Fintech: financial inclusion for the difficult times ahead

The rising cost of living affects people who not only lack financial means, but find it difficult to access money. Thanks to technologies, fintech companies have been able to provide financial products and services in ways that traditional companies cannot. They are now part of the financial inclusion program. Terence Tse and Andrea Maria Cosentino argue that the burden of expanding financial inclusion should not be borne by private companies alone. They say governments also have a role to play in promoting financial services to the underbanked.

No matter where you are reading this article, chances are you are already dealing with higher rates of inflation than have been the case in the last ten years. In the UK, where we are both based, it has been suggested that up to 40% of the population could fall into fuel poverty this winter: almost 14% of households in the UK were struggling to feed in April. 2022, and it’s on the rise. A subset of the population is likely to suffer even more from the rising cost of living and this is made up of those who not only lack financial means but also struggle to access money.

Basic finance

Historically, people without financial means are the least well served by the financial services sector. They suffer from a lack of financial inclusion. “Financial inclusion” is about giving people access to useful and affordable financial products and services, regardless of their background or income. For example, in the United States in 2019, some 25% of households were unbanked (meaning they have no access to traditional financial services at all) or underbanked (they have no access to affordable financial services). More than half of unbanked households said they did not have enough money to keep in an account, while 30% said they did not trust banks and 9% said banks were in an inconvenient location . One may wonder if the use of financial services is really important. In many economies, this is even essential because not having access to financial services means paying more, a particularly important concern for anyone who is economically disadvantaged.

A telling example comes from Pierpaolo Barbieri, founder of Ualá, a financial technology, or “fintech,” company in Argentina. He mentioned that people were selling Netflix subscriptions on Mercado Libre, an eBay equivalent in that part of the world. This is the case even when Netflix prices its services in these geographies at $4 or $5 per month. For many low-income people, being able to use Netflix is ​​a way to entertain and make the family happy. Yet they also tend to be those without access to a payment mechanism. In the end, many of them have to resort to higher prices to buy Netflix subscriptions by paying those who can pay online on their behalf on the auction site.

On the other hand, in a world driven by digital money, we should think of all those businesses, such as small local producers or Sunday market vendors, who miss sales opportunities due to their inability to accept digital payments. Entrepreneurs may not be able to access the e-commerce service provider because they lack the tools to receive payments online and cannot access loans – the basic funding to get their businesses off the ground. ideas. Clearly, the effect of financial exclusion goes beyond economics – it has broad social ramifications.

We need more funding and technology

In recent years, fintech has become a key part of the financial inclusion agenda. Thanks to technologies, these companies have been able to provide financial products and services in a way that traditional companies cannot. Take, for example, a product called huabei by Ant Financial, a major fintech in China: through this loan product, a borrower can take out a loan as small as 20 RMB (2.40 GBP/3.11 USD) for a period as short as three months . It’s hard to imagine that with such a small loan size, traditional banks would be able to cover their lending costs. Time and time again, fintech has shown that it is able to provide a wider range of financial services and products at lower prices, in addition to better customer service than traditional players.

However, the burden of expanding financial inclusion should not be borne solely by private companies. Governments also have a role to play in promoting financial services to the underbanked. This is becoming more critical than ever before. As our energy and food bills rise, the financial situation of many members of our societies will only become more precarious. Some food bank users are now refusing items like potatoes. Why? This is because they cannot afford the energy needed to boil them. The soaring cost of living will push vulnerable groups to the brink of financial abyss. We are about to enter a financial crisis which can easily turn into an economic crisis. But the underbanked and unbanked will most likely suffer disproportionately, as not having access to a remunerated account or investment product has left them unable to counter the erosion of purchasing power caused by inflation. Unbanked people may need time off work to attend to in-person transactions, at a time when every penny earned counts.

Financial inclusion should be able to contribute to the cost of living crisis.

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To note: The post office gives the point of view of its authors, not the position USAPP– American Politics and Policy, neither the London School of Economics nor the IMF, its board of directors or its management

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About the authors

Terence TseHult International Business School
Terence Tse is a professor of finance at Hult International Business School and co-founder and executive director of Nexus FrontierTech, an artificial intelligence company. He is also co-founder of Excellere, a think tank whose goal is to help people explore and unlock their potential through new technologies. He has worked with over thirty corporate clients and intergovernmental organizations in consulting and training roles. He has written over 110 articles and three books, including The AI ​​Republic: Building the Nexus Between Humans and Intelligent Automation (2019).

Andrea Maria CosentinoValentia Partners
Andrea Maria Cosentino is a senior executive at Valentia Partners, a London-based financial and banking strategy consultancy. He is also co-founder of Impact Foundry, a London-based Angel and VC specializing in impact and innovation across all sectors, with a focus on FinTech. He is also a guest lecturer at ESCP Europe Business School.

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