The 2008-2009 global financial crisis gave rise to the boom of FinTech around the world. While banks were scrambling with the effects of the crisis and dealing with regulations and compliance issues, other industries were innovating and building better user experiences for consumers, companies like Uber, Facebook, Airbnb, Slack e.t.c.
Although technology was already being used in the financial services industry, very little innovation was seen especially in terms of consumer-facing products. This created a gap. People wanted to experience the same level of innovation and smoother user experience in financial services as they were beginning to see in other sectors.
As more and more companies started to build products to enable financial transactions and offer better user experiences to customers, the FinTech industry began to grow, increasing the rate of financial inclusion. In fact, according to data provided by the world bank, in the space of 3 years, 2011 to 2014, the number of adult account holders in the world increased by 700 million and the unbanked population fell by 20%, mainly due to the growth of FinTech.
Financial systems that are inclusive allow for a wide variety of financial services to be accessed by most people majority of whom are underprivileged.
While FinTech is growing steadily, the problem of low financial inclusion still persists in Sub-Saharan Africa where, as estimated by the world bank, 65% of adults remain unbanked.
What are the current barriers to financial inclusion and how is FinTech solving them?
1. Accessibility: Despite there being 22 Commercial banks and 887 Microfinance banks in Nigeria, accessibility still remains an issue. The distance that a person who lives in a remote and rural part of Nigeria will have to cover, just to reach a physical bank is quite an inconvenience as these banks scarcely set up branches in remote communities. This physical inaccessibility of banks leaves the majority financially excluded. Branchless banking is made possible via Financial technology. For instance, with our COVr branchless solution that enables agency banking, people in remote communities can carry out transactions with the numerous banks available on our platform without visiting a physical bank.
2. Low trust and understanding of financial services: Another factor limiting financial inclusion in Africa is the low trust that the majority of the unbanked have in the Financial system. It’s hard to trust something you do not understand. A poor person who lives in a rural community in Nigeria is mostly skeptical about giving their hard-earned money to a banker who they barely know. They’d be happy to keep their money where they can see it and easily access it. This keeps them from accessing even the most basic financial service like account opening. Financial education is therefore important, to make them see how putting their money in a bank account helps them create a financial footprint and open access to other services such as loans, insurance e.t.c
3. Low, unstable income: Of all the financially excluded people in the world, 30% reported low and unpredictable funds as the reason for not being banked. With proper finance management training, people can be taught how to grow their wealth by starting with what they have and taking advantage of investment opportunities. A number of FinTech startups have democratized access to investment and via a mobile phone, people can now carry out safe and professionally managed investments.
4. High cost of transaction: The high cost of transaction is another barrier to financial inclusion. Every transaction comes with a cost, actually, simply having a bank account attracts a fee. The accumulation of these fees makes it almost impossible for the financially excluded to maintain a bank account much less, a profitable one. FinTechs provide a low-cost and scalable system for providing financial services to the unbanked with things like transfer fees, card maintenance fees, minimum balance e.t.c mostly eliminated. Whilst we were part of launching a digital bank, Bloom Bank Gambia which currently powers millions of transactions, we are happy to be helping to launch another digital bank in a few months, which will provide a seamless banking experience to individuals in Nigeria, further increasing financial inclusion in Africa.
5. Inaccessibility of credit: Loans are critical to business growth and business growth is critical to economic development. If small businesses are unable to access affordable and timely credit, it becomes harder for them to run profitable ventures that in turn improve the economy. The average bank will not give loans to small businesses and individuals. In fact, according to data, only 7% of businesses have applied to obtain a formal loan in Nigeria, and most of them are generally not approved. A number of FinTechs are solving this problem using innovative technology to estimate what people can afford and granting loans to more people & businesses and we are excited to be launching a product soon which will further improve how FinTechs offer and manage their lending products.
These are just a few of the ways FinTech is improving Financial Inclusion, thereby improving the economy of Nigeria and Africa also.