Financial technology (FinTech) is one of the biggest factors driving financial inclusion in the 21st century. Financial inclusion is simply access to financial products and services that enable people and businesses to send and receive money, save, and make payments. It is vital for achieving the United Nation’s Sustainable Development Goals, and according to the World Bank, is a major enabler of poverty reduction and shared prosperity.
Financial inclusion begins with access to financial accounts that allow individuals and businesses to safely store and transfer money. Traditionally, people could only open these financial accounts at banks and microfinance institutions. Now, thanks to the wide adoption of mobile phones and the innovation of FinTech, people around the world can open financial accounts through their phones.
The convenience of FinTech has broken down barriers to financial inclusion for millions of people, especially those in rural areas and in developing countries. They no longer have to walk long distances and provide formal documentation just to send and receive money. They can now access these services even without a formal source of income. This has had an explosive effect on financial inclusion rates.
From 2011 to 2021, more than 1.2 billion people around the world who were previously unbanked gained access to financial services, reducing the global population of unbanked people by 35 percent. Today, more than 70 percent of the world’s population has a financial account. In developing countries, these are mainly mobile money accounts. In sub-Saharan Africa, for example, more than one-fifth of adults have a mobile money account.
Such penetration enables many people to participate in the formal economy. In sub-Saharan Africa, millions of people can now save money and make fast, secure, and transparent digital cash transfers. They can also access sophisticated financial services like digital lending and insurance, enabling them to start or grow their businesses, invest in health or education, or limit their exposure to life and business risks. Some financial accounts even allow users to invest in financial markets or send and receive payments from e-commerce platforms, facilitating digital commerce.
A shining example of the positive impact of FinTech in Africa is Kenya. There, telecommunications company Safaricom has led the charge in FinTech adoption with its innovative M-Pesa money transfer platform. The service is like a mobile bank account that functions without the need for an Internet connection. Users can save money on M-Pesa, access credit, and make payments to businesses. If they want to withdraw their money, they can do so at any of the over 110,000 agents spread across the country.
In 2006, only 26 percent of Kenyans had a financial account. In 2021, 86 percent of the population had access to financial services, while mobile money subscriptions peaked at 12 percent above the country’s total population. As a result millions of people, including those in rural communities, participate in the formal economy, and telecommunications giant Safaricom now accounts for 5 percent of Kenya’s GDP.
FinTech also supports faster and cheaper cross-border payments, so families with relatives abroad can receive payments from them. It also gives governments a quicker way to distribute emergency assistance to families, such as happened during the COVID-19 pandemic.
While FinTech has rapidly escalated financial inclusion in developing countries, not everyone has been reached. The World Bank estimates that 1.7 billion people still lack access to financial products and services. Governments around the world can accelerate the financial inclusion of their underserved populations by investing in enabling telecommunications infrastructure (especially in rural areas), enacting supportive legal and regulatory frameworks for FinTech, building collaborative relationships with private sector financial participants, and promoting digital literacy.
