How FinTechs make the World a Better Place
As FinTech continues to advance, it is not only reshaping traditional banking models but also paving the way for a more inclusive and sustainable financial ecosystem.
The financial services sector is undergoing a profound transformation. At the heart of this change lies FinTech – a dynamic blend of finance and technology that is reimagining the delivery and consumption of financial services. As FinTech continues to gain momentum, it is not only disrupting traditional banking models, but laying the foundations of a more inclusive, sustainable financial ecosystem.
The Fintech Phenomenon
FinTech is no longer just a buzzword; it represents a seismic shift in how financial services are conceptualized and delivered. From mobile banking and digital wallets, to blockchain and robo-advisors, FinTech is revolutionizing the way consumers and businesses interact with money.
This revolution is reflected in the numbers: The global FinTech market is projected to reach $644.6 billion by 2029, which would represent an impressive compound annual growth rate (CAGR) of 25.18%. This anticipated trajectory is indicative of the sector's potential to reshape the financial landscape on a global scale.
FinTech’s Transformative Impact
The impact of FinTech extends beyond the borders of traditional finance, influencing various aspects of the global economy and society.
1. Advancing Financial Inclusion
FinTech has proven to be a powerful tool in advancing financial inclusion, particularly in regions where traditional banking infrastructure is lacking. A prime example is M-PESA in Kenya, a mobile money service that has transformed the way people manage and transfer money. The innovative solution allows users to send and receive funds, pay bills, and access loans using just a mobile phone – without the need for a traditional bank account.
By leveraging a simple mobile interface and an extensive network of agents, M-PESA has made financial services accessible to millions who were previously excluded from the formal financial system. It has been especially impactful in rural areas where banking services are scarce or non-existent, taking the percentage of financially included adults in Kenya from 26% in 2006, to 84% in 2021. The success of M-PESA has also inspired similar initiatives in other parts of Africa and beyond, illustrating the profound impact that FinTech can have on global financial inclusion.
2. Driving Sustainability and Green Investments
As the world increasingly prioritizes sustainability, FinTech companies are distinguishing themselves from traditional banks by offering innovative, environmentally responsible products. Banks are beginning to integrate green investment options and comply with initiatives like the EU's Sustainable Finance Action Plan, but FinTechs are proving more agile and innovative in this space.
Platforms like Aspiration, Trine, and Doconomy are prime examples. Sustainability is at the core of the Aspiration business model, providing banking and investment products that equip customers with environmental impact tracking tools. Trine allows investors to fund solar energy projects in emerging markets with transparency and ease.
Doconomy created the DO Card, a credit card designed to track the carbon footprint of every purchase made by its users. Utilizing the Åland Index, a robust cloud-based indexing solution, the DO Card calculates the environmental impact of each transaction, providing consumers with real-time data on their carbon emissions.
The above examples align with the EU’s Sustainable Finance Action Plan, demonstrating dedication to ethical finance and contrasting the limited green products offered by incumbents. They drive capital toward sustainable projects and offer far more personalized, impactful ways for individuals to contribute to sustainability goals.
3. Empowering Women and Underserved Communities
FinTech is empowering women and underserved communities by increasing their access to financial services. Companies like Tala are redefining credit accessibility by using alternative data to assess creditworthiness, providing microloans to individuals (especially women) in emerging markets. This helps foster entrepreneurial initiatives, economic independence, and growth in these communities.
At the heart of this empowerment is microfinance, which has proven to be a powerful tool in enabling underserved communities to access capital. Microfinance institutions (MFIs) provide small loans and financial services to individuals who do not qualify for traditional banking loans, often due to lack of collateral or formal credit history. These microloans help individuals start or expand small businesses, improve their living conditions, and gain financial stability.
FinTech companies are enhancing the reach and efficiency of microfinance via digital platforms, making it easier for people in remote or low-income areas to access the financial resources they need. This approach also contributes to the broader economic development of underserved regions.
4. Enhancing Financial Literacy
The rise of FinTech has brought about a renewed focus on financial literacy, a crucial factor in achieving financial inclusion and economic stability. n countries like Brazil, Russia, India, China, and South Africa, the average financial literacy rate hovers around 28%. [1] This low rate is a major barrier to financial inclusion, preventing people from making informed financial decisions, accessing essential services, and breaking free from cycles of economic disadvantage.
To address this challenge, innovative FinTech platforms like Forget Finance are boosting financial education. The platform offers a tailored, AI-driven approach to financial coaching, helping users set and achieve financial goals through interactive, easy-to-understand lessons. Zogo is another innovative player making financial education more engaging and accessible, specializing in gamification.
5. Quantifying Fintech's Contribution to a Better World
M-PESA is an outstanding example of a platform driving financial inclusion, having brought 1.2 billion previously unbanked adults into the formal financial system over the past decade. This new level of access is simultaneously reducing poverty and economic instability.
In Sub-Saharan Africa alone, financial account ownership among women has increased by 20% over the past ten years thanks to the Tala platform. This example underlines the profound influence of digital financial solutions on simultaneously fostering gender equality and economic empowerment.
FinTech’s commitment to sustainability is also having a measurable impact. Aspiration and Trine contributed heavily to the global ESG market's growth, which reached $6.5 trillion in 2023. Meanwhile, Doconomy’s DO Card now has over 500,000 users in Sweden, enabling them to actively track their carbon footprints and reduce CO2 emissions by 150,000 tons annually.
The digital microfinance platform, Kiva, has extended crucial financial services to 140 million borrowers worldwide, targeting poverty alleviation and economic empowerment. This achievement, combined with the others explored above, illustrate FinTech’s powerful role in building a more inclusive, sustainable, and equitable global economy. The stage is now set for continued innovation.
The Road Ahead
Several key trends are likely to shape the future of FinTech, determining how equitable, sustainable, and interconnected the world becomes. These include:
- Evolving Regulatory Landscape: With the growth of FinTech, regulatory frameworks will need to adapt to address emerging challenges, particularly in areas like consumer protection, cybersecurity, and anti-money laundering (AML) compliance. The introduction of open banking regulations will not only stimulate competition and innovation but also ensure that financial services are more secure, fair, and accessible.
- Expansion of Blockchain and DeFi: Blockchain technology’s role in financial services will extend beyond cryptocurrencies, particularly through the rise of decentralized finance (DeFi) and smart contracts. These innovations have the potential to democratize access to financial services, reduce reliance on traditional intermediaries, and foster financial inclusion on a global scale.
- AI-Driven Personalization: The integration of AI and machine learning into FinTech applications will enable more personalized financial services, from tailored investment advice to enhanced fraud detection. AI and ML-enabled tools will empower people to make better financial decisions and improve their well-being.
- Sustainable and Ethical Finance: By channeling capital towards sustainable projects and promoting ethical investment practices, FinTech is playing a crucial role in addressing global challenges like climate change and social inequality. As these players continue to develop products that align with ESG criteria, the focus on sustainable and ethical investing will intensify.
- Global Payment Solutions: Innovations in cross-border payment systems will make international transactions faster, more transparent, and more cost-effective – digital currencies and blockchain will be integral. By breaking down barriers to global commerce, these advancements are fostering greater economic connectivity and opportunity while reducing the global payments burden.
FinTech is fundamentally redefining the very concept of financial interaction in a way that is making the world a better place. By driving innovation, enhancing accessibility, and fostering inclusivity, FinTech is setting the stage for a more connected, efficient, and equitable global economy. As we look to the future, the continued evolution of FinTech will bring new opportunities and challenges alike, but its potential to create positive change is undeniable.
[1] Source: Global Financial Literacy Excellence Center (GFLEC). (2024). S&P Global FinLit Survey.
