Fintech: The Digital Revolution Empowering Emerging Economies.
- maddieleftley
- Aug 4, 2024
- 4 min read
How Financial Technology is fostering economic growth through accelerating financial inclusion in emerging economies.
What is Fintech?
Financial Technology (Fintech) is any software or technology that allows individuals or organisations to ‘digitally access, manage, or gain insights into their finances or make financial transactions’ [1].
Over the last decade, the Fintech industry has grown exponentially, evolving from a niche trend to a transformative force in the global financial landscape. The uptake of these new services has disrupted the Finance industry, changing the way customers pay, borrow and manage their money [1].
Fintech has penetrated the market with wild success - As of 2024, global Fintech revenue is 103.75bn USD and the global user base is forecast to exceed 3.5 billion by the end of 2024 [2]
The benefits of Fintech include increased:
Convenience: Enhanced accessibility to financial services through technology such as mobile banking.
Efficiency: Streamlined financial processes.
Transparency: Reduces fraud through blockchain technology.
Economic Empowerment: Facilitates access to services that support small businesses such as microloans.
Innovation: Drives new financial products and services, fostering economic growth.
Global Disparities in Access to Financial Services:
The World Economic Forum states that there are 1.4 billion unbanked people who lack access to financial resources [3] and an estimated that globally 1.7 billion adults lack access to financial services, with two-thirds of adults lack a bank, stating distance from a bank being a key reason why [4].
This lack of access to formal financial services renders these billions of individuals unable to participate in or contribute to formal economies, generating persistent income inequality and slowing the economic growth of LEDCs [5].
The Potential of Fintech to Empower Emerging Economies:
Fintech has the potential to foster economic growth, reduce poverty and contribute to prosperity through accelerating financial inclusion as it provides a ‘sustainable means for unbanked and underserved populations to contribute to the global economy’ [3].
Financial inclusion refers to the ability of all individuals and businesses, regardless of socio-economic status to access financial services. Fintech is vital in increasing financial inclusion as it leverages technology to overcome traditional barriers to accessing these services [6].
The introduction of innovative digital finance products and services to unbanked populations can help bridge the digital divide, financially empowering billions of individuals through increasing financial inclusion in the following ways:
Empowering MSMEs:
Micro, small and medium enterprises (MSMEs) are the heartbeat of economic development, accounting for 70% of global employment and 50% of GDP worldwide [7] . It is of vital importance for these MSMEs to have access to Fintech products such as mobile money transfers and micro-loans, which act as important tools to expand their operations, increase efficiency and respond to growing demand [7].
Empowering Individuals:
Through providing financial education and increasing access to information, Fintech can enhance the financial literacy of previously underserved populations, empowering individuals with knowledge to make informed financial decisions.
Fintech has particularly benefitted women. Access to mobile banking has boosted women's autonomy, with direct access to their finances reducing financial reliance on male figures. Micro-loans have reduced reliance on high interest loan-sharks and has greater enabled women to borrow money, increasing ease of entrepreneurship and financial independence [7].
Additionally, block-chain technology has disrupted traditional remittance and cross-border payments. This has reduced fees and transaction times, financially empowering individuals.
Driving Innovation:
Fintech opens emerging economies up to new opportunities for inward investment. By enabling an influx of remittances, greater connectivity to global markets, improved business operations and job creation, Fintech creates a more fertile environment in LEDCs for further innovation and investment.
Fintech is revolutionising the global financial landscape, creating vast new markets by bringing previously unbanked population access to vital financial services.
Through breaking down barriers traditional barriers to financial inclusion, Fintech is empowering individuals and businesses. Fintech has proved itself to be a powerful tool in the reducing poverty, inequality and promoting economic growth in emerging and developing economies.
Bibliography:
[1] Trificana, J. (2023) What is fintech? 6 main types of fintech and how they work. Available at: What is fintech? 6 main types of fintech and how they work | Plaid (Accessed: 02/08/2024)
[2] Statista Research Department (2024) Fintech – statistics & facts. Available at: Fintech - statistics & facts | Statista. (Accessed: 03/08/2024)
[3] Lung, H. (2024) Why financial inclusion is the key to a thriving digital economy. Available at: Why financial inclusion is the key to a thriving economy | World Economic Forum (weforum.org). (Accessed: 02/08/2024)
[4] Pandey A. (2018) Can you fights poverty with fintech? Available at: Can you fight poverty with fintech? – DW – 10/17/2018. (Accessed: 02/08/2024)
[5] Beck, T., Demirguc-Kunt, A., and Honoham, P. (2009) 'Access to FInancial Services: Measurement, Impact, and Policies', The World Bank Research Observer, 24(1), pp.119-145.
[6] World Finance Council (2023) Revolutionizing Financial Inclusion. Available at: Empowering Financial Inclusion: The Role of FinTech - World Finance Council. (Accessed 04/08/2024)
[7] United Nations (2024) Micro-, Small and Medium-sized Enterprises Day, 27 June. Available at: Micro-, Small and Medium-sized Enterprises Day | United Nations. (Accessed: 02/08/2024)
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