In many ways, financial services have developed in two distinct prongs. On the one hand, there is a FinTech boom, which has given a massive number of people access to easy credit and insurance coverage. On the other hand, a sizable portion of the global population remains unbanked. Not only is there limited access in more remote parts of the world, but there is also an absence of adequate financial literacy that would spur the demand for such services.
On the occasion of International Day of Education (24th January), we asked a key question: are FinTech and financial inclusion & literacy antithetical to each other? Or, do they go hand in hand? Recent trends suggest that it is definitely the latter, and FinTech providers are now actively working towards improving financial literacy among all.
Not only is this key to creating a sustainable customer base, but it also helps in strengthening societies and driving development – which is what the International Day of Education, as adopted by the UN, is all about.
Understanding the Promise of FinTech
The potential of FinTech to bring about societal development and widespread education is best described in this 2022 IMF paper. It suggests that in a post-COVID-19 world, the traditional barriers to operations and access cease to exist.
For example, a very small business owner in a low-income country may use their cell phones to accept blended payments in both cash and via digital wallets. This opportunity created by FinTech encourages greater awareness, education, and revenue generation opportunities. On the opposite side of the globe, a business owner may obtain quick credit to repair a machine part – a transaction that traditional banks would take weeks to underwrite and approve.
Therefore, the promise of FinTech extends to low, high, as well as middle-income countries because of the very few barriers to entry. In essence, one only needs a cell phone and internet access to participate in this new economy driven by FinTech.
Lack of Financial Education Could Deter FinTech Adoption
Some of the key customers of FinTech belong to the traditionally unbanked population. This is simply because of the fact that, without access to regular banking, credit, and insurance services, users are moving online for their financial needs. As a result, a massive crop of FinTech providers has emerged to address this gap.
In some cases, even the government has gotten in on the action – for example, the Unified Payments Interface (UPI) payment system by the Government of India that centralizes fund routing across many participating banks.
However, a significant portion of the unbanked population also lacks access to formal education facilities. This means that even when they gain financial access, its adoption is fraught with challenges:
- The risk of fraud: FinTech is a minefield of scams and fraudulent activities, most commonly seen as phishing campaigns and social engineering. Fraudsters may lure users with the promise of easy credit or pose as a regulatory body threatening to impose a penalty. Without adequate knowledge of cybercrime or financial service hygiene, it is easy to fall prey to such scams.
- Damage to financial health: FinTech firms typically do not run the exhaustive gamut of tests to check for creditworthiness as in a traditional bank. While this enables speed and efficiency, it may lead to users stretching their credit limit beyond a healthy threshold. Without careful assessment of one’s own financial health and the FinTech firm in question, users may suffer in the long term.
- Low levels of adoption: Finally, a basic roadblock without education is low levels of adoption. Unless users are familiar with mobile and computer interfaces, able to understand an app’s language and navigate consent and data sharing mechanisms, FinTech platforms cannot be fully adopted.
For these three reasons, education is a key pillar for FinTech success, which is why several new-age financial service providers are invested in it, as part of their core value proposition.
How FinTech Furthers the Cause of Financial Inclusion and Education
The relationship between FinTech and financial literacy is so intrinsic that several firms are now building apps to address this very need. Take, for instance, Zoho – it is a Duolingo-style software that makes it easy and fun to roll out financial education programs. It can be integrated with banking systems so that users get a reward credited directly to their wallet upon completing a lesson.
Investments are another great example of FinTech for financial literacy in action. It helps build social communities around investment trends, ideas, and conversations so you can share your trading journey with others. FamZoo is another interesting example that combines prepaid cards for kids and teenagers with financial education.
Most of these apps are available for download on smartphone operating systems for greater ease of use.
Other solutions, like the “Better Mama Better Pikin” program by Nigeria’s Access Bank, take a more grassroots approach. The program executed targeted campaigns helped by agents to promote education and awareness among women.
Similarly, MaTontine is a FinTech platform for small and micro-loans, which has an online community for education, and regular updates.
Thanks to the gamification potential of FinTech apps, there are many opportunities to intersect it with education, and learning. A simple user interface can help those in low-literacy regions to get engaged, and the platforms can be linked to real incentives to encourage adoption. Ultimately, greater financial literacy will only create a new, highly-invested customer base for future FinTech firms.
The Role of InsurTech in Financial Literacy
The rise and rise of InsurTech platforms have played an important role in raising risk awareness across an individual’s different life stages. Traditional insurance plays on the “fear factor,” attempting to lure customers already aware of their need to minimize risk. InsurTech, on the other hand, tends to take a preventive approach with its sales, marketing, and educational materials.
The message isn’t only “do this or else,” but it is also “this is how easy being safe can be.” This encourages the user to engage at a fundamental level. Consider, for example, the Even healthcare app in India. It ties up with traditional insurance providers to offer digital access to insurance coverage. It also partners with medical professionals and institutions for preventive healthcare. The user stands to gain immediate value and is thereby encouraged to inform themselves about possible risks and the importance of being prepared.
Similarly, Sri Lanka’s Etherisc is a decentralized InsurTech platform built on blockchain technology. It partnered with the non-profit Oxfam to educate farmers on agrarian risk and the benefits of having insurance.
The Way Forward
The InsurTech boom shows no signs of stopping, but like any powerful technology, there is a risk that it will leave some demographics behind in its evolution. That is why financial inclusion and literacy are so important, even as investors fund platforms that attract users, offer new services, and take advantage of the most cutting-edge technologies out there.
For International Day of Education 2023, let us remember that universal financial service access is crucial for large-scale societal development. FinTech firms are uniquely positioned to drive this change, aided by targeted and engaging modes of financial literacy.