How investing in fintech is joining the fight for good
Having seen an exponential rise in the number of fintech companies that exist, these are now becoming the go-to institutions for those seeking access to financial products. Certainly, when looking at some of the most developed nations, such as the US and the UK, almost all financial institutions have made the switch to operating online and tech is playing a bigger role in running operations.
Away from the traditional institutions that have made the switch to an online presence, there are an increasing number of startups. Often referred to as challenger banks, these are companies that are taking a radically new approach to how the financial sector should operate, and how it should look.
These startups are growing in almost every country in the world. The belief being that, in the not too distant future, the idea of physical money will die as we’ll make financial transactions in a digital space. While such services will bring benefits the world over, observers are beginning to recognise where fintech is likely to have the biggest impact – developing nations.
Developing nations are in dire need of access to safe and secure financial institutions. As we shall see, fintech provides the ideal solution and that is why it is a sector worthy of investment.
A move to a cashless society
Where cash exists, so does the risk of theft, fraud, and corruption. As a physical asset, it is easily acquired by dishonest means and it is not always traceable. That is one of the exciting things about fintech: it will see the move being made to a truly cashless society. This is something that has been muted for generations, ever since debit and credit cards came into existence, but now this is something that is moving with pace.
When you look at the payment methods that are already available, it is easy to see why cash is on its way out. As well as the cards, that we have all become accustomed to, we have an array of apps that allow us to make payments via our smartphones and watches. Then we have a blockchain that allows payments and transactions to be made in what is, perhaps, the most secure method in existence.
Those in Sweden have taken the strive to become cashless even further. As far back as 2018, residents here were having microchips implanted under the skin and using these to make payments. This is a trend that has continued with cash use almost extinct in the country.
The greatest need for fintech
While western, and well developed, countries have already seen huge benefits from fintech, there are other countries where the need is greater. In some developing countries, there is still the need to physically attend a bank to withdraw and deposit money. With no ATMs, which we’ve had since 1967, and not even credit or debit cards, these are countries where cash remains king. Of course, where cash usage remains so high, so do incidences of all of the associated problems.
How fintech can help in these countries depends upon how you view fintech: in reality, it could mean several things. It may mean something relatively simple such as a finance platform that only operates online and via mobile apps. It may move beyond the basics to something as complex and extensive as a blockchain network.
Regardless of the solution that can be provided, fintech companies are all beginning to realise the same thing: offering support to these developing nations can achieve good for society and, at the same time, allow for unprecedented growth. That is why it is commonplace to see fintech companies placing a focus on areas such as South East Asia and Africa: these are places where the need is most.
How fintech helps the unbanked of the world
A move toward a cashless society is not the only benefit brought about by fintech companies. They also reach out to huge sections of the population who remain unbanked, or underbanked. To be unbanked means that a person has no access to a financial institution and no means of borrowing funds, investing, or receiving interest. Underbanked refers to those that have limited services available to them.
You may be wondering why the number of people who are unbanked poses such a significant issue. The truth is that being excluded from financial institutions has a huge impact on quality of life. There is no access to the financial products that many take for granted and there is no fallback position should someone fall upon tough times. There are then impacts upon the broader economy where growth is stunted due to a lack of access to financial products.
Addressing those that are unbanked is no small challenge. In Mexico alone, there are some 128 million of the population that fall into this category along with over 59 million in South Africa. While there are numerous approaches that can be taken here, with varying levels of complexity, some fintechs are deciding to address the issue simply by taking payment platforms onto SMS.
A great example of how fintech can protect people from the impact of inflation can be seen by looking at the situation in Venezuela. In this country, it is quite possible to receive $100 in your account and find that, in just a few days, it is only worth $50. With inflation rates as high as 2,355%, the reduction in people’s quality of life is hugely significant.
The level of poverty in Venezuela means that the population is highly reliant upon money being sent from overseas. When people can break away and find work elsewhere, they are then often responsible for supporting family members back home. The problem is that this money succumbs to the same issues that inflation poses and can almost become worthless.
The population found a solution in cryptocurrency. Rather than dealing in their own local currency, they turned to Dash. Like other cryptos, this is immune to the impact of political events as well as those things taking place elsewhere in the world. While there can still be some variation with the value of crypto, it is rarely, if ever, as severe as the inflation swings that were being experienced.
Fintech in the fight against corruption
The banking system is no stranger to corruption. In countries such as South Africa, instances have often made headline news. The political involvement in some countries feeds the cycle of growing the wealth of the rich and leaving the poor in a state of destitution. As funds are funnelled off to fulfil the purposes of an elite few, the many are left to suffer as wider economies collapse and poverty sets in.
Fintech provides the solution here by utilising all that blockchain has to offer. Of course, there are obvious solutions such as exploring cryptocurrencies. As these are decentralised, no single entity has any control over them and so has no ability to manipulate them. However, the solutions provided by blockchain go further than this.
The use of tools such as smart contracting trade finance apps promotes integrity. The recording of transactions on a blockchain allows for transparency as once these have been completed, they can not be altered or tampered with. There is a permanent record of where funds have been moved and transactions are prevented until certain conditions have been met.
How integrity is being boosted now
You don’t need to look into the future to see how fintech can assist with the battle against corruption. There are already examples of how it is being used to promote integrity and transparency. Just two examples are:
Digital tokens being used in the lending process
The Brazilian National Development Bank trialled the use of tokens for the purpose of loan disbursement. This saw a token, operating on a disturbed ledger platform, being used to increase efficiency as well as boost security and anti-corruption processes.
Blockchain and land records
In India, the provincial government used this technology to automate the documentation process for a land pooling exercise. This saw land being allocated to different owners. The whole process was automated through the use of a decentralised ledger system that was used to create digital land registries. These can be publicly viewed but, thanks to the security of blockchain, they are tamper-proof and immune from corruption and fraud.
Hopefully, you can see how fintech is a power for good. As well as providing a great return on investment, there is also the knowledge that society is being benefited as a whole. While developed nations will see significant changes, now and in the future, for developing nations the impact is already life-changing.
As fintech continues to expand into developing countries, it will bring about changes to proud of. It will allow everyone, regardless of where they reside, to be part of the global digital economy. While this will bring individual benefits, it will also drive growth around the world.