By Girish Rohira
With increasingly adaptive technologies, relevant business models, and collaborative policy reforms, universal access to financial services is not a far-fetched dream. Financial inclusion made great strides in the decade between the global financial crisis and the pandemic and exponentially so post-2020. Cashless payments saw a rapid increase between 2019 and 2022, with the creation and adoption of new technologies fast-tracked to make payments possible with social distancing restrictions. Digital financial inclusion initiatives acted as a lifeline for many small businesses and created a culture of cashless transactions with the general public, which continued long after restrictions were lifted.
Governments, banks, and consumers alike will experience great advantages with the widespread availability of financial services. Digital financial services, in particular, have proven to be a spearhead in furthering the initiative, being cost-efficient, reachable, and highly scalable.
There are many avenues of digital financial inclusion that have helped incentivize the public, with different initiatives showing varying levels of success in different countries. One particular instance of an initiative showing great promise globally are the ones involving the use of mobile phones. Millions of formerly excluded and underserved communities are moving from exclusively cash-based transactions to formal financial services due to the accessibility, cost-efficiency, and real-time settlement advantages these mobile platforms provide. Taking the case of India, digital payment volume has increased an average of 50 per cent annually over the past five years, with its expansion showing a rapid 160 per cent annual rate created solely by the country’s unique real-time mobile-enabled system, the Unified Payments Interface (UPI).
India’s journey with financial inclusion has come a long way, compared to as soon as 2015. The country’s digitalisation efforts have paid off on many fronts, with financial inclusion being a key advantage. The Indian telecom penetration, especially the increased access to affordable internet, has provided a foundation for implementing the globally recognised UPI system. India’s foundation infrastructure does not end there. A far-reaching impact was created by the provision of a digital identity via the Aadhaar initiative, giving 1.3 billion people access to a trusted ID to open bank accounts and access other financial services.
One cannot talk of digital financial services without mentioning the role of the FinTech wave. These digital-only services are provided by non-banking financial entities and have been getting a lot of attention, especially in underdeveloped countries. FinTech, in the past few years, has evolved from just providing banking technologies to performing a more hands-on role toward financial inclusion. They are in the running with banks across a range of markets and help keep prices competitive.
The FinTech PayDay has recently collaborated with Starlink (a satellite network developed by SpaceX providing low-cost internet to remote locations) to supply digital banking services to Rwanda and, consecutively, other low-connectivity countries. FinTech initiatives have historically proven to be effective in such cases, providing a payment solution that empowers individuals and businesses to connect to the digital world and unlock new opportunities for growth and development.
Going one step further, Fintechs have also made waves in the trading space, with Indian-made apps like Zerodha and Groww providing hassle-free, zero-brokerage financial trading to millions. The effortless user interface helps beginners ease into investing, increase savings, and broaden avenues for investment. By drastically expanding the base of investors in India, these Fintechs have aided in financial inclusion above any base-level efforts, unveiling even more promise for digital initiatives in the future.
Historically, leveraging technology has proven to be the best way to ensure that underserved communities around the world get access to trusted and affordable financial services. As discussed, digital initiatives toward financial inclusion pose many advantages but must be followed up with effective policy to reap the benefits. This includes building digital financial infrastructure, strengthening competition, updating competition policies to account for the digital age, strengthening data privacy, and ensuring collaboration between different policymakers within the country and globally.
The writer is the director at TresVista.
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