Why fintech is the main driver of financial inclusion | Financial services (FinServ)
The role of financial inclusion in reviving the global economy in a post-pandemic world cannot be underestimated. Ensuring universal access to financial products and public services is one of the UN’s seventeen Sustainable Development Goals, identified as a catalyst to end poverty and hunger and achieve gender equality.
However, financial inclusion also has the power to stimulate economic growth and support industry and innovation. It will help countries, especially emerging economies, find a way out of the fiscal damage caused by the pandemic. A McKinsey Global Institute study previously estimated that digital finance would add $ 3.7 billion to the GDP of emerging economies in the years leading up to 2025.
But the general idea of financial inclusion remains marred by several misconceptions, including the idea that the problem is limited to low- and middle-income countries. In the United States, the world’s largest economy, a number of people are either unbanked or underbanked, which means they often lose money on short-term payday loans or bank services. check cashing.
This leads to another common myth, unaided by the fact that “banking the unbanked” has become the slogan of choice for solving the challenges of universal financial access. However, in the digital age, the idea of financial inclusion has evolved to mean something different than just equipping everyone on earth with a checking account.
Traditional banks have fallen behind the digital curve
Regulation is perhaps the most critical challenge facing the traditional banking industry when it comes to the issue of financial inclusion. According to, it is a double-edged sword. In recent years, regulation has proven to be a limiting factor in the ability of traditional banks and financial service providers to innovate and keep pace with the growing transition to digital and mobile first. However, compliance also creates significant barriers to entry for banking services. In his recent letter to shareholders, Jamie Dimon, CEO of JP Morgan Chase, points out that Dodd-Frank regulations are actively preventing banks from lending more and supporting the economy. This combination has allowed more agile, digital-native fintech companies to get ahead of their traditional counterparts; in some cases, banks simply cannot compete in certain segments due to the heavier capital requirements placed on them compared to the lighter regulation for their fintech rivals.
The change is visible across the wealth spectrum, indicating that fintech is playing a central role in financial inclusion while also emerging as a popular choice for more affluent consumers.
In emerging economies, mobile payment networks such as those in Kenya or have long overtaken cash at all income levels. Meanwhile, European countries are reporting that people are increasingly turning to so-called “ challenger banks ” such as Monzo, Revolut or N26, while traditional banks are seeing a decline in search traffic.
These findings are supported by a recent survey conducted by Ding, the world’s largest mobile charging service. Ding’s, who surveyed more than 7,000 respondents in nine markets spanning low-, middle- and high-income countries, found that four in five people at all income levels engage in some form of prepaid service. .
The rise of prepaid services
The rise of prepaid services is one of the most intriguing developments in improving universal access to products and services. Previously, prepaid services were considered somewhat inferior to subscription plans.
However, the move to mobile has effectively reversed this perception, with consumers actively choosing prepaid mobile services over subscription-based models. Ding’s results showed that 61% of its 7,000 respondents used a prepaid mobile account, rising to 75% in Brazil, the Philippines and the Gulf States. Adoption of other prepaid services is also on the rise, with 45% of respondents reporting using two or more services, including prepaid utility bills, gift cards, vouchers or credit cards.
One of the main reasons for this change is the speed and flexibility of prepaid services. Anyone can buy a SIM card and start using it instantly, recharging it in seconds. Likewise, prepaid models allow users to have a high degree of control and visibility over their spending.
So what comes next? After all, the journey to universal financial inclusion is still on. Continuing to develop the pillars that underpin the ongoing fintech transformation is critical to success. For example, while mobile phone penetration is high among the unbanked, the increased availability of 4G and ultimately 5G services will provide the bandwidth to deliver a more sophisticated range of financial-focused services. on mobiles beyond pure payments and remittances. These may include the provision of lines of credit or insurance coverage, which further narrows the financial inclusion gap.
Finally, the success of platforms such as the European challenger banks and WeChat in China provide a diagram of what the success of financial inclusion in emerging economies might look like, in the form of “super apps”. WeChat users can get updates from official government and business accounts, make daily payments, make a medical appointment, apply for a loan, take a taxi, top up their phone, and many more. Revolut has become a convenient way to pay across borders to offer investments in commodities and cryptocurrencies, as well as insurance services, savings plans, and other financial services.
The ease and convenience of having all of these services in one app, available across international borders, will be a huge step forward for inclusiveness. Ultimately, it seems likely that, at least for retail users, the role of traditional banks will diminish on the global stage as emerging economies continue their transition to fintech-powered financial inclusion.
This article was written by Rupert Shaw, Commercial Director, Ding
Ding uses its open API partners to integrate and activate top-ups, bill payments, and gift cards.