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How Are Fintechs Helping to Foster Financial Inclusion?

By Daniela Lascurain - Zumma

COO and Co-founder

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How Are Fintechs Helping to Foster Financial Inclusion?

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My first interaction with the fintech sector was with an innovative leasing company while I was working in investment banking. This company leased cars to Uber drivers using alternative metrics, such as their score on the app, instead of using the standard credit score. These drivers’ credit score was normally below the score needed to get a car lease or a bank loan, but these entrepreneurs believed credit score was not good enough to measure risk, so they implemented new metrics and with these were able to give loans that allowed drivers to own an asset for the first time in their lives, while creating a sustainable business.

The reason I tell this story is because what made me fall in love with this industry was the ability to give opportunities to people who never had access to these kinds of products because of their background.

Traditional financial systems have continuously failed to reach underserved and marginalized populations, leaving them with no access to banking services, credit, and investment opportunities. The emergence of the fintech sector has revolutionized the way financial services are delivered, bridging gaps and paving the way for greater financial inclusion. By leveraging the internet and smartphone access, the fintech industry has been able to reach groups and communities that previously didn’t have access to the financial system and this, along with financial education, has the capacity to take financial inclusion to another level.

On top of this, the fintech industry presents an attractive opportunity not only for customers but for investors. The fintech industry has become one of the most attractive industries for venture funding in the last two decades because of its expansion potential and the industry’s historically strong metrics. When it comes to great metrics, the financial services industry is one of the largest and most profitable segments of the global economy, representing over US$12.5 trillion in annual revenue and creating an estimated US$2.3 trillion in annual net profits or additional value. And while traditional financial services have been very profitable in the past, their customer experience has been among the lowest ranked compared to other industries, creating great opportunities for fintechs to grab. The average Net Promoter Score for the banking industry in the US is 23 out of 100 compared to some US fintechs whose scores are above 90. If this wasn’t enough, fintechs have a great deal of room to grow globally given that more than 1.5 billion adults are still unbanked, with more than 44% of the global adult population still dependent on cash.

The opportunity in Latin America is even bigger. While Latin America has seen a huge growth in the fintech industry, there are still more than 164 million unbanked adults in Latin America, which is more than 35% of the adult population in the region. And while mobile and internet penetration in Latin America is relatively high (80% internet penetration and 87% mobile penetration), the usage of cash in the region is still one the highest in the world, especially compared to more developed regions, such as the US and Europe where only 21% and 23% of the population, respectively, depend on cash versus 60% in the case of Latin America. This creates huge opportunities for fintechs because even though fintechs’ revenue in Latin America is at an all-time high, it is expected to grow at a CAGR of 29% to reach US$125 billion by 2030.

Where Fintech Meets Financial Inclusion.

Fintech companies (including insurtech) in Latin America and all around the world still have huge challenges to overcome to help the more than 2.8 billion adults globally who are underbanked. While this is a great business opportunity, it represents a great challenge for financial inclusion, including providing the right financial offering and giving the right financial education to get the correct adoption. Needless to say, this will need collaboration between local governments, companies and international organizations to make sure regulations are adjusted to appropriately include everyone and products are accessible to everyone regardless of their socioeconomic status or location.

The fintech sector's rapid evolution brought a new era of possibilities for achieving global financial inclusion. By leveraging technology, data analytics, and innovative business models, fintech companies are breaking down traditional barriers, extending financial services to the underserved, and promoting economic empowerment. As the sector continues to grow and innovate, it has the potential to transform the lives of billions, fostering greater financial resilience, stability, and equality worldwide. However, it is crucial to address regulatory challenges, cybersecurity concerns, and ensure that the benefits of fintech are accessible to all, regardless of socioeconomic status or location. Through extensive collaboration between fintech companies, governments, and international organizations, the journey toward comprehensive financial inclusion can be accelerated, creating a more just and equitable global financial landscape.

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