Besides the talks of how much easier and fastest financial technologies make the whole paying process, and how decentralized financial infrastructure is largely being favored by people something that often escapes the conversation is the inclusion factor.
All the major companies are trying to get involved in the fintech because most of them fear of falling behind.
But another perk that fintech brings to these huge companies in the previously untapped market of those who have been continuously denied traditional financial services. Digital tools like mobile banking and AI significantly reduce the cost of these transactions, while also offering previously untenable products like fee-free accounts or credit scores that are based on unconventional data. This particular aspect of fintech has caused a lot of controversy with some people claiming that Apple Pay an e-Wallet that can also provide credit cards, bases the credit score based on gender rather than the person’s existing accounts and individual income. So Fintech, although powerful and convenient is still not where it needs to be on multiple levels.
The secret behind AI popularity
There is a reason why technology and digital services have taken off so quickly and its not just their convenience. Digital services, because they are harder to regulate tend to be more accessible for people who don’t want to go to the trouble of acquiring necessary documents or don’t want to spend the extra time. We’ve seen this in the rise of mobile payments in India, people use Google Pay on a regular basis and have been for the last two years, a service that was just introduced in the last month to the US and Europe. The same trend is seen in the online gambling industry that now practically has the same amount of customers.
Online gambling is accessible for a larger variety of customers. For example, In Norway, where gambling is regulated slightly differently compared to the rest of the world these venues will offer free gaming money for Norwegians, while something like this would never happen in a real-life casino. Hence why doing this in digitally or incorporating technology into your business makes you accessible and convenient for far more people.
We are now seeing the same happen with the Fintech revolution.
While everyone can agree that having either eWallets or different in-store wallets, they are a convenience for most people in developed countries. But this demographic is largely already committed to certain companies or certain services and their loyalty is less likely to sway.
What we’ve seen with these financial innovations is that there are billions of people who have remained “unbanked” for most of their lives. Be that because of lack of access to traditional financial institutions or the lack of necessary documents, the reality is that these groups of people now have the ability to perform these transactions and it is a whole unexplored market and the companies that are now leading this revolution to know that.
Fintech revolution in developing nations
That is also part of the reason why most of the revolutionary startups are no longer located in Silicon Valley. The epicenter of these innovations has moved from the west into Asia and Africa. While Asia heavily invests in these innovations and also produces a lot of these technologies themselves, it’s the rise of African startups that have gained the attention of all the investors. Millions of dollars are being poured into these companies on a weekly basis, with major funds trying to invest in the next big thing.
Specifically, Kenya and Nigeria have been the leaders on the continent when it comes to Fintech innovations.
But the unbanked problem is not exclusive to Africa. Despite having one of the world’s most developed ecosystems, the US is home to over 33 million households that are still unbanked, meaning that they make either little or no use of mainstream banking products. This is what Uber had in mind when they first offered Uber Pay. A lot of their drivers were unbanked, hence unable to perform necessary transactions successfully.
Uber will offer them a separate eWallet where they will get paid after the ride is completed and from where they can actually send money directly to their families who may live outside of states. This kind of approach will simplify the lives of those who don’t have access to regular banking services but they come at the cost.
Regulatory grey area = innovative freedom
Most of the firms leading this movement are not regulated by the government or other financial institutions. A big reason why there are still some grey areas in the talks with companies trying to incorporate a financial technology aspect into their product is the regulators and the necessary access to these transactions. There is a lack of trust when handing over your valuable data to the company that might use id against you or mishandles it in some way.
This is why working with an established financial institution that has experience in how to conduct these transactions safety is essential when creating a product like this. Some of the companies did take this approach while others embarked on this journey alone and as expected, are still facing backlash from government officials. While there’s no denying that fintech is the future, It’s important that these companies don’t try and do everything themselves.