What is financial inclusion? Even today, at the beginning of the XXI century, billions of people don’t have access to standard financial services. This weakens the economy of developing countries and strengthens inequality. Still, the newest financial technologies are trying to change the situation, and we already have good results. Every financial business can get into the act and gain a benefit while changing the world. Have an outstanding FinTech project in mind? Let the professionals bring it in life. Contact Ralabs here.

Warming up of the financial services

Back in 2011, there were nearly 3 billion people all over the globe without access to any financial services. It was basically half of the population in the developing countries. Since then, every three years Bill & Melinda Gates Foundation provides The Global Findex Database that shows positive dynamics in these figures. By 2017, the number of people with formal bank account had grown by 1,2 billion. The next research promise to be even more optimistic, but 31% of people in the world still don’t have a bank account. The problem concerns not just developing countries. Even in the US, 27% of the population feel a lack of proper financial institutions. The availability of financial services is critical if we want to escape poverty. It can help billions of people to improve their financial situation as well as to strengthen local economies. That is why many countries are implementing national financial inclusion strategies, but that is not enough. The Global Findex Database shows that FinTech plays the biggest role in the rise of global financial inclusion.
“In the past few years, we have seen great strides around the world in connecting people to formal financial services. Financial inclusion allows people to save for family needs, borrow to support a business, or build a cushion against an emergency. Having access to financial services is a critical step towards reducing both poverty and inequality, and new data on mobile phone ownership and internet access show unprecedented opportunities to use technology to achieve universal financial inclusion.” - said Jim Yong Kim, the World Bank Group President.

Mobile banking and wallets

In many cases, a lack of financial services can be explained easily: there are not enough people in the area to make banks profitable. Towns and cities can be situated on the islands or high in the mountains which makes logistics more complicated. Commercial banks cut expenses and close unprofitable branches leaving behind communities without vital banking services. In this situation, people sometimes have to use illegal alternatives like check-cashing offices that are mostly expensive and definitely more dangerous. Mobile services from traditional banks or even independent mobile banking can solve the problem. During the last six years, mobile banking became more available because of the growing number of smartphones. It is expected, the percentage of smartphone users will rise by 48% in three years. It is good news for developing countries, where mobile banking can be the only way to get access to financial services. Smartphone users worldwide (in millions)
As an example, an omnichannel platform from CR2 banking software developed by Ralabs’ engineers. The platform allows mobile payment, personalized banking products and optimized for different mobile technologies. There is a huge potential in the are for digital financial companies because mobile transaction value has doubled since 2016 worldwide and now it is over four billion dollars per year. It is expected, it will rise up to 14 billion in three years. The technology promises a lot of benefits to financial companies as well as to users, still, mobile wallets can’t be the only answer to financial inclusion.

State control and decentralization

Despite overall progress, a huge number of people remain unbanked. In China, for example, 300 million people don’t have access to the financial services despite the active efforts of such companies as AliPay or Tencent’s WeChat Pay. 400 million people all over the world are refugees with lack of money or even documents. In countries like India, some population groups don’t have a birth certificate or other identification documents, and the biggest part of these people are women. On average, women have 9% fewer accounts than men. In Bangladesh, the difference reaches 29%. To narrow this gap, FinTech companies need to find out what women want from financial services. In the vast majority of cases, the reason lies not in the preferences, but in the unavailability of financial services. Every bank account requires personal documentation, and without it, no financial procedures can be done. This means the situation requires actions from the governments. For example, Aadhaar, the digital-identity system in India, aims to provide over one billion people with biometric identity cards. Will it make any difference in financial inclusion? We will see it during the next several years.
“The Global Findex shows great progress for financial access--and also great opportunities for policymakers and the private sector to increase usage and to expand inclusion among women, farmers and the poor. Digital financial services were the key to our recent progress and will continue to be essential as we seek to achieve universal financial inclusion,” - said Queen Máxima of the Netherlands.
Still, in some developing countries, even governments can’t guarantee legitimate protection of savings and financial operations. In these cases, decentralization is the best way to give financial services to the unbanked, and blockchain becomes an important part of this process. Blockchain enabled financial relationship within the system independent from state authorities that can be corrupted or mismanaged. The technology guarantees transparency of all transactions and able to return economic power to the people. There are a lot of examples of popular cryptocurrency wallets. Ralabs created a platform that allows to buy and store over two dozen types of cryptocurrency and available for users all over the world. Or blockchain-based Alice.si that aims to increase transparency in the crowdfunding process, reduce fees and transaction times, and verify donors.

More FinTech benefits

Why many startups abandoned markets in developing countries? Sometimes usage of mobile banking can be complicated by incompatibility with financial institutions across borders. Recently Bill & Melinda Gates Foundation in partnership with several FinTech companies developed Mojaloop - an open-source code for different mobile banking systems. This code helps any systems to become compatible with each other and with local financial institutions. Mojaloop can be used to reach unbanked people via new products as well as existing ones. Limited access to the financial services lead to limited credit history, and it makes impossible for some people to apply for a loan. FinTech companies can simplify the process. They operate online and can gather significant amounts of an applicant’s digital data to base a person’s credit-worthiness on other factors. For example, the Loan Application System developed by Ralabs’ engineers. Within this app, the client can fill in the simple online form and get a loan approved in about an hour. This system is perfect for people who live far away from the bank's branches or even don’t have them at all. Basically, FinTech companies do not need branches. They can reduce services fees because the company does not have to pay for rent, heating, electricity, additional personnel, and more. Some experts are sure that the absence of fees is one of the main reasons why digital wallets gained their popularity, especially among unbanked people. You have all the advantages of traditional bank account but can cut expenses on the prohibitive fees. Check the newest Ralab’s projects here.