How FinTech advances the cause of financial inclusion and literacy

In many ways, financial services have evolved into two distinct branches. On the one hand, there is a FinTech boom, which has given a huge number of people access to easy credit and insurance coverage. On the other hand, a significant portion of the global population remains unbanked. Not only is access limited in more remote parts of the world, but there is also a lack of sufficient financial literacy that will stimulate demand for such services.

On the occasion of International Education Day (January 24), we asked a key question: are FinTech and financial inclusion and literacy opposites? Or do they go hand in hand? Recent trends suggest that it is definitely the latter, and FinTech providers are now actively working to improve financial literacy among everyone.

Not only is this the key to creating a sustainable customer base, but it also helps strengthen communities and drive development – ​​which is what International Education Day, as adopted by the United Nations, is all about.

Understand the promise of FinTech

The potential of FinTech to bring about community development and widespread education is best described in this IMF article from 2022. It suggests that in a post-COVID-19 world, the traditional barriers to operation and access cease to exist.

For example, a very small business owner in a low-income country can use their mobile phones to accept mixed payments in both cash and via digital wallets. This opportunity created by FinTech encourages greater awareness, education and monetization opportunities. On the opposite side of the globe, a business owner can get quick credit to repair a piece of machinery—a transaction that traditional banks would take weeks to underwrite and approve.

Therefore, the promise of FinTech extends to low-, high- and middle-income countries due to the very few barriers to entry. Essentially, one only needs a mobile phone and internet access to participate in this new economy driven by FinTech.

Lack of financial education can hinder FinTech adoption

Some of the key customers of FinTech belong to the traditionally unbanked population. This is simply due to the fact that without access to regular banking, credit and insurance services, users are moving online for their financial needs. As a result, a massive crop of FinTech vendors have emerged to address this gap.

In some cases, even the government has gotten in on the action – such as the Unified Payments Interface (UPI) payment system by the Government of India that centralizes fund routing across many participating banks.

However, a significant portion of the unbanked population also lacks access to formal educational facilities. This means that even when they gain financial access, adoption is fraught with challenges:

• The risk of fraud: FinTech is a minefield of fraud and fraudulent activities, most commonly seen as phishing campaigns and social engineering. Fraudsters can lure users with the promise of easy credit or pretend to be a regulatory body threatening to impose a penalty. Without sufficient knowledge of cybercrime or financial service hygiene, it is easy to fall victim to such fraud attempts.
• Damage to financial health: FinTech firms usually do not run the exhaustive range of tests to check creditworthiness as in a traditional bank. While this allows for speed and efficiency, it can cause users to stretch their credit limit beyond a healthy threshold. Without careful consideration of their own financial health and that of the FinTech firm in question, users may suffer in the long term.
• Low levels of adoption: Finally, a fundamental roadblock without education is low adoption rates. Unless users are familiar with mobile and computer interfaces, are able to understand an app language, and navigate consent and data sharing mechanisms, FinTech platforms cannot be fully adopted.

For these three reasons, education is a key pillar of FinTech success, which is why several fledgling financial service providers are invested in it as part of their core value proposition.

How FinTech advances the cause of financial inclusion and education

The relationship between FinTech and financial literacy is so inherent that several companies are now building apps to meet this very need. Take Zoho for example – it’s a Duolingo-style software that makes rolling out financial education programs easy and fun. It can be integrated with banking systems so that users get a reward credited directly to their wallet after completing a lesson.

Investments are another good example of FinTech for financial literacy in action. It helps build social communities around investment trends, ideas and conversations, so you can share your trading journey with others. FamZoo is another interesting example that combines prepaid cards for children and teenagers with financial education.

Most of these apps are available for download on smartphone operating systems for greater ease of use.

Other solutions, such as the “Better Mama Better Pikin” program by Nigeria’s Access Bank, take a more grassroots approach. The program conducted targeted campaigns aided by agents to promote education and awareness among women.

Similarly, MaTontine is a FinTech platform for small and micro loans, which has an online community for education and regular updates.

Thanks to the gamification potential of FinTech apps, there are many opportunities to cross it with education and learning. A simple user interface can help those in regions with low literacy to engage, and the platforms can be linked to real incentives to encourage adoption. Ultimately, greater financial literacy will only create a new, highly invested customer base for future FinTech firms.

The role of InsurTech in financial literacy

The rise and rise of InsurTech platforms has played an important role in increasing risk awareness across an individual’s various life stages. Traditional insurance plays on the “fear factor”, attempting to lure customers who are already aware of their need to minimize risk. InsurTech, on the other hand, tends to take a proactive approach with its sales, marketing and educational materials.

The message is not just “do this or that”, but it is also “that’s how easy it can be to be safe”. This encourages the user to engage on a basic level. Consider, for example, the Even healthcare app in India. It links with traditional insurance providers to offer digital access to insurance coverage. It also collaborates with medical professionals and institutions for preventive health services. The user has immediate value and is thus encouraged to inform himself about possible risks and the importance of being prepared.

Similarly, Sri Lanka’s Etherisc is a decentralized InsurTech platform built on blockchain technology. It partnered with non-profit Oxfam to educate farmers about agricultural risks and the benefits of having insurance.

The way forward

The InsurTech boom shows no signs of stopping, but like any powerful technology, there is a risk that it will leave certain demographics behind in its development. That’s why financial inclusion and literacy are so important, even as investors fund platforms that attract users, offer new services and take advantage of the most cutting-edge technologies available.

For International Education Day 2023, let us remember that universal access to financial services is essential for large-scale societal development. FinTech firms are uniquely positioned to drive this change, aided by targeted and engaging modes of financial literacy.