Blog

Social Implications of Fintech

By Vedant Akhade, Student at National Law University, Nagpur.

Introduction

The conceptualisation of ‘Fintech’ emerged in the 21st Century with the advent and popularisation of the Internet. As one can righteously interpret the word Fintech is inherent blend off ‘Finance’ & ‘Technology.’ In developing regions, the potentials to practically make use of advanced IT-technology to enhance the quality of existing financial services, is the major purpose of Fintech to achieve.[1]

The Financial Stability Board defines FinTech[2] as, “technologically enabled financial innovation that could result in new business models, applications, processes or products with an associated material effect on financial markets and institutions and the provision of financial services.[3] Traditionally the definition was restricted only to the financial institutions but with time it became more consumer-oriented, from the inception it severed only to the money-making machines and we never connected those financial institutions with societal changes, but with Fintech in the picture, this perception is changing.[4]

Fintech, in general, includes four major sectors; Financial, Banking, Investment, and Insurance, where, all this is inherently blended with a technological landscape that is involved in transforming a Financial environment drastically,[5] “Banking in its core is social, it’s all about trust, fairness, and reciprocity, and technology delivers these promises.[6]

Banks have long been the exclusive providers of financial services like deposits, payments, and credit facilities but could penetrate deep into the economy to the lower-income clients and small businesses due to their traditional methods of working and inability to adopt new ways of operation.[7] This has led to financial exclusion and generated the need for promoting inclusiveness in the economy, a Fintech here acts as a tool to foster Financial inclusion.[8]

In this research design, we will in detail try to understand the concept of “Fintech for Social good,” along with it we would understand how we can expand the scenario outside the boundaries of financial industries, we will try to understand the issues, challenges, and factors serving as motivation behind Fintech, and the problems that it seeks to solve, and will take a detailed look at the impact on Financial inclusion due to various governmental initiatives, and of gender equality.

Social Good: The Role of Fintech

When anything is done, made or created, “benefits the largest number of people in the largest possible way, or anything done with the intent of  ‘common good’ to leave the positive impact on individuals or society in general, is an act done for social good.”[9]

Fintech for Social Good corresponds to the use of emerging Fintech technologies to enhance the quality of life for the development of Nations. The most famous instance is the use of Fintech technologies to provide access to financial services to the number of unbanked individuals in developed countries powered by large-scale financial institutions.[10]

It helped dramatically in sustainable development, where we are rigorously trying to reduce the carbon footprints the solution is dug deep in the fintech. A Fintech innovation enables the government authorities to keep an eye on pollution, and expands civic engagement. It will in many ways helps environmental policy-makers with effective monitoring of forests, assessment of water quality, identification of natural risk of the threat, and control of air quality, etc.

Amid COVID-19 un-employment was one of the major crises, Fintech could be a useful tool to increase employment to a great extent. As earlier seen in Africa and Asia Pacific developing countries, with increased growth in the Fintech Sector companies are creating jobs and fostering growth, and providing accessible platforms for employees, and is thus acting as a source of financial inclusion.[11] “The mobile I.C.T. market itself provided more than 4 million jobs and the economy with more than $100 billion. With revolutionary products such as mobile wallets and novel lending platforms, the growing Fintech industry is also creating employment.”[12]

Fintech has a great significant role to play in health care facilities, technologies enabled patients to consult doctors sitting far away. People living in remote areas where there are no health care centers are benefited from the same, the notion of the use of mobile phones, tablets, and other smartphones to obtain prescriptions and referrals in sequence.[13]

A ‘Fintech for Social Good’ tends to provide a plethora of services as they grant access to basic financial services to its users for the first time, this is appealing to the population of that nation or continent and it makes a large impact on the society.

Challenges for Financial Inclusion

The existing banking system caused inaccessibility, with an indifferent attitude towards the low-income clients and left remarkable portions of the population unbanked and lead the financial exclusion.[14] The main impediment to financial inclusion is simply a lack of money,  as individuals with low-income have a significant distrust of formal financial institutions because of past deceptive, coercive, and exploitative experience.

In the “Asia pacific region majority of countries are spending on infrastructure, on power generation, clean water, utility network transportations, there is sufficient capital within the market to fund the projects that are currently being procured across the region. Infrastructure projects are large and complex, but there is a lack of experience in procuring such projects.” For such above mentioned projects the Public sector officials require a technical, legal and financial skills that must be supported by rigorous procurement processes.[15]

In “South Africa paying social grants directly to the bank accounts is a recent trend, and  it incentivised banks to sell products like funeral coverage and microloans to the recipients, the payment of such products and services were deducted directly from the individual’s bank account causing distress as many have to live with very little, and this raised public outrage against banks, governmental investigations were necessary to check the legality of such tactics.”[16] The Major challenge faced by South Africa with respect to financial exclusion is concerns relating to fraud that negates the cashless transactions, and practically all sorts of business is conducted informally.[17]

Women too have faced discrete financial challenges and inequalities in developing countries. According to a leading report of GSMA, women have less access to technology, and over 200 million fewer women own a mobile phone than men in low- and middle-income countries.[18]

Facilitating the Financial Inclusion

The solutions to the challenges faced by the developing countries mentioned above can be found in Fintech, which provides access to financial services through mobile devices without actually entering into the banks or financial institution.[19]Fintech was a major success in promoting financial inclusion in Mexico when 60% of its adults lack an account with a formal financial institution and in contrast had 87% mobile penetration.[20]” So, the digital enrolment of the banks made the experience user-friendly and reduced the substantial friction and transaction costs, also led to financial inclusion and empowered people in emerging markets to gain access to the payments systems and the gains of e-commerce.[21]

In “India, 2/3rd of the population is unbanked, but do have good access to the mobile phones, with the widened usage of phones the opportunity to bank the unbanked had improved.[22]” Mobile-money is one of the finest technological innovation for financial development.[23] Recently, ICICI bank launched the world’s first Mobile Bank with the branches of the bank in every other hand, one of the finest ways to bank the unbanked. With the introduction of this the Banked population might get tripled. With the introduction of the UPI, digital payments have become more secure, compared to the earlier and as a result, various payment gateways have come up to enhance digital transfers.[24]The major impediment of non-availability and accessibility has been resolved by enabling the platforms like, Unstructured Supplementary Service Data (USSD) that avail mobile banking services without internet, on a basic Mobile handset.” The Aadhar-enabled payment system enables any Aadhar enabled bank account to be accessed at any place at any time through micro ATMs.[25]

A number of developing nations have designed the actionable strategy to develop the Financial Inclusion, where these standards for the strategies are guided by the International organisations.

India is heading towards achieving a robust Fintech and making it accessible to the common man. Fintech can bring social change when the common man can make effective use of it. Few such steps taken by the Indian Government are:

  • Digital India

Prime Minister of India in 2015, introduced this initiative aiming to provide broadband highways, access to mobile connectivity, public internet access, and an efficient digital e-governance system including multi-sector services such as education, banking, and healthcare, its wider target is to establish a more reliable and transparent infrastructure for governance, reduce corruption, and promote inclusive economic growth.[26]

  • Aadhar

A “digital identification program called Aadhaar, which seeks to collect different types of data, that is to use by all Indian people for bio-identification, including fingerprints and eye scans, besides information like  bank account numbers, cell phone numbers, voter IDs and income tax filings are also issued.” This will allow the government to minimize identification and welfare corruption while also enabling a more inclusive means to access financial services than government-issued ID.[27]

Financial Inclusion and Gender Equality

The report published by McKinsey Global Institute estimated that, “the Asia pacific economies will increase their cumulative G.D.P by $4.55 trillion by 2025 if they enhance gender equality.”[28] India and Bangladesh note the largest gender inequality, as lack of women in the workforce damages the economic growth, forming a directly proportional link, and hence, here gender equality and economic growth shows a symbiotic relationship. “Even in a country like India, which actively promotes digitalised finance, 36% of women are less likely to own a mobile phone. Gender gaps in entrepreneurship and employment opportunities also come into play. Social norms can also limit the demand for access to financial services by women.[29]

According to GSMA, around 200 trillion fewer women have access to mobile phones in low- and middle-income countries. “In India, women are 36% less likely to own a mobile phone, this increases employment inequality, as usual channels that market toward men, like wage payments and remittance channels cannot be accessed by women.  Improving women’s access to technology and collaborating on knowledge sharing can act as catalysts for establishing gender equality.”[30]

In Africa women constitute the majority of workers in the informal economy, and only about a 1/3rd of women works in formal economic activity.[31]In the seven largest economies in Africa, the average participation of women in the labour force is 32.7%. hence, according to the report of World Economic, North Africa will take approximately 157 years to close the gender gap.[32]

Conclusion

The research design concluded that, Fintech as a machine for social change can bring out positive effect in people’s lives as it helps people to participate in the economy with ease and comfort.  It is established that finance and technology is not just product and services but a worldwide drive towards humanitarian good and socio-economic development. Fintech is evolving making it efficient and helpful. We need to keep in mind the social scenario of any developing country if we desire positive change via Fintech, i.e., we need to identify the employment crises, gender equality, safety, education, literacy rate, health care facilities, etc.

Fintech is an innovative way that can address social issues and still make profits, this concept has the potential to address the top global problems like income inequality and financial inclusion. The efforts of financial inclusion through the technology seem to come to fruitful soon, given the rapid digital penetration in the country. The future of fintech in India is set on high aspirations, and expectations along with renewed sense of optimism due to the  government’s efforts to promote fintech through its policies like Digital India.

The fintech revolution had a major impact on employment as the growing fintech industry helps by creating jobs, health care.

The intake of India as a Fintech hub requires a view of the country as collective hub of fintech activities. Its legacy should not be restricted on four corners of its established status, but on the development, it can establish across the country. Thus, in a time of few years, fintech will make India an inclusive economy by reaching every section of society.

References

[1] Financial Stability Board, Monitoring of Fintech (June, 2017) Financial and Innovation and Structural Change, http://www.fsb.org/what-we-do/policy-development/additional-policy-areas/monitoring-of-fintech/.

[2] United Nations Environment Protection,  Fintech Green Finance and Developing Countries Input (June 27, 2017) UNEP Inquire, http://unepinquiry.org/wp-content/uploads/2017/06/Fintech_Green_Finance_and_Developing_Countries-input-paper.pdf.

[3] EY Global, Four themes driving adoption by consumers (Aug. 1, 2017), https://www.ey.com/en_gl/banking-capital-markets/four-themes-driving-fintech-adoption-by-consumers.

[4] Julia Kagan, Financial Technology – Fintech (Aug. 28, 2020) Investopedia, https://www.investopedia.com/terms/f/fintech.asp.

[5] Ibid.

[6]Jax Editorial Team, Fintech lacks in social impact (Mar. 16, 2018) Jax London, https://finance.jaxlondon.com/blog/Fintech-conference/Fintech-lacks-in-social-impact/.

[7] Ranajoy Basu & Nathan Menon, Waves of change: how FinTech can drive the future of social impact finance (Dec. 3, 2020) Structure Finance.

https://www.structuredfinanceinbrief.com/2020/03/waves-of-change-how-fintech-can-drive-the-future-of-social-impact-finance/.

[8] Raghav Aggarwal & Arvind Raj, Wider Circle: Digital Lending and the Changing Landscape of Financial Inclusion (Nov, 2019) Price Waterhouse & Co’s, https://www.pwc.in/assets/pdfs/consulting/financial-services/fintech/publications/a-wider-circle-digital-lending-and-the-changing-landscape-of-financial-inclusion.pdf.

[9] Will Kenton, Social Good (Mar. 1, 2021), Investopedia, https://www.investopedia.com/terms/s/social_good.asp#ixzz5NftoAocT.

[10] Deep Knowledge Analytics Division, Fintech for social good (Nov. 2018), http://analytics.dkv.global/data/pdf/Fintech%20for%20Social%20Good.pdf.

[11] DPO Payments, How the Fintech revolution is changing the Face of employment in Africa (Jan. 10, 2018), https://blog.dpogroup.com/how-Fintech-revolution-changing-employment-in-africa/.

[12] Ibid.

[13]Disrupt Africa, African Health Care – Ripe For Disruption (Feb. 2017), https://disrupt-africa.com/2017/05/25/african-healthcare-ripe-for-disruption/#prettyPhoto.

[14] Raghav Aggarwal & Arvind Raj, Wider Circle: Digital Lending and the Changing Landscape of Financial Inclusion (Nov,2 019) Price Waterhouse & Co’s, https://www.pwc.in/assets/pdfs/consulting/financial-services/fintech/publications/a-wider-circle-digital-lending-and-the-changing-landscape-of-financial-inclusion.pdf.

[15] PWC, Developing Infrastructure in Asia Pacific: Outlook, Challenges and Solutions (Sept. 2020), https://www.pwc.com.au/industry/infrastructure/assets/developing-infrastructure-asia-pacific-sep14.pdf.

[16] We Forum, 6 Challenges to Financial Inclusion in South Africa (Apr. 27, 2017), https://www.weforum.org/agenda/2017/04/financial-inclusion-south-africa/.

[17] Thorsten Beck, Fintech and Financial Inclusion: Opportunities and Pitfalls, ADBI Working Paper, Asian Development Bank Institute (2020), https://www.adb.org/sites/default/files/publication/623276/adbi-wp1165.pdf.

[18] Shailla Draboo, Financial Inclusion and Digital India : A Critical Assessment, Eco & Political Weekly, Vol. 5, Issue 17 (2020).

[19] Ibid.

[20] Thorsten Beck, Fintech and Financial Inclusion: Opportunities and Pitfalls (2020) Asian Development Bank Institute, https://www.adb.org/sites/default/files/publication/623276/adbi-wp1165.pdf.

[21] Susanne Chishti, & Janos Barberis, The Fintech Book: the Financial Technology Handbook for Investors, Entrepreneurs and Visionaries, 69-71, (2016).

[22] BaptisteVenet, FinTech and Financial Inclusion: A Research Agenda for Financial Inclusion and Microfinance, 162, 163-164 (2019).

[23] Baptiste Venet, FinTech and Financial Inclusion: A Research Agenda for Financial Inclusion and Microfinance, 162, 163-164 (2019).

[24] Brij Raj & Varun Upadhyay, Role of Fintech in Accelerating Financial Inclusion in India (2020) Research Gate, https://www.researchgate.net/publication/341099770_Role_of_FinTech_in_Accelerating_Financial_Inclusion_in_India/citation/download.

[25] Shailla Draboo, Financial Inclusion and Digital India : A Critical Assessment, Eco. & Pol. Weekly, Vol. 5, Issue 17 (2020).

[26] Ibid.

[27] Vidhi Doshi, India’s biometric ID program was supposed to end welfare corruption. But the neediest may be hit hardest (Mar. 25, 2018) Washington Post,  https://www.washingtonpost.com/world/asia_pacific/indias-vast-biometric-program-was-supposed-to-end-corruption-but-th.

[28] McKinsey, The Power of Parity; Advancing Women’s  Equality in Asia Pacific (Apr. 23, 2018), https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/Gender%20Equality/The%20power%20of%20parity%20.

[29] Ibid.

[30] Yasmin Bin-Humam, 5 Challenges for women Financial Inclusion (Feb. 13, 2017), https://www.cgap.org/blog/5-challenges-womens-financial-inclusion.

[31] McKinsey, The Power of Parity; Advancing Women’s  Equality in Asia Pacific, https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/Gender%20Equality/The%20power%20of%20parity%20.

[32] McKinsey, The Power of Parity; Advancing Women’s  Equality in Asia Pacific, https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/Gender%20Equality/The%20power%20of%20parity%20.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button