Financial inclusion has become the catchphrase in modern society. The aim is to ensure equity while improving the economy.
Consumers need to have access to financial services to help manage everyday life. The financial products and services need to be affordable and useful. The scope of financial inclusion covers payments, savings, insurance, and credit.
The payments landscape has undergone significant changes over the years. Players are working hard to increase growth through electronic payments. Indeed, financial inclusion is both qualitative and quantitative.
One aspect involves getting financial services and credit to underserved or low-income populations. The other is ensuring the services are relevant and appropriate to specific demographics.
Several factors are driving the need for better financial inclusion. It can bring down barriers that specific groups face when seeking funding. Furthermore, it can take the service to the unbanked populations.
Our article explores the financial industry and how technology improves payments.
Fintech and the Financial Sector
Fintech has created the perfect merge between the financial and technological world. It applies to any new technology that improves or automates processes. These include the delivery, access, and uptake of financial services. The same applies to the management of financial processes or operations. It doesn’t matter whether it is by individuals or companies.
Fintech has been a game changer for several sectors. You will find Fintech in different industries. These include nonprofits, investment management, education, and retail banking.
In banking, non-traditional products are making it possible to achieve financial inclusion goals. Digital banking, e-commerce, and contactless payments are some examples. You can, using your smartphone, transfer money or deposit a check. The same goes for applying for credit, fund sourcing, and more.
The Covid pandemic showed the importance of fintech in financial payments. Consumers could use mobile payments, eliminating the need for hand-to-hand transactions.
Mobile apps have become quite popular. Take the example of budgeting apps that help keep track of personal finances.
Customers also have access to alternative funding sources, thanks to Fintech credit. This makes it possible for underserved segments to access such facilities.
Many of the fintech platforms also have internal credit scores. Such allow for better prediction of loan performances. It is much more than you will get with traditional credit scoring. It makes it possible for small businesses that would not access financing to get it. And it comes at a lower cost than traditional lenders would give.
Fintech in Determining Creditworthiness
One of the most popular scoring systems used by credit reporting agencies is FICO. Established in the late 1980s, it provides a standard way of determining risk levels. Lenders can get to know your creditworthiness by how you score.
A perfect credit score of 850, means you are a good candidate for loan facilities. FICO scores look at factors to score. Such include payment history, debt burden, credit history, and hard inquiries. From this, they assign a three-digit score ranging from 300-830.
Yet, there are challenges in such scoring methods. First, it is difficult to establish what determines your credit score. Second, inaccurate entries in the report can lower your credit score. It could happen even if you keep up-to-date with repayments.
The onus is on you to ensure there are no mistakes in the entries. You must take appropriate steps to correct them. It is critical to take care of such mistakes as soon as possible. Otherwise, they will stay on your credit report for up to seven years. Top-rated credit repair companies can help with dispute resolution.
Fintech allows for better credit scoring by:
- Providing real-time reports to the credit reporting agencies immediately after customers make payments. That reduces reliance on creditors to provide the reports.
- Clear insights into financial status through apps. Take the example of payment programs, budgeting, and payroll apps.
- Better determinant of creditworthiness outside of income levels. Lenders, for example, access data like the length of employment. This is a fantastic indicator of creditworthiness.
- Real-time updates of changing financial information. FICO scoring has one major shortcoming. Account updates happen once per month. Any significant changes in your credit report will not reflect until the next update.
Notable Financial Technologies Driving Financial Access
Fintech in the financial industry has changed financial transactions in many ways. Some notable technologies that improve payments include:
- Biometric sensors provide convenience and security when using ATMs. Customers no longer need to carry plastic cards. Nor do they have the arduous task of remembering PINs. Sensors use fingerprint/palm sensors to identify their account.
- Smart chip and EMV technology increase safety when accessing money. The one password per transaction reduces fraud instances.
- Online transactions remove the need for face-to-face payments. You can make credit cards and insurance premiums from your smart device. The same applies to receiving dividends and more from the same device.
- Mobile Banking through smartphones, which we touched on in our discussion above. Biometric applications of things like fingerprints have increased the safety of such platforms. Branchless and omnichannel banking on platforms like social media, mobile, and online. Banks can continue to dispense their services without entirely depending on brick-and-mortar establishments.
- Chatbots to enhance customer experience. Not only can they handle customer queries in a short time, but AI chatbots can also recommend products and give investment advice. They can also collect data for marketing purposes.
- Artificial intelligence and machine learning for fraud mitigation, detection, and prevention.
- E-wallets like PayPal, Samsung Pay, and Apple Pay. Such has become very useful for international remittances. But you can also use the wallets for utility bills, P2P payments, top-ups, and more.
- Cryptocurrencies provide an alternative in the form of digital cash. The distributed ledger technology removes the burden of admin functions. You also don’t need central data stores. Data in the blocks is immutable, further enhancing the security of information.
Thanks to technology, there have been significant changes in the finance industry. The under-served or unbanked populations can get access to services.
Service providers can expand their offerings. Consumers also have more control over their finances. They can schedule payments from their smart devices, ensuring they are always up to date.
Finally, Fintech provides the perfect response to a tech-savvy generation. Indeed, the finance industry must meet consumers at their point of comfort, and respond to the need for innovation and better service provision.