are making an effort to include the underserved in their scope of services.
Additionally, the financial inclusion mission has benefitted from government intervention through the creation and operationalization of fintech policies, the launch of smart cities and allied initiatives, the establishment of portals for the speedy approval of loans for SMEs (small-and-medium enterprises) and more. Fortunately, through official initiatives such as UPI (Unified Payment Interface), APIs (Open Application Programming Interfaces) and Aadhaar, the groundwork was already laid by the government so that the fintech industry could offer innovative and flexible digital banking solutions.
Agile, Convenient and Cost-effective
Fintechs have proved their capability in advancing financial inclusion by taking an agile approach. Through consumer-friendly processes, fintech firms provide credit services based on less strict norms. The flexible norms facilitate faster and easier on-boarding of less educated or semi-literate customers. SMEs and other small entities also gain from less stringent rules since fintechs provide them swift liquidity solutions through collateral-free lending mechanisms.
Financial inclusion is not just about offering financial services to the underserved segments. Rather, it is also about educating these cohorts and building awareness of prudent financial management. It is against such challenging conditions that fintechs have disrupted traditional fiscal services in India while facilitating greater financial inclusion.
According to a report from BLinC Insights, the size of the country’s overall financial services segment stood at around $500 billion in 2021.1 Of this, the fintech market accounted for $31 billion, making it the world’s third-largest fintech domain after the US and China. Due to its largely untapped potential, however, there is greater scope for further penetration of financial services in India.
Thanks to their nimbleness, innovative mindset and lower operational costs in an underpenetrated market, fintech firms are poised to push financial services to all parts of India, ensuring universal access to credit and simultaneously promoting the transition to a cashless economy. Consequently, besides being a goal in itself, financial inclusion can act as an enabler of economic growth. By creating a sustainable financial ecosystem, the fintech segment can also contribute to the country’s GDP growth. The government’s pan-India financial inclusion vision can then become a ground reality.
(The given article is attributed to Gaurav Jalan, Founder and CEO, mPokket)
