The business landscape is constantly changing. With this, it becomes essential for businesses to stay up-to-date with technological advancements and digital innovation. Digital innovation are helping businesses to achieve their long-term goals by streamlining their operations and improving customer experience.
With the benefits that digital innovations carry, many businesses have started investing in digital transformation. According to a study by Statista, the total investments in digital transformation were around 1.6 trillion US dollars as of 2022 and are expected to reach up to US dollar 3.4 trillion by 2027.
The above stats justify that digital innovation are quintessential for growth and success. It is also true in the financial sector. For financial businesses like banks, financial institutions, and fintech. The latest digital innovation can help them improvise their financial services and reach every nook and corner of the world.
Thus, it won’t be wrong to say that digital innovation in the financial sector can lead to financial inclusion. In this blog, we will discuss financial inclusion and how digital innovation are boosting financial inclusion.
Importance of financial inclusion
Financial inclusion is the availability and accessibility of financial services, such as banking, credit, and payments, to all individuals and businesses. Irrespective of their financial condition, income levels, and location.
The major goal of financial inclusion is to ensure that everyone has the opportunity to participate in the financial system and to use financial tools to improve their economic well-being.
Financial inclusion is very important to keep economic development in check. It helps to create multiple job opportunities, take better financial decisions, avoid financial crises, and improve monetary stability. In addition, it promotes financial quality among developed and developed economies, thereby reducing social or economic disparities.
There are so many benefits associated with financial inclusion. To name a few:
Increased access to credit
It allows individuals and businesses to access credit. Which can be used to start or expand a business, invests in education or healthcare, or meet unexpected expenses.
Improved financial management
It can help better manage finances by providing access to financial tools. And services such as bank accounts, insurance, and financial planning.
Financial inclusion can help protect individuals and businesses from financial shocks and vulnerabilities by providing access to financial products such as insurance and savings.
Financial inclusion can contribute to economic development by providing access to the financial resources needed to start or grow a business, invest in education or healthcare, or meet unexpected expenses.
It can help reduce poverty by providing access to financial resources.
How digital innovation are boosting financial inclusion
Digital innovation means using new technologies and digital platforms to create innovative products or services. It helps in making users’ lives easier and to acquire more customers.
With digital payment trends, digital innovation in finance have also increased. But, the major innovations that promote financial inclusion are as under:
It is refers to the use of mobile banking apps to provide banking services such as cash transfers, bill payments, and banking services. It’s has the potential to boost financial inclusion in several ways:
Increased access: It helps increase access to financial services, especially in rural or underserved areas where traditional banking infrastructure is lacking.
Convenience: It is a convenient and easily accessible alternative to traditional banking methods, making it easier for individuals and businesses to manage their finances.
Affordability: As it often requires minimal or no transaction fees, it’s extremely affordable.
Security: Mobile banking provides a secure and safe way to manage financial transactions. As it uses advanced security measures to prevent fraud and unauthorized access.
Inclusivity: Mobile banking can be used by anyone with a mobile phone, regardless of their socio-economic status or location, making it an effective tool for promoting financial inclusion.
The lending of funds through online platforms like a website or mobile application is online lending. It offers a variety of services like personal loans, business loans, and peer-to-peer loans.
Online lending has been very helpful for the unbanked and underbanked populations through its benefits like:
Easy accessibility: Online lending platforms allow individuals to apply for loans from the comfort of their own homes, using their smartphones or computers. This makes accessing financial services easier for people living in remote or underserved areas.
Lower entry barriers: In traditional lending, there are strict borrowing rules. They generally approve loans for only individuals with better income and credit scores. This makes it difficult for low-income people to get a loan.
However, now there are online lending platforms specially designed to solve this issue. For example, Kiva is a US-based online lending platform that connects borrowers with lenders to provide affordable loan options to underserved communities around the world. Kiva loans are available to individuals, businesses, and organizations, and borrowers can apply for loans starting at $25.
Faster processing time: Online lenders often have streamlined application processes and use automated decision-making systems. Which helps in faster loan approval and disbursement compared to traditional lenders.
Digital payment options like E-wallets and mobile payments have made it easier for unbanked and underserved people to be able to use financial services without having to worry about traveling to a distant bank branch.
Easy Usage: Through E-wallets, users can store and manage their funds and perform activities like checking bank balances and instant sending and receiving money with just a few clicks. Through mobile payments, users can easily make payments with their mobile phones, such as QR scan or NFC.
Affordable financial services: Digital payments make financial services more affordable by reducing the cost of transactions. For example, digital payments can be made more cheaply than cash transactions. As there is no physical handling and transportation of money, reducing the cost of financial services for consumers.
Financial education provides individuals with the awareness, knowledge. And skills to make informed financial decisions and access financial products and services.
Some ways in which financial education helps in financial inclusion include:
Improving financial literacy: Financial education can help to improve financial literacy by providing information about basic financial concepts, such as budgeting, saving, and investing. This can help individuals to make better financial decisions.
Increased access with better understanding: Financial education provides individuals. With the knowledge they need to understand and use financial products and services effectively. For example, if people understand how to open a bank account or how to apply for a loan. They can easily access these financial products and services.
No fraud risks: As the individuals will be completely aware of how financial products are accessed. They won’t have to take the help of any unofficial middlemen who might be fraudsters and intend to steal their money. This way, they will never suffer fraud.
Digital innovation play a significant role in the acceleration of financial inclusion. Financial inclusion can expand the footprints of financial services without the need for the physical presence of banks and financial institutions. Digital innovation like digital wallets, mobile payments, online lending. And mobile banking have become the pillars of digital bank by bringing the availability of financial services closer to consumers.
Today, almost every bank and financial institution are promoting financial inclusion owing to its myriad benefits like economic development. More people using banking and related financial services, and better credit availability with negligible barriers, irrespective of their geography or financial conditions.