The Impact of Fintech on the Global Unbanked

In the past decade, financial technology, commonly known as fintech, has emerged as a powerful force in the financial sector. However, what does the specialized industry mean for populations who have been traditionally excluded from formal banking and financial services?

In emerging markets such as Africa, Asia, and South America, reliable data and mobile wireless access has helped financial technology firms provide access to valuable financial tools and services to previously unbanked populations. Unbanked individuals are those who do not have access to bank accounts or do not have open bank accounts within the global financial system. According to the Global Findex Database 2017 reports, 1.2 billion adults have obtained access and created an account since 2011, including 515 million since 2014. Between 2014 and 2017, the number of adults who have achieved access or have obtained an account with an online financial institution rose globally from 62 percent to 69 percent. In developing nations and economies, that number rose from 54 percent to 63 percent.

How has fintech for underbanked regions evolved?

Looking back to the early 2000s, countries like Kenya and the Philippines started to use and launch financial technology payment services; however, the fintech industry as a whole faced a series of barriers in those emerging regions. Local governments worried about consumer protection, while large global banks, with their influence and power, influenced local officials to block fintech-friendly policies.

However, in recent years the landscape has changed. Hundreds of millions of previously unbanked individuals have opened accounts for the first time, with many adults opening accounts to receive digital wage payments or government transfers in countries with a failing or devalued currency. For example, in Thailand, nearly one in five banked adults opened their accounts for the first time in order to receive government benefits. In Georgia, Uzbekistan, and Kazakhstan, that number was listed even higher at 30 percent.

Now, fintech mobile services have spread across the entire continent of Africa, with West and East Africa listed as one of the most severely unbanked regions in the world. This has dramatically increased the number of adults who use digital payments. In some countries where fintech services are widespread like Kenya, more than 90 percent of account owners make digital payments using a mobile financial technology service.

Fintech benefits for unbanked populations

For historically unbanked populations, fintech can provide an easier, more convenient and more affordable way to access the global financial system in ways never seen before. Mobile fintech services can provide unbanked adults with easy access to financial services, allowing them to conduct transactions without visiting a physical bank branch location. This allows individuals living in remote communities to conduct business with digital currencies without the need to travel, which for long distances in barren climates can be challenging and expensive.

Fintech also helps unbanked individuals with emergency funds. For example, during Covid-19, governments in emerging markets used digital financial services to disperse secure payments and funding quickly to citizens and businesses in countries like Peru, Zambia, Uganda, and Namibia. This can also allow individuals to rapidly send and collect money from family or friends during an emergency crisis without the need to travel to a physical bank branch location.

Not only do digital fintech services help unbanked individuals and families, but they also assist businesses as well. Administrative services have improved tremendously since transactions have been taken to digital levels. Businesses are able to digitalize salaries and pensions, while governments are able to digitally transfer salary payments to government employees and social transfers to unbanked individuals.

By using mobile fintech services, governments like Mexico are able to save upwards of US $1.3 billion per year. Fintech provides governments with precise online transaction data that helps reduce costly monetary errors, overpayments, and government corruption. This helps governments funnel money back into important public services that help the unbanked emerging economy.

Meanwhile, small businesses. with peer-to-peer fintech technology are able to easily and efficiently send and receive funding without going through a traditional financial institution with physical locations. Crowdfunding has never been easier with fintech; low-income founders are able to launch startups, projects, and platforms with a broader global approach.