Global fintech and funding innovation ecosystem

Can Fintech Make the World More Inclusive?

Wharton Knowledge | Kalin Anev Janse | Oct 10, 2019

financial inclusivity taxi - Can Fintech Make the World More Inclusive?

Can Fintech Make the World More Inclusive?

The potential gains for the start-ups driving fintech (financial technology) are obvious. But the possibilities for extending financial services to the underserved – or those without services at all – are already being realized. With proper oversight and regulation even more is possible, notes this opinion piece by Kalin Anev Janse, secretary general and a member of the management board of the European Stability Mechanism (ESM), the Eurozone’s lender of last resort, and Gong Cheng, senior economist and policy strategist at the ESM. “It is thus essential for researchers and technical experts to shed light on the considerable social impact and promise fintech is offering and to find solutions to contain potential risks.”

Financial inclusion – making banking services accessible and affordable to everyone globally – has been a buzzword for the last few years. Technology-based financial services have propelled innovation to “bank the unbanked” making daily financial operations accessible and user friendly for almost everyone – especially people who had no access to banks before.

Emerging markets like China, Kenya and Indonesia are leapfrogging the developed world. So – how is fintech making the world more inclusive?

See:  Fintech As a Pathway to Financial Inclusion? The Case of China

On Top of the Global Agenda: Financial Inclusion

Financial inclusion has been a recurring theme of financial sector reforms that the IMF and World Bank have advocated in financial assistance and macroeconomic consultations. Financial inclusion is especially important in emerging markets, like Asia, Africa and South America. It is a multifaceted concept that encourages access to formal financial services at affordable costs that can boost an economy’s overall growth and welfare. Often those targeted – families and small- and mid-sized companies – have either no or only very limited access to financial services.

To speed financial inclusion, the World Bank and the IMF launched the Bali Fintech Agenda in October 2018 during their annual meetings. The Agenda comprises 12 high-level principles to guide member states in elaborating appropriate policies to harness the benefits of what fintech can offer to bank the unbanked while mitigating any inherent risks. In her agenda-launching speech, IMF managing director Christine Lagarde estimated that 1.7 billion adults worldwide are currently deprived of access to financial services and fintech’s recognised comparative advantages is filling in the gap that traditional financial institutions could not.

Financial innovation propelled by fintech plays a key role in bolstering financial inclusion and makes simple financial instruments accessible. Two examples highlight the power and benefits of fintech, its role in enabling access to credit for small- and medium-sized enterprises (SMEs) as well as in reducing households’ financial transaction costs.

Fintech Provides Trade Credit to SMEs

In emerging markets, we often see economic distortions created by domestic financial market underdevelopment, especially credit market frictions. This is more prominent in fast-growing emerging market economies, such as China, where certain types of firms – mostly private – face credit constraint in the formal financial sector because of exorbitantly high costs or a credit rationing bias towards larger, state-owned enterprises. Small businesses, therefore, find it difficult to access trade credit, which plays an essential role in businesses’ daily operations and represents a large proportion of all trade transactions. The trade credit market has tightened even further since the global financial crisis, given that provision is falling in emerging markets.

See:  Fintech is Driving Financial Inclusion

In recent years, fintech companies have played an important role in complementing the formal banking sector and providing trade credit to small firms. Chinese mobile and online payment platform Alipay, for example, has since 2006 provided credit to vendors operating on the Chinese e- commerce platform, Alibaba. Alipay, and subsequently Ant Financial, developed an algorithm-based internal rating system taking data from vendors’ real-time transactions on commercial platforms, such as the Chinese online shopping website Taobao, to provide credit facilities.

Three key features show how Alipay/Ant Financial credit to SMEs helps to alleviate credit market frictions in China. First, using the data and information Alibaba has on its 16 million merchants, Ant Financial reduces information asymmetry between itself and potential borrowers, allowing it to extend credit to firms that traditional banks will not help due to information scarcity. This is especially important for start-ups, because they are unable to show the long record of business operations needed to be eligible for bank credit. For Ant Financial as a creditor, the information available enables a more accurate risk pricing, as it can tailor financial terms to the risk profiles of individual firms.

Fintech Reduces Transaction Costs for e-Payment

Thanks to e-payment and transfer services, consumers see fintech-supplied financial services as a way to reduce transaction costs. Transferring earnings home in a safe, quick and cost-efficient way, for example, is a fundamental concern for individuals working abroad. IMF statistics show remittances are very large, especially in low-income countries, and often are costly – notably for smaller remittances, such as those under $200.


By allowing quicker and less expensive transfers, fintech companies have provided concrete windfalls for those with the greatest need and are helping us move towards achieving the United Nations’ Sustainable Development Goals. Alipay in China is just one example. Other developing countries have pioneers, too. Vodafone launched M-PESA in Kenya in 2007. Kenyans use M-PESA for salary payment and wage transfer. Studies show that digitizing transfer payments significantly reduced travel and wait times, thereby raising the income of the rural Kenyan households using M-PESA by 5%-30%.

The rapid expansion of financial digitization significantly lowered the costs of access to finance, especially for the lower-income cohort of the population. In this area, fintech is really “banking” the previously unbanked. Although they may have no bank account, they can still benefit from financial products as long as they have a mobile phone. It gives access to micro-loans and helps social mobility. Reduced transaction costs have also made access to other financial services, such as investment and financial risk management options, more affordable, making households more resilient to financial shocks and improving the country’s overall financial literacy.

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BIS Working Report:  On fintech and financial inclusion

BIS | Thomas Philippon | Feb 12, 2020


Innovation in the financial sector (fintech) could disrupt existing business structures, change how existing firms create and deliver products and services, or widen access to financial services. Yet fintech also poses significant challenges to privacy, regulation and law-enforcement. It could also worsen some forms of discrimination. A key question is whether the potential efficiency gains that fintech could bring will be shared equally or lead to a rise in inequality.

See:  Singapore Fintech Week: Data, technology and policy coordination – BIS Speech


This paper first investigates whether the rise of fintech has pushed down the unit cost of financial intermediation. If financial innovation over the last years has improved efficiency in the financial sector, this should manifest itself in lower costs. In a second step, the paper asks whether the potential gains from fintech will have distributional consequences. Will fintech increase access to financial services for previously unbanked or under-banked individuals? Or will it increase inequality by favouring some groups more than others? The paper also investigates the role of machine learning and big data.


The paper shows that the unit cost of financial intermediation has fallen since the Great Financial Crisis, concluding that fintech has made the financial sector more efficient. It then develops a simple model of robo-advising, showing that fintech's net effect on welfare crucially depends on the type and size of fixed costs it entails. Even if there is an overall increase in participation, various income groups might be affected differently. Finally, the author analyses the impact of big data on discrimination. Based on a model that features a new technology to analyse non-traditional consumer data, the author concludes that big data and machine learning will probably reduce human biases against minorities, but at the same time erode the effectiveness of existing regulations.

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Download:  BIS Working Paper on Fintech and Financial Inclusion -> 19pg PDF


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