FinTech as the Future of Inclusion

FinTech as the Future of Inclusion

2016 was a year of surprises, a year mostly remembered for two political upsets: the Brexit vote and the election of Donald Trump as President of the United States. Observers noted that 2016 was characterized by rising anti-globalization.

Yet despite the retaliation towards globalization, it is more prudent to address the negative effects of globalization. During APEC 2016, Singapore Prime Minister Lee Hsien Loong said the key to moving forward is to “focus on supporting small businesses, digital trade, and services.” These key steps will spread the advantages of globalization more evenly and to more people.

Putting focus on supporting the small and medium-sized enterprises (SME) segment will create greater inclusivity. The rise of financial technology, commonly known as FinTech, supports financial inclusion. Improving SME access to business financing is one of the main ways FinTech can contribute to inclusion efforts.

The Role of FinTech

With more inclusivity, more people will have access to financial services. According to a World Bank report, there are two billion unbanked adults worldwide. In this context, unbanked means a lack of financial access and exclusion from formal financial systems – not even access to bank accounts.

Part of the reason why globalization became resented was because financially vulnerable segments of society, such as unbanked households and small businesses, were forgotten in the middle of international trade and free movement. Through FinTech and its innovations, financial services will be spread to those who need it most.

FinTech has many advantages. For starters, it simplifies financial services. Many platforms and services can be accessed via apps and smartphones, making transactions easy and quick from start to finish. FinTech has also created significant modernizations in the business world; we now have easier access to innovations like cashless payments and digital lending. Most FinTech platforms are also online-based. People in remote areas, very likely unbanked, can access FinTech products so long as they can access the Internet. Financial innovations are often more affordable and in a world rife with smartphones and Wi-Fi, more people will naturally be included into financial systems.

Some important inroads developed by FinTech include:

  • Money transfers (remittances) to simplify international transfers. Traditionally expensive, promising FinTech companies offer cheaper options, with mobile phone transactions.
  • Cashless payments, suitable for developing countries lacking secure digital payment methods. Carrying cash can be risky and cashless payments can be a great educative introduction into digital financing.
  • Debt investing and digital lending address the lack of working capital for small businesses. With these, a collective group of people fund the financial needs of a person or a business entity. Debt investing often has a social dimension; people who finance debt investment campaigns sometimes accept gifts in return, but other times their money is simply donated. Digital lending targets SMEs – offering short-term working capital funds with competitive rates, a speedy process, and quick disbursement. Digital lending, in particular, is often touted as a solution for lack of SME funding. This business model has taken root in many countries, including Singapore. In digital lending, SME loans are financed by a group of investors who pool their money together. In return for their funding, investors are repaid with an investment instrument that offers good risk-adjusted returns.

From 2017 onwards, the world feels a bit uncertain. But innovations in financial technology are ready to support the creation of a more inclusive world for all.

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