How FinTech Startups Are Filling The Financial Gap
The promise of FinTech is financial inclusion.
In a world where 31% of adults are unbanked — 6% in the United States (i.e. approximately 14.1 million people) — inclusive digital financial services are a welcome development.
FinTech is aiming to help those excluded from traditional banking institutions save money, receive money, access critical services, enjoy social benefits, and climb out of extreme poverty.
It’s not hard to see that FinTech has drastically changed the financial landscape in the last 20-odd years.
From the birth of digital currencies to e-payments as-a-service, FinTech has revolutionized the world of finance.
FinTech startups, in particular, have prospered as they took advantage of the need for quick, instantaneous, safe, and secure payment gateways.
Relying on blockchain technology with its decentralized protocols and ecosystems, FinTech startups strategically positioned themselves as the solution.
Let’s explore three ways in which these entities are filling the financial gap. But firstly, here’s what you need to know about FinTech.
Now that you’re all caught up, here are the leading ways FinTech startups are bridging the financial gap.
1. Digital payments and remittances
With the world increasingly becoming more diverse as people migrated, a new financial need appeared: how to send money back to countries of origin?
Step in remittance FinTech startups.
Billions of dollars in global remittances are sent to low- and middle-income countries (LMICs) each year. In 2019, the figure reached an all-time high of $554 billion which was more than Foreign Direct Investment for the year.
While figures are anticipated to fall to $470 billion in 2021 as a result of the coronavirus pandemic, it doesn’t take away from the fact that these FinTech startups make it possible to send money faster in a more cost-effective and secure manner.
And among the most popular startups are Wise (formerly TransferWise), WorldRemit, and InstaRem.
2. Mobile microinsurance
From Oxfam’s blockchain-based microinsurance platform for poor farmers in Sri Lanka to MTN’s ‘mi-life’ mobile insurance technologies, FinTech startups working in conjunction with major corporations across the world have managed to reach the low-income communities and provide them with insurance policies.
Insurance is a great tool that can assist low-income communities to secure their financial gains.
By introducing mobile microinsurance, startups are able to bring a host of insurance products including mobile-enabled health insurance to rural populations as is the case in Rwanda.
3. Peer-to-peer lending
Did you know that there is a $5 trillion demand for credit from Micro, Small, and Medium Enterprises (MSMEs) in developing nations?
Up to 80% of women-run enterprises requiring credit are underserved globally with their needs creating a $1.7 trillion financial gap.
This is where FinTech startups have stepped in to try and reduce this gap. In China, Jack Ma’s innovative MYbank credit approval system makes it easy for unserved MSMEs to access credit within minutes.
In Indonesia, various peer-to-peer lending platforms have also significantly impacted the country by creating employment for 362,000 Indonesians and reducing the poverty rate by 0.7%.
The exciting news is that despite FinTech startups just getting started they have already accomplished so much. The future of finance is indeed very bright.
If you would like to read more about how technology is changing the face of finance, read my blog Bridging The Gap In Wealth Management With WealthTech.