Fintechs have helped make financial services available to people that banks have long struggled to reach, but this has come at a price. Financial inclusion is a systemic problem requiring collaboration from multiple stakeholders to gain the expansion of financial inclusion and nurture continental growth. FinTech provides a powerful, readily available and effective mechanism to help eradicate poverty and achieve global financial inclusion. It provides an opportunity which could contribute significantly to create a continent where most individuals are financially included. If FinTech is applied correctly, it could address provider and consumer concerns about affordability, access, regulation and financial education.
About financial services, growth, and technology for all
Around the world, financial inclusion strategies and principles are directly linked to economic growth and employment statistics. Not all financial inclusion initiatives have worked so far. There are cases where financial inclusion initiatives have failed even though similar measures were introduced in different territories. A generalised model can therefore not be used to meet financial inclusion targets because success depends on the idiosyncrasies of each country.
The growing importance of financial inclusion
Complete financial inclusion is a state in which all people have convenient access to a full suite of quality financial services at affordable prices. Financial inclusion allows access to a wide variety of products and services to ensure positive outcomes for individuals, households, micro and macro enterprises, and regional economies. Although the concept of financial inclusion has been topical for several decades, global financial inclusion only recently became essential political and strategic building blocks in most countries. A surge of findings over the past decade made it clear that financial inclusion is not just an emerging markets issue. It also affects advanced economies. Even in developed countries, large segments of global populations still do not have bank accounts. In fact, in 2015, around 2 billion individuals in developed countries still did not have their own bank accounts. These people are financially excluded from economic resources, access to basic services, property ownership, inheritance, natural resources, appropriate new technology, financial services and microfinance.
Financial inclusion can help to alleviate poverty and stimulate economic growth. It can help to eradicate famine, support health and well-being, ensure quality education, resolve gender inequality, safeguard pure water supplies, provide hygienic sanitation, supply affordable and clean energy, create employment opportunities, inspire innovation, secure infrastructure, and generate justice and peace for all.
FinTech is a combination of the words financial and technology, and the latest portmanteau to grace the covers of leading business and technology publications. The concept of technology in the finance world has been around for decades, but exponential advances and lower entry barriers are increasing the rate at which technology is being used to provide global financial services and products. So, FinTech is a moniker for the combination of technology and any area remotely related to finance. Its scope has gone beyond its origins of bank transactions and into adjacent areas such as insurance, lending, investments, digital crypto-currencies and personal digital identity.
FinTech help to facilitate financial inclusion
Four distinct yet interrelated variables were identified: Providers: These are the institutions providing financial services and products.
Products and services: These are the financial products and services offered by institutions, and products and services needed by consumers.
Channel: This refers to the mechanism or conduit distributing products and services to consumers, or the method through which consumers prefer access to financial products and services.
Consumers: These are the end users who benefit from access to and the usage of products and services.
Financial inclusion and FinTech across the African continent
Affordability for consumers: This includes access to more funds, personalised interest rates and lower administration costs.
Affordability for providers: This includes access to consumer data and profiles to offer appropriate products and services, the availability of products and services without expenditure on business premises and products and services pinned at attractive price points.
Access for consumers: This includes the availability of financial services in consumers’ immediate location, increased mobile penetration rates, access to bank transactions and a broad range of products and services, pay-point technology and connectivity reducing the need for cash in hand, and government authorities paying citizens electronically.
Access for providers: FinTech can eliminate the need to build or run a business in areas with questionable economic viability. In addition, FinTech can leverage access points and increase product distribution without additional capital investment.
Regulatory requirements for consumers: Documentation is reduced because the government and financial service providers share data. Also, transactional records of financial services and products allow consumers to capitalise on credit with personalised interest rates.
Regulatory requirements for providers: Consumer data allows providers to offer accurate price points and share risk. Also, government incentives and reduced compliance burdens encourage providers to offer financial services and products. The sharing of client data between providers lead to lower initiation costs and higher consumer acquisition rates.
Financial education and literacy for consumers: National government, traditional and FinTech providers as well as third-party agents network and use campaigns to educate consumers about the value of formal financial services and products. Consumers learn about the correct usage of credit and how different ancillary financial services or products work so that they can take control of their financial journey.
Financial education and literacy for providers: Providers are usually faced with time-consuming education processes and little revenue during the process. Incentives are provided to third-party banking agents to educate consumers in order to compensate for the lack of revenue. Government supports initiatives and manages stakeholder expectations and responsibilities.