The financial services industry was traditionally dominated by a select group of institutions that monopolised the way we saved, borrowed and invested our money. The emergence of new technology, as it has done in so many other industries, has disrupted the status quo and broken up the longstanding control of those institutions. The result has been more choice for the customer as well as much greater access for those who previously may not have been eligible for traditional banking products.

However, in recent years, it has emerged that although many more people are now able to access the formal economy, there may also be a limit to the impact of digital financial technology (FinTech) which is hampering efforts to improve financial inclusion around the world.

With that in mind, we’re going to explore the impact FinTech has already had and look at why it may not be the panacea for financial inclusivity.

FinTech in action – what improvements have been made?

There’s no disputing the tremendous impact FinTech has already had on levels of financial inclusivity around the world. Figures from the 2017 Global Findex Database, which is published by the World Bank, reveal that globally, the proportion of adults with a bank account now stands at 69 percent. That’s up from 51 percent in 2011 when the Global Findex Database was first produced.

As you might expect, many of the FinTech success stories can be found in developing countries. For example, in Africa, a lack of access to finance has long been a barrier for small businesses and entrepreneurs. The rate of women’s entrepreneurship in Africa is higher than in any other region of the world. However, a report by the Graça Machel Trust charity found that 71 percent of those businesses were self-funded because of the difficulties associated with raising capital from the banks.

A Kenyan FinTech start-up, 4G Capital, has partnered with a Canadian blockchain securities firm to launch Africa’s first bond issued using cryptocurrency. The aim is to bring much-needed investment into Kenya. That investment will be used to lend $40 million to Kenyan businesses over the next 12 months alone. That will impact more than one million people by 2020.

Financial inclusivity is not just a global issue

A common assumption is that a lack of access to financial services is predominantly a problem experienced in developing markets. However, in the UK, there’s also a significant number of people who are unable to access or understand the basics of formal financial services. For example, 2 million people in the UK don’t have a bank account and 1 in 5 are unable to understand a bank statement.

In the UK, the FinTech sector is taking more of an additive rather than a transformative role. It is making life easier for customers and SMEs by introducing additional services that let them make payments more quickly, access and compare affordable sources of debt and manage their finances in a simpler way.

For example, new Open Banking rules have been introduced to encourage cooperation between FinTech firms and established institutions like the banks. The rules are designed to give customers a clearer view of their finances so they can see multiple products, such as bank accounts, broadband and mortgages, all in one place. That allows consumers to manage, compare and switch deals more easily so they can make the most of their money.

What are the limitations of FinTech?

While FinTech has made giant strides in boosting financial inclusion in the UK and around the world, there are some limitations that are restricting its effect. One factor that could diminish the potential impact is the additive nature of many of the products and services that are being introduced. The aim of additive FinTech tools and apps is to enhance the convenience for banked and underbanked populations. However, to promote financial inclusivity in developing countries, what we really need is transformative tools. They are designed to address access to and usage of financial services by the two billion people around the world who are still completely unrepresented by the formal financial system.

In recent years, there has also been a slowdown in the FinTech boom that had taken countries like the US, the UK and much of Europe by storm. Economic and political uncertainty in those regions has made it more difficult for FinTech start-ups to access venture capital funding. That has led to a geographical shift in FinTech innovation into new regions such as Asia.

Another potentially limiting factor on the impact of FinTech is the access to technology itself. Many FinTech tools rely on the consumers’ ability to access digital services through a website or app. In 2018, the world’s internet users passed four billion for the first time, with much of the growth down to more affordable smartphones and mobile data plans. However, that still leaves a third of the world’s poorest consumers without the ability to access the internet and unable to unlock the financial services they need the most.

The changing financial inclusion space

FinTech has undoubtedly had a positive impact on rates of financial inclusivity around the world and brought what was a relatively neglected topic on to the global agenda. There is now far greater interest, understanding and ambition regarding these issues than there has ever been before. However, with 2 billion consumers still unable to access the most basic financial services, there’s still a very long way to go.