Beyond mobile money, FinTech has changed institutional payments and improved financial access to SMEs. This spectrum of financial services has disrupted the traditional banking approach to money and changed how businesses interact with it.
Innovative systems are created every day, and it’s clear that FinTech is growing fast, but how does it aid financial inclusion?
Impact Theory
According to the World Bank, 1.7 billion of the global population are unbanked and don’t have access to financial services. Financial institutions and governments worldwide push for financial inclusion to drive economic growth and financial stability.
In 2011, The Central Bank of Nigeria introduced the cashless policy, which aimed to reduce the amount of money in circulation. It worked. Use of physical money was reduced and the policy enabled the growth of FinTech companies providing digital and electronic payments.
Since then, FinTech has simplified cross-border remittances and institutional payments, among others. COVID-19 propelled its use, encouraging businesses and individuals to make payments online. SMEs could take digital loans thanks to AI-based financial services𑁋without the various qualifications needed by a bank.
While financial services companies drive inclusion through innovative solutions, they face challenges which include:
- Regulations: While the job of regulators is to create standard guidelines for companies to follow while supporting innovation, some policies may harm these companies.
- Lack of customer trust: With customers unsure of these companies and how their data is handled, there is a fear of using digital services to process transactions.
- Low financial literacy: Many individuals would rather use cash than digital services, as they don’t believe these businesses can help them (or may steal their money).
This makes it hard for fintech companies to provide services for the unbanked, as they have to work extra hard to educate them on the importance of these services.
Despite the challenges faced by FinTech, the industry has continued to provide accessible financial services to people within Nigeria. Backed by solid technology, these FinTech companies create innovative solutions for the unbanked.
Some ways they do these include:
- Lending Services: In many economies, SMEs and individuals cannot collect loans due to the many requirements listed by traditional banks. FinTech companies have simplified this by opening access to digital lending services. It is easy to get a loan by applying and submitting your credentials online. This allows SMEs to expand, onboard more customers, and promote economic growth.
- Financial Literacy: With the low trust in financial services, FinTech companies teach customers about financing and the available options. Teaching about lending services reduces their risk of collecting loans from loan sharks.
- Innovation Hubs: Anyone can build solutions unique to a particular group of people with tech. There’s a low barrier to entry and open-source infrastructure needed to build a product or service from scratch.
By creating spaces for people to learn and build on ideas, niches that serve various customer segments will be born and spread financial inclusion.
In conclusion, FinTech𑁋while adapting to consumer behaviour𑁋has changed how we interact with financial services. Introducing more people to it through financial services will compound economic growth and financial stability.
Banks and FinTechs can use this opportunity to collaborate and provide customers with better services and a quality user experience.
Financial inclusion increases by the day, and with telcos in Nigeria having mobile banking licenses, more unbanked SMEs and persons will join the FinTech industry and have access to more financial services.