While the pandemic has brought financial upheaval and uncertainty, it also pushed millions of people to utilize digital tools for communication, shopping, and financial management. It improved the financial inclusion problem by introducing various populations to financial services platforms. According to a fall 2020 report from Mastercard titled “The acceleration of financial inclusion during the COVID-19 pandemic: Bringing hidden opportunities to light,” quarantined periods drove digital banking adoption. The report also noted some countries experienced dramatic reductions in unbanked residents, including a remarkable reported 74 percent drop for Brazil’s unbanked population.
The driving force behind such improvements are fintech providers who are improving the accessibility of financial tools to previously underserved populations. Through the rest of 2021 and beyond, fintech can push forward financial inclusion across multiple fronts, including credit, trading, small business finance, and literacy.
Reducing Pricing Barriers to Entry
New players are shrinking the minimum price requirements found with traditional banking services and products. Within the trading sector, the rise of Robinhood underscores a shift in the stock market, where “retail investors” hold more influence and have more opportunities for high performance. There are several apps such as Voyager that enable people to buy dozens of different cryptocurrencies, for example various altcoins with no trading fees and just a $10 minimum deposit. While these are risky investments, they do provide people access to cryptocurrency opportunities and the possibilities of outsized gains.
Other players that are doing away with minimum requirements or drastically lowering them include companies in microinsurance, microsavings, microcredit, and others. Various microsavings’ apps give people tools to start saving small amounts, even if they’re living “paycheck to paycheck” and struggle to save through traditional banking.
Modernizing Credit Scoring
The consumer finance industry uses various outdated systems and methods, for example with credit scoring. As the need for financial inclusion grows, companies need sophisticated analytics and new criteria to fairly assess people’s creditworthiness. New solutions such as aSCORE from Aliya provide partners such as banks with a regulatory approved alternative credit risk and resilience assessment. This solution enables broader financial inclusion, especially among underbanked and unbanked populations, while still providing lenders the detailed information they need to manage risk. It also provides lenders with access to new pools of potentially profitable borrowers.
Helping Small Business
Processing platform Square, which provides services to many small restaurants and retail shops, waived software fees for April 2021, and did not require businesses to apply to receive this assistance. Gusto, a provider of payroll and benefits software for small business owners, built a system that simplified the tax deferral process, which enables more small firms to hold onto cash as they manage the economic downturn. Other lending providers such as Kabbage also provided lifelines to small businesses through Paycheck Protection Program (PPP) loans to small underbanked businesses that would not qualify through traditional banking firms. Small business workers utilized the services of “robot lawyer” DoNotPay, an app that helps people win lawsuits. The company launched a service to help people apply for unemployment, by streamlining the process and automatically sending documents to the appropriate state agency. This type of fintech service expands financial inclusion as it allows more people to stay involved in the economy, so they can pay their bills, and have some time to find another job opportunity.
Improving Financial Literacy
Boosting financial inclusion requires education to complement the various new apps and platforms. For example, in India fintech provider Niyo partners with payments firms and other institutions to provide Niyo Bharat, an app designed to introduce blue-collar workers to digital financial banking. The app offers an array of financial literacy content intended to help traditional underbanked populations learn about the benefits of financial inclusion so they can save and avoid fraud.
Financial literacy is a significant global roadblock to expanding inclusion. Many financial technology providers such as Acorns, which enable people to invest their spare change, are offering educational content to help people learn about investing and saving. These firms combine information about the potential benefits of investing along with some warnings about risk. Discussions of risk are especially important given the availability of trading on margin and investing in options and other complex financial instruments.
As the pandemic continues through 2021 and beyond, the related financial upheaval places considerable stress on the most vulnerable. Fintech can play an important role by expanding access to banking, investing, lending, and other tools that get people involved in finance and help businesses survive.