Selene Diez
CEO
Forte Innovation Consulting
/
Expert Contributor

Digital Inclusion Through Financial Services

By Selene Diez | Wed, 07/27/2022 - 09:00

Information technologies have become an important tool in many areas of life and are transforming the way financial services are offered.

Is there a digital promise that we associate with financial technology today? Promoting the use of ICTs and reducing the digital divide is key to rebuilding our economy, which must be affordable, understandable, fast and reliable.

Digital Inclusion Through Financial Services

Connected, yes ... digitally and financially inclusive? Let's talk about it.

Digital financial inclusion seems easy; being able to access a transaction account is a first step toward broader financial inclusion; however, it is still common to come across stories from various social strata, families who own a family business that they have maintained with a lot of effort, whose income allows them to meet basic needs despite the slow growth of their sales.

This income continues to be kept at home, in the hope of gathering enough to expand the business. This is where the distrust of banks and financial institutions appears because the choice of safeguarding the money is so important that it is preferable not to approach a branch, receive advice or open a savings account because it can result in complicated procedures.

Let's Talk About Figures

There are approximately 2.5 billion unbanked people in the world. Even though 1.1 billion of them have mobile devices, in Latin America alone there are 230 million people excluded from the financial system. Only 11.3 percent of the population has formal savings.

The digital divide between cities and rural areas shows that 76 percent of the urban population is active in the use of information technologies, while 47 percent of the rural population is active and has mobile devices. (INEGI, 2021).

The COVID-19 pandemic has provided the biggest test of the resilience of the global financial system since the 2008 global financial crisis. It has exposed pre-existing vulnerabilities and inequalities in the global financial system and global economy. This brings us to the question, what is the challenge for Mexico's financial inclusion? That of creating the right infrastructure through financial education programs.

Mexico must take advantage of the benefits of accelerated digitalization. Electronic wallets, online payments, promotion of investment projects and credit between individuals are just some of the different services that have allowed financial technology (fintech) institutions to maintain, for some years now, a process of constant and considerable growth in Mexico.

And although the closing of the gender gap depends on several factors, as this sector develops tools adapted to the different realities of people with the support of technology, the road will be shorter.

What Are the Most Important Challenges?

- Ensuring that financial access and services reach hard-to-reach populations, such as women and the rural poor.

- Increase the financial literacy and capacity of citizens so that they can understand the different services and products.

- Ensure that everyone has valid identity documents that can be easily and inexpensively legalized.

- Develop useful and relevant financial products that are tailored to users' needs.

- Establish solid financial services and user protection frameworks, and adapt the entities responsible for regulation and supervision.

- Around the world, the lack of an identity document makes it difficult to open a bank account, access capital or credit.

Technological Trends Behind Fintech

Through the smart use of technology, these firms leverage the gap within traditional models, creating financial and commercial products so that through technology they continue to transform financial inclusion. After all, it is not just about people owning an account, but using it to get out of economic hardship and improve their well-being.

Blockchain, artificial intelligence and big data are the new technologies that are revolutionizing processes in all sectors of society, including the economic sphere. Although it is a growing technology, large global financial corporations are betting on designing solutions based on Smart Contracts, in which security and transparency are the main differentiators, since it not only makes it possible to exchange money but any asset that can be digitized, as well as to make national or international money transfers in a matter of seconds, or to quickly exchange documentation with other banks, which is very useful for fraud control.

Among the new technologies impacting the financial world, the following stand out:

Robotic automation and artificial intelligence. The ability to automate repetitive processes allows for increased service efficiency. In addition, this generates an improved customer experience and an increase in competitive advantages.

One of the great achievements of AI in the financial world is the impact on customer service. The introduction and development of chatbots already generates answers to simple questions.

Machine learning will increase the quality of services in the coming years. The more intelligent artificial intelligence is, the higher the potential performance.

Challenges in Mexico

As of March 2020, there were 441 startups (emerging technology companies, with scalable products) within the fintech ecosystem in Mexico, which represented growth of 14 percent with respect to the records of June 2019, when 394 fintech startups were identified, according to Finnovista, a company specialized in financial technology.

Our country still has a valuable growth horizon due to two main reasons, which are the digital juncture for the growth of the sector and of the current challenges:

A population with low financial inclusion, which represents a potential market to offer these services to those who still do not have them, and also, the possibility of improving competitiveness among ecosystem players and reducing costs.

The high penetration of telephony and smart devices among Mexicans, which makes it easier to offer investment services through new technologies.

Therefore...

It is essential to go beyond the current vision of digital inclusion: It must seek to provide a quality service in a model of fair digital and financial inclusion, which meets real needs and spurs social cohesion.

5 Financial Institution Actions to Incorporate Digital Inclusion

Invest now to stay ahead of the competition: Institutions must make financial inclusion part of their corporate strategy, establish agreements on opportunities where risks are justified and consider horizons with long-term investment returns.

Transform the perspective on client segmentation: It is recommended to make a simple segmentation of financial inclusion. Work hand in hand with clients and NGOs to define more granular classifications and understand user needs; develop specific strategies that include new services and channels and expand their data capture and analysis capabilities.

Find the balance between physical and digital channels: One of the main challenges in traditional distribution models is reaching the unbanked sector, with costs that are acceptable to them. It is necessary to consider disruptive alternatives, where physical and digital capabilities are coupled and converge in a consistent experience.

Develop payment and savings systems, to extend to credit: The first step to include the unbanked in the system is to offer them basic services, with interbank operational capacity. It is necessary to keep them financially informed, through digital technologies, so that they extend the scope and benefits of belonging to the formal financial system. Eventually, their interest in new services will increase.

Align the operating model with a financial inclusion strategy: A coherent strategy must be developed for the development of talent and skills and the designation of costs to support the inclusion plan.

Photo by:   Selene Diez