Student Voices | Empowering Tomorrow – Fintech’s Role in Boosting Global Financial Inclusion

Responsible Business Center | Jun 14, 2024 | Gabelli School of Business

Financial inclusion refers to the accessibility and availability of financial services to all individuals and businesses, regardless of their socioeconomic status, geographic location, or other demographic characteristics. Achieving financial inclusion has been identified as an enabler for seven of the 17 United Nations Sustainable Development Goals. As of 2022, it is estimated that approximately 1.4 billion adults remain unbanked, meaning they do not utilize financial services and instead rely on inconvenient and risky means to transfer and manage their money. There are several barriers that contribute to this problem, including the scarcity of physical banking locations and the lack of access to transportation, which makes in-person banking difficult. When it comes to digital financial services, internet connectivity can be spotty in many areas. Some people lack the proper documentation to even be able to open a bank account, and many lack the proper education to understand the breadth of financial services offered. Since 2011, The World Bank Group has been collecting data on global financial inclusion (see the Global Findex Database). Significant progress has been made towards addressing these high levels of exclusion, with global account ownership increasing from 51% of the world population to 76% from 2011 to 2021.

Chloe Mathewson and Seyed Ali Zeidi, 2024 Responsible Business Center Fellows, explore the need for greater financial inclusion and the role fintech can play in narrowing the gap. 

How fintech is opening doors for everyone

Access to affordable financial services is a global development opportunity. A savings account allows individuals to build a safety net, and access to credit and micro-loans can facilitate entrepreneurship. One way to expand access is through the use of digital financial services (a form of financial technology or “fintech”) especially digital transactions and mobile money. Based on findings from the World Bank’s 2021 Global Findex Database, in areas where digital payment methods and mobile money are available, women experienced a 9% lower likelihood of being in poverty, and their spending was 18.5% higher compared to regions with limited access to such services. In lower-income countries, this is a key statistic, as patriarchal expectations often impinge upon women’s access to managing their own finances. Likewise, during the pandemic, Micro-, Small-, and Medium-Sized Enterprises (MSMEs), which make up 90% of global business and over 60% of global employment, demonstrated greater resilience to economic challenges when connected to digital payment systems. In fact, these enterprises even managed to boost sales by 20-30%. The possibilities for emerging fintech in financial inclusion, and global development more broadly, are numerous.

Progress Internationally

In Kenya, M-Pesa’s mobile money service exemplifies this by enabling users to manage money through mobile devices, drastically reducing the need for traditional banking infrastructure. India’s digital transformation, led by platforms like Paytm and the government-backed Unified Payments Interface (UPI), has similarly democratized financial access, making daily transactions and savings more accessible. These initiatives highlight the pivotal role of mobile technology and government policy in bridging financial service gaps, providing scalable models for other nations aiming to enhance financial inclusion.

Bridging the Digital Divide: A Key to Financial Inclusion

Focusing on the critical barrier of the digital divide reveals its profound impact on financial inclusion, especially in rural and remote regions. This divide is marked by a lack of access to necessary internet and mobile network infrastructure, which significantly restricts the population’s ability to leverage digital financial services such as online banking, mobile money, and digital payments. To effectively bridge this gap, there is a pressing need for targeted infrastructure development and supportive policies aimed at expanding connectivity. Such efforts will not only improve access to financial services but also foster broader economic participation and development in underserved areas. Overcoming the digital divide requires a collaborative approach, engaging governments, the private sector, and community organizations to implement sustainable solutions that enhance digital literacy and infrastructure access.

Future Trends and Challenges in Financial Inclusion Through Fintech

The journey towards enhanced financial inclusion through fintech is marked by innovation but also faces critical challenges:

Technological Innovation: Advancements like AI, machine learning, and blockchain improve services but raise significant privacy and security concerns. Safeguarding data and preventing fraud are essential.

Bridging the Digital Divide: While expanding digital infrastructure is crucial, it introduces risks of fraud and demands high digital literacy to ensure user safety.

Regulatory Evolution: Regulatory frameworks strive to keep pace with rapid technological changes, focusing on international cooperation to address global fintech challenges like cybersecurity threats.

Strategic Partnerships: Collaborations aim to blend innovation with scale, yet they must navigate data privacy and systemic risk issues carefully.

Recommendations and Conclusion

Advancing financial inclusion is crucial for global development, with fintech innovation playing a pivotal role. Key strategies include:

Prioritizing Digital Infrastructure: Governments and international organizations should invest in digital infrastructure to ensure universal access to financial services, enhancing internet connectivity and digital literacy.

Promoting Regulatory Innovation: Crafting policies that foster fintech growth while ensuring consumer protection and financial stability is essential. Fintech sandboxes can offer a platform for safe innovation.

Enhancing International Cooperation: Addressing digital finance challenges and leveraging opportunities require global cooperation, with agreements on data privacy, cybersecurity, and the regulation of digital currencies and Big Tech.

Fostering Public-Private Partnerships: Collaboration between the public and private sectors, alongside fintech startups, is key to scaling financial inclusion solutions effectively.

Investing in Financial Education: Empowering individuals with financial knowledge is critical for maximizing the benefits of financial inclusion efforts.

Monitoring and Adapting to Trends: Keeping pace with fintech trends ensures that financial inclusion efforts remain relevant and effective.

As businesses navigate a rapidly evolving global market, increasing account ownership worldwide through fintech is not just a moral imperative but also a strategic business move. Embracing fintech solutions enables companies to tap into new markets, foster customer loyalty, and drive economic empowerment, all while building resilient and sustainable communities. Ultimately, the commitment of the business sector to integrating these inclusive technologies will be crucial in shaping an equitable economic future and promoting sustainable growth

Written by: the 2024 Responsible Business Fellows: Chloe Mathewson, B.S. 2024 and Seyed Ali Zeidi, MSBA 2024
Advised by Kate Kennon, Ph.D. and Miguel Alzola, Ph.D.