Financial technology and inclusion is a hot topic in the finance industry, as the benefits of introducing financial services to the underserved are becoming more apparent. This article discusses some of the main aspects of this trend, as well as potential hurdles to it. The technologies discussed include mobile money, distributed ledger technology, and the blockchain.
Mobile money services provide the opportunity to receive and send payments via mobile phone. This technology provides a safe and secure way to transact across borders. It also contributes significantly to social progress, as it helps people without bank accounts to get access to payments.
In many countries, the number of registered mobile money users has increased dramatically. In India, for example, more than half a billion people have now registered for mobile money services. These numbers are expected to rise even further in the future.
The number of mobile money users in Africa has risen rapidly, especially in Sub-Saharan Africa. For instance, five out of eight African countries have more than half of their population subscribed to the service.
However, there is still a large segment of the population that remains outside the banking ecosystem. Hence, financial inclusion through mobile money is essential.
The emergence of digital payment solutions in the African market has reduced transaction costs and simplified the transaction process. This has contributed to widespread adoption of mobile money.
Blockchain technology has been adopted by several financial institutions to improve efficiency and security in the financial services sector. It is a distributed ledger system that creates secure and tamper proof records of transactions.
The technology has the potential to increase financial inclusion. Currently, more than half of the world’s population is unbanked. This includes rural people who do not have access to conventional banking services.
Using blockchain for financial technology, institutions can create a tamper proof record of their transactions and maintain a secure audit trail. They can also reduce operational costs and improve efficiency.
Using the technology to improve financial inclusion may be the next step in the financial industry’s evolution. As more countries adopt decentralized finance solutions, millions of unbanked citizens will be able to gain access to basic banking services.
Using this technology could enable regulators to review all transactions on the blockchain, increasing the transparency of the system. It is also possible to use the technology to create more accountable governance systems.
Distributed ledger technology
Distributed ledger technology (DLT) has been touted as a potential solution for a number of problems in the financial sector. It can facilitate faster transactions and reduce the costs associated with them. The technology could also help financial institutions diversify risks. This could benefit the broader economy, increasing economic growth and fostering inclusion of more people. However, it still has to prove itself in the real world before it can truly revolutionize the financial industry.
Financial institutions need to manage their data and IT assets effectively. They also need to control the processes that make use of them. If they are unable to do these things, then they will face legal uncertainty.
With DLT, the risk of fraud is virtually eliminated. This will allow financial institutions to serve conventionally risky customer segments. For instance, they can offer services to households that have limited access to banks. And, DLT can improve financial institutions’ ability to monitor their systems and detect fraudulent transactions.
Barriers to financial inclusion
Financial technology is a powerful tool that can improve the financial lives of disadvantaged groups. It offers a range of benefits to both consumers and governments. But there are also several potential barriers. For example, poor people may not understand how to use online banking services or they may be reluctant to adopt digital financial services due to financial illiteracy, superstitions, or unaffordable fees.
The G20 Global Partnership for Financial Inclusion (GPFI) is an organization that is focused on fostering better policy and practice in financial inclusion around the world. By providing data and insights, the partnership enables communities to make smarter decisions.
A lack of trust is one of the most significant barriers to financial inclusion. For example, poor individuals in emerging economies do not feel comfortable using online channels for basic financial services. This lack of trust is especially prevalent in countries that do not have strong consumer protection institutions.
Similarly, people in the informal sector do not trust bankers and marketers. They rely more on family recommendations and their own friends. Likewise, algorithms used for credit scoring can lead to biases against lower income groups.