How the Fintech Sector Helps with Financial Inclusion

BCG recently published statistics on fintech developments in the world. The report shows how the fintech sector can help with financial inclusion. From these numbers, it stands out that the American continent has the largest number of fintech companies, amounting to 11,651. Within this impressive figure stands out Latin America, which has been one of the regions with the greatest potential for financial innovation.

This phenomenon has meant innovation in a region where half of adults did not have a bank account and 80% of purchases in physical stores were made in cash. It is also a region with limited access to financing from traditional banks and a historical lack of trust. In fact, distrust is such an important element that it was the second most popular justification when respondents were asked why they did not save, according to the Global Findex 2014.

If you want to find out how the fintech sector can help with the financial inclusion of people around the world, download for free the Born2Invest mobile app. Our companion app keeps its readers up to date with the most important financial news so they can stay on top of the market.

Fintech companies are reaching groups that previously had not had the opportunity to access the financial system, helping with financial inclusion

On the other hand, technological changes in telecommunications infrastructure reached the region as they did the world. Both traditional banking and the fintech industry have benefited from these changes. The former has generated efficiency in processes and services from a web page or a mobile application. For their part, fintechs have gained market share because they were directly impacted by the increase in the two resources needed to access their services: the internet and the smartphone.

In April 2023, internet penetration reached 80% in Latin America. In other words, 80% of households had internet access at home or via broadband. Similarly, smartphone adoption penetration is estimated at 72%. With the above, we can dimension the size of the market and the investment opportunity for the opening and installation of new developments.

Financial inclusion still has a long way to go

Another interesting point is the diversification of the industry into different segments. 25% of fintech companies are dedicated to Payments and Remittances, followed by Loans (19%), Business Technologies for Financial Institutions (15%), Enterprise Finance Management (11%), and Personal (7%).

The social and geographic context places Mexico and other Latin American countries as the countries with the highest remittance receipts in the world. For local recipients, the money sent by their relatives from abroad to their country of origin is an important source of income.

This market segment is made up of consumers at the bottom of the banking pyramid, unbanked and underbanked consumers. Although there was an existing supply of providers, the entry of more fintech ventures represented greater competition. Not only did it increase the options for sending and receiving remittances, but the receiving users have access to financial services.

However, this does not solve the underlying problem. According to a study by the Center for Latin American Monetary Studies (CEMLA), only 34% of Mexican recipients had a checking or savings account, which is extremely low compared to the 68% of senders who responded that they did.

The fintech industry has the ability to provide financial products and services that incentivize their use through internet and smartphone access. Fintech companies are reaching groups that previously had not had the opportunity to access the financial system, and this, together with the financial education promoted through different channels, has the capacity to take financial inclusion to another level in Mexico and in the region.

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(Featured image by stevepb via Pixabay)

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First published in EL FINANCIERO, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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