Everything is becoming digital, and finance is no exception. Inclusivity has been one major issue that fintech has addressed.
Previously, only 2.5 billion people, or around 50% of adults, were able to use traditional financial services. Fintech web and mobile applications, such as neobanks, can be accessed by many more people, even those who have been previously underserved, allowing them to use tools like payments, credit, savings, and insurance.
Fintech has allowed us to overcome issues related to geographical barriers, high fees, or a lack of formal identification. It reshapes financial systems on a large scale.
Let’s take a look at the different ways we can see the transformative role of fintech in the world, from AI and blockchain to mobile payments and peer-to-peer lending.
In our many years in software development, specializing in connecting fintech companies with industry-experienced developers, we have been able to witness the impact of fintech on inclusion in the financial services industry. We have also helped many fintech companies leverage emerging tech, ensuring they have as much impact as possible.
If you are interested in collaborative software development, our outsourcing and staff augmentation models may be a good option to consider.
What is the Role of Fintech?
At its core, financial inclusion aims to open the doors of financial opportunity to everyone.
We’ve seen how fintech has become a powerful tool in achieving this goal.
It’s no longer just about providing access to financial services; it’s about providing access in a way that makes financial products usable and valuable to everyone, particularly those who have historically been left out.
In our experience, fintech companies are breaking down the traditional barriers by making financial services more accessible and affordable through custom mobile app development.
For example, mobile banking, peer-to-peer lending, and blockchain-based solutions are just a few innovations that have reshaped how financial services reach previously excluded populations.
Let’s take a deeper look at the transformative role of fintech in finance, and specifically, financial inclusion.
Disrupting Traditional Finance
Banking used to require a physical location. This came with the associated costs of maintaining that location and all the employees in it. However, with the rise of fully online banking platforms and neobanks, which have no physical branches at all, banking in general is moving online more and more.
These fintech technologies are making the process of banking faster and more remote, and they are even increasing the hours during which services are available by giving users 24/7 access.
New banks or startups coming into the industry need to take these trends into account when they create a
Redefining Accessibility and Affordability
With reduced costs, a lot of fintech companies are able to offer their services for far cheaper, to more people than traditional banks have ever been able to. Users just need a smartphone to access their mobile wallet, so even people in remote locations can open accounts with these institutions.
By removing the need for high fees, a lot of people who cannot afford traditional banking fees are also able to access these accounts.
The risk is that traditional banks will lose clients if they do not adapt by digitizing more and perhaps implementing alternative monetization models.
Democratizing Financial Services
One of the biggest ways fintech is transforming the industry is by democratizing finance. Everyone can now get access to tools that were previously only available to certain candidates. This can be in the form of financial advice, budgeting tools, microinsurances, crowdfunding platforms, and more.
We expect to see more and more features becoming available as mechanisms like AI and ML make it cheaper for institutions to offer, and a rise in features offered by competitors, driving others to offer features that let them stand out.
Key Innovations Powering Transformation and Financial Inclusion
Fintech companies have introduced a wide array of products and digital financial services that cater to the needs of underserved communities.
Key products and fintech innovations include mobile payment platforms, microloans, and tailored insurance services.
Mobile wallets, for example, allow users in remote or rural areas to manage their finances without needing access to a physical bank.
These digital wallets are changing how people handle money, particularly in countries with limited access to traditional banking, and allow them to make informed financial decisions.
Fintech lending platforms are also noteworthy. They may offer small loans to individuals and entrepreneurs who wouldn’t qualify with other financial service providers.
These products allow people to start businesses, grow existing ones, or manage personal financial crises.
Let’s take a look at some of the technologies behind this shift.
Artificial Intelligence (AI) and Machine Learning (ML)
AI and machine learning, as mentioned above, are allowing fintech apps to offer more tools to their users at a greatly reduced cost. This includes everything from smart budgeting tools to dynamic credit risk analysis, and even robo-advisors.
These tools are often at very little cost to the fintech company, meaning that they are offered to the user for very little cost too.
On top of all these additional features, AI and machine learning are allowing companies to increase the accuracy and speed of their fraud and security detection systems, bringing issues to their attention in real time.
Blockchain and Decentralized Finance (DeFi)
Blockchain-based solutions are playing a massive role in streamlining identity verification, international payments, and asset transfers. This is especially attractive for companies that are working with cross-currency payments, who need these conversions and transfers to happen as fast as possible.
Decentralized Finance (DeFi) enables things like peer-to-peer lending and borrowing. Most of the companies that use decentralized finance are able to offer their services at lower cost, as well as with far greater transparency than some of the major banks out there.
Open Banking, APIs, and Embedded Finance
Open banking APIs are allowing fintech companies to integrate third-party services into their apps. This means that they do not need to code every part of the apps themselves and can expand their offering to their users.
They can also leverage embedded finance models, which allow their fintech features to be integrated into other parts of a user’s life. Collecting real-time data has allowed many firms to personalize their offerings.
Cloud Infrastructure and Edge Computing
Cloud computing has played a massive role in SaaS and is now playing a big role in fintechs, allowing them to not only offer their features using SaaS models but also scale up and down in real-time in a cost-effective manner.
Edge computing has also become more popular as fintech apps service those in remote locations, who may not have consistent internet connectivity, allowing them to still experience a reasonable version of the fintech services consistently.
Top Impact Areas of Fintech Transformation
The ability of fintech to provide widespread access to financial services is one of its most transformative aspects.
Through mobile phones and digital platforms, individuals can perform essential financial tasks like transferring money, applying for loans, and paying bills – all of which are critical for promoting inclusion in developing and emerging markets.
But access is only one consideration. Fintech’s impact spans much further.
Financial Inclusion and Underserved Populations
Fintech companies largely promote financial inclusion by rethinking how financial services are delivered.
One of the most significant breakthroughs has been in alternative credit scoring methods.
Instead of relying solely on traditional credit scores, fintech firms are using data like mobile phone usage, rental payments, and even social media activity to assess creditworthiness.
This allows people without established credit histories to access loans and financial products.
We’ve seen how companies like Experian Boost have started reporting rent and utility payments to help users build credit.
This type of innovation in the fintech industry promotes financial inclusion by opening doors for individuals who would have been excluded from traditional lending systems and even traditional banking services.
When combined with other features like agent network and onboarding, the services offered to those in remote locations have become comparable to those offered in bigger cities.
Operational Efficiency and Cost Reduction
Since cost is reduced for both providers and users, it seems that the future of fintech is essentially guaranteed. AI is also increasing the quality of the products and the speed at which they are offered, whether it’s automated underwriting or AI in fraud detection.
All of this has led to an increase in employee availability, allowing them to focus on other tasks, reduced error rates, and generally improved turnaround times. It’s a win-win for everyone.
User Experience (UX) and Trust
Additionally, these new mobile fintech solutions offer seamless, intuitive user experiences that make financial products easier to understand and use, driving higher adoption rates.
One of the biggest contributions fintech has made is in the area of financial literacy.
Many fintech apps don’t just offer services but educate users on how to manage their finances. From budgeting tools to investment tutorials, these apps empower users to take control of their financial lives.
In our experience, fintech platforms that focus on transparency and personalization have had the most success.
By making complex financial concepts simple and accessible, fintech-enabled financial inclusion is helping people make smarter decisions about saving, spending, and investing.
Real-Time Payments and Cross-Border Transactions
We’ve already touched on how blockchain and decentralized finance have enabled cross-border transactions at speeds unlike we’ve ever seen before. Traditional systems used to rely on batch processing, but fintech platforms let you move money nearly instantly.
While these waits might not seem like a big deal for the average person, people like migrant workers, freelancers with international clients, or small businesses who operate globally rely on this money heavily and have previously been negatively affected by either the long transfer times or the fees associated with international payments.
Transformation of Finance Professionals and Businesses
We’ve focused a lot on how fintech has influenced regular users as well as the fintech companies themselves. Still, the reality is that fintech shapes how industries operate, from CFOs to small business owners.
Let’s take a look at how some businesses and professionals are adapting to the changes.
New Skills Needed By Modern Finance Teams
Finance professionals need to make sure they are keeping their skill set up to date in this rapidly changing industry. They need to start learning everything they can about data, automation, and customer desires if they want to be able to create their own platforms or utilize existing services effectively.
These services could be anything from AI-powered analytics platforms to RegTech that can help them with their compliance.
There is no delaying these changes, so staying on top of them is of the utmost importance.
Digital-First Products and Ecosystem Partnerships
We’ve seen the emergence of fintech disrupt the traditional banking industry in a big way.
While fintech has certainly posed challenges for traditional banks, it has also opened up opportunities for collaboration.
Many banks are now partnering with fintech companies to offer enhanced digital solutions, blending the innovation of fintech with the trust and security of established financial institutions.
This collaboration allows both sectors to serve a wider audience more effectively, allowing both the banks and the fintech companies to be more profitable.
They also allow companies to implement new features far faster than they would have been able to otherwise, while still guaranteeing the quality of the product being provided at the end of the day.
Risk and Compliance Management
As fintech is changing, risks are changing as well. In order to address these risks, governments are constantly shifting their regulations to ensure that they are able to keep their citizens and their data safe.
RegTech tools can help companies stay compliant by monitoring transactions, helping with fraud detection, and even automating processes like reporting, taking the pressure off your internal teams while at the same time ensuring everything is as it should be.
What are the Challenges of Fintech in Driving Financial Inclusion?
The future is fintech; there is no denying it. Traditional banks are already considered outdated. But just because an industry holds so much promise does not mean it is without its challenges. Understanding potential issues can help you avoid them, or at least manage your risk.
Infrastructure and Connectivity Gaps
Infrastructure remains one of the biggest barriers to fintech adoption in developing markets.
Unreliable internet connections, lack of access to smartphones, and limited digital literacy all make it difficult for fintech to reach its full potential.
In our experience with outsourcing and staff augmentation in these countries, we can confirm that fintech companies operating in these regions must also navigate complex regulatory environments that can slow down progress.
Changing Regulatory Landscapes
We’ve already mentioned that regulatory landscapes are shifting rapidly in order to stay ahead of potential issues. However, it has still been largely unable to keep up, and the result has been that certain grey areas are produced.
Working in these grey areas that are sure to fall under legislative fire soon enough is definitely not recommended, but some startups have no choice if they want to get their foot in the door. Even big companies with endless resources might find themselves in these zones due to the time it takes to make necessary changes.
While RegTech is assisting with compliance, it is still far from perfect.
Cybersecurity and Data Privacy
Fintech deals with a lot of sensitive data, whether it’s personal information or even a client’s finances. Simultaneously, there is a heavy reliance on APIs and cloud infrastructure, which have unique challenges of their own.
Risks of breaches are not only higher than they may be in other types of apps, but may also have incredible consequences. Staying on top of the latest security best practices like encryption, KYC, and AML is critical.
Mistrust and Digital Literacy Gaps
Financial education is crucial in the adoption of fintech for financial inclusion.
Many people, particularly in underserved populations, are unfamiliar with the financial products and services fintech companies offer. Sometimes, they don’t even know about the most basic financial management tools offered.
Fintech firms that invest in educating their users, whether through tutorials, webinars, or in-app resources, are better positioned to succeed. This education helps build trust and ensures that users can fully benefit from the services offered.
If you need help integrating this educational content into your existing financial technology services, we may have the right fintech developer for you.
Our thoroughly vetted and highly experienced front-end and back-end developers can help you figure out the best solution through collaborative software development and effective client communication.
Success Stories and Real-World Examples
There are numerous success stories in fintech-driven financial inclusion.
We’ve already mentioned how M-Pesa, for example, has transformed Kenya’s economy by enabling millions to send and receive money via mobile phones.
Another example would be Kiva, a microloan platform that has connected borrowers and lenders around the world, helping small businesses grow in areas with limited banking access.
Future Trends in Fintech Transformation
As digital payments become more widely adopted, particularly in developing markets, we expect to see a continued reduction in cash-based transactions. And, as fintech platforms become more popular, they will continue to strive towards more financial inclusion and will ultimately play a transformative role in the markets.
Personalization Through AI
Personalization is not exclusive to fintech apps, and users are growing to expect it in most mobile and web apps they encounter. The rise of AI has been a big facilitator of this personalization as it allows users to receive recommendations tailored in real-time. For fintech, this could be recommendations related to saving, borrowing, and even investing.
This could be very impactful for first-time users who have previously been underserved and need a lot of guidance.
Tokenization and Central Bank Digital Currencies (CBDCs)
Tokenized assets and alternative currencies keep making the news. The aim is generally faster and cheaper transactions.
We’ve also got to consider how important transparency is becoming.
Governments and institutions are already exploring how cryptocurrencies may continue to be used in the future, and how regulation and security will fit into these systems.
Green Fintech
Environment, social, and governance (ESG) priorities are affecting fintech, especially when platforms make use of technologies like AI, which have a massive carbon footprint.
Investors are also becoming more concerned about green tech, and often need to see evidence of not only tracking but also general efforts. Something like reporting on this could be automated, but in many cases, these concerns act as another barrier to entry.
Fintech is driving a revolution in financial inclusion. We have seen firsthand how technology can overcome the barriers that have long excluded people from financial services.
While challenges remain, the future looks bright for fintech’s role in transforming the financial landscape, particularly in underserved and emerging markets.
If you would like assistance building your mobile fintech solution, integrating the latest technology, or meeting tight deadlines, reach out to us here at Trio to schedule a call and get started.
