Fintechs are changing the game. Although this transformation was already very much on course, the rise of disintermediated and affordable financial services skyrocketed after the pandemic, allowing access to populations excluded from the traditional finance system—especially in developing economies. These advances can be perceived through adoption in less privileged areas and increasing democratization of access to services.
Recent studies from the World Bank, published in 2021, show that currently, almost 71% of adults in developing economies had a formal financial account in 2021, an increase from 42% a decade earlier. It’s progress that can be attributed to technological development in these areas, data from the same study shows.
“Progress in access to finance depends on the mobile phone much more than the banking system,” stated the World Bank report. Internet access in regions such as South Asia, Latin America, and several African countries has been leading this transformation and has become an essential part of the democratizing process. Rural areas in nations like India and Brazil remain a challenge, though the scenarios are changing quickly.
Policy improvements are also crucial. In the latest FinTech Business Report, published annually by EY, Latin America is seeing rapid regulatory adaptation to integrate fintechs into the wider financial system. Indian institutions have also started to foster adoption by implementing frictionless payment systems and investing in public innovation.
Fintech for all
Maybe that is the reason why the countries with the most fintech adoption in recent years include emerging markets like China, India, Brazil, and South Africa, according to EY and other Big Four companies, such as McKinsey and PwC. The need for more credit and access to services like transactions, payments, savings, and insurance has led those populations to seek alternatives to traditional banking.
Many individuals still nowadays lack access to financial services due to high fees, strict documentation requirements, and the absence of physical bank branches in rural areas. Mobile technology and digital platforms offer low-cost alternatives such as mobile wallets, peer-to-peer lending, and instant payments. These solutions allow individuals without formal credit histories or stable incomes to participate in the financial system, enabling them to save, borrow, and invest securely.
Challenges
But while fintech has made impressive strides, challenges remain. One of the biggest hurdles is ensuring that financial services remain secure and reliable as they expand. With the growing popularity of digital wallets, online banking, and mobile payments, the risk of cybercrime and fraud has increased. For fintech to reach its full potential in democratizing finance, it must prioritize building trust and ensuring robust security measures to protect users’ sensitive data.
Despite its rapid growth, fintech has yet to fully address the needs of certain groups, particularly those in rural areas or with limited access to technology. This digital divide is something that fintech companies need to confront head-on if they are to achieve truly global financial inclusion. More than just new markets to be explored, financial institutions must find a way to serve their true purpose, as financial inclusion is a catalyst for achieving seven of the 17 Sustainable Development Goals (SDGs).
