Innovation and technology have emerged as powerful catalysts in advancing financial inclusion. The spread of digital technologies, through mobile banking, digital wallets, payment platforms and more, has helped to make financial services more efficient and more accessible. Innovations, such as the use of agent networks and embedded finance, can make financial services more user-friendly and bring them much closer to home for people living in remote areas or on low incomes. These new ways of doing business have also allowed a wide range of other types of players, such as fintechs, mobile network operators, small shop owners and non-financial service providers, to provide financial services and continue to expand the options available for the unbanked and underbanked.
As new and more powerful technologies like artificial intelligence are developed, we will continue to see the transformation of financial inclusion. The sector will need to remain vigilant to ensure that the new risks introduced are understood and mitigated, while the potential for improving people’s lives is explored and maximized.
Agent Networks | Data | Digital Financial Services | Digital Transformation | Fintech
Using Artificial Intelligence in Inclusive Finance
Artificial intelligence (AI) is increasingly becoming a transformative force in the realm of financial inclusion, offering the potential to extend financial services to underserved and unbanked populations around the world. By leveraging AI, financial institutions can analyze vast amounts of data to gain insights into customer behavior, tailor products to individual needs, and streamline decision-making processes for credit scoring and loan approvals. This can lead to more accessible and affordable financial services, such as microloans, insurance and savings products, which are crucial for economic empowerment. However, the integration of AI also introduces risks, such as algorithmic bias, which can perpetuate existing inequalities, and concerns over data privacy and security. Ensuring that AI systems are transparent, ethical, and well-regulated is essential to maximize their benefits and minimize potential harms in the pursuit of greater financial inclusion.
(As evidence of the growing capabilities of AI, the above introduction was written by AI itself, via ChatGPT)
This paper evaluates how the financial sector should prepare for the coming arrival of AI agents and the possibility of artificial general intelligence (AGI).
This report examines the early impact of generative AI within the financial sector, where it is starting to be applied, and the barriers that need to be overcome in the long run for its successful deployment.
This research presents some of the key challenges with building accountability and transparency for AI in inclusive finance.
Partnering With Fintechs to Advance Financial Inclusion
Fintech, from “financial technology,” is an industry that uses technology to improve financial services. Many fintech companies are start-ups aiming to disrupt traditional banking processes or offer entirely new value propositions. Fintech solutions have the potential to advance financial inclusion by offering customers faster, more convenient and more affordable ways to use financial services. They can bring unserved customers into the financial system with innovations such as mobile money, digital payments, alternative credit scoring using big data analysis, biometrics for client on-boarding processes and blockchain technology for payments.
Of course, there are also important risks involved with the growing use of fintech solutions and emerging technologies. Among others, these include risks related to data privacy, business model viability, governance and cybersecurity. Both fintech companies and policymakers need to understand these risks and take appropriate action to mitigate them. Regulation plays an important role in making sure that customers are protected and that fintech can fulfill its promise for financial inclusion.
This case study shares lessons from from Laina Finance and Mipango Finance in Tanzania.
This paper uses a comprehensive dataset to investigate the relationship between fintech and financial inclusion in a panel of 84 countries over the period 2012–2020 and obtain empirical insights.
More than a decade of successful MFI-fintech partnerships have proven that the two can be much more than "frenemies." Here are seven success factors for great partnerships.
Going Digital Everywhere
With the rapid global expansion of mobile technology, digital financial services (DFS) are helping vast numbers of previously excluded people access financial services. Mobile network operators, governments and financial institutions, ranging from large commercial banks to microfinance institutions, recognize and have begun to leverage the potential of DFS. A number of governments and their central banks have also embarked on “cash-lite” policies to reduce the use, and therefore cost, of cash in their economies. DFS models are being tested with varying degrees of success around the world. Safaricom's M-PESA in Kenya is probably the best known and most successful example of mobile banking. Its vast success sparked a wave of start-ups and partnerships that use the service to provide Kenyans other valuable services, such as utility payments, savings accounts and microinsurance. Researchers are studying successes and failures of digital financial services to understand the market forces, business models and ecosystem requirements to support successful DFS deployments elsewhere around the world.
This RDFE conceptual framework seeks to encourage financial sector authorities, and other key ecosystem actors, to boost financial consumer protection in the digital era with a holistic vision of the ecosystem.
There are three key challenges that need to be addressed to fulfill the promise of India's much-lauded digital public infrastructure, as mobile phones and internet access remain inaccessible for a significant segment of the population.
IDEO’s Last Mile Money program proposes new design paradigms for digital finance to center the experience of people living in poverty.
Exploring Emerging Innovations in Financial Inclusion
As technology advances, innovations continue to emerge which can support and even transform financial inclusion. Embedded finance, open banking, digital currencies and platform work are examples of approaches currently being studied and discussed in the sector. All of these innovations support financial inclusion by bringing financial services more directly to customers, many of whom have never used formal financial services before, in ways that are more convenient and accessible and provide more choice.
Embedded finance, also known as banking as a service, involves the integration of financial tools into non-financial platforms, such as e-commerce or gig work.
The rise of platform work, such as ride-hailing and delivery apps, can help bring unbanked customers to the formal financial system by integrating their payments and other financial services into the gig platform.
Open banking, also called open finance, refers to the practice of sharing consumer transaction data between financial institutions and other FSPs and third party providers such as fintechs, which can use the rich datasets to design more useful and user-friendly financial products for customers.
Open APIs (application programming interfaces) are a subset of open banking, in which financial service providers (FSPs) share their APIs with other companies, allowing them to incorporate the FSPs' financial services, such as payments, into other apps like shopping platforms.
The Financial Action Task Force (FATF) defines a virtual currency, also often called digital currency, as "a digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not have legal tender status in any jurisdiction." This is as opposed to "fiat currency," which is the legal tender issued by a country in the form of coin and paper money, and which can be represented as e-money for electronic transfers.
Cryptocurrencies are math-based, decentralized convertible virtual currencies that are protected by cryptography. Bitcoin, launched in 2009, is the most famous example. Because of the tendency for cryptocurrencies to fluctuate in value, stablecoins were developed as a type of cryptocurrency designed to have a relatively stable price, usually by being pegged to another currency, commodity or financial instrument.
Central bank digital currencies (CBDCs) are a form of digital money issued by a country's central bank and denominated in the country's unit of account. If it is intended for use as a digital cash equivalent by individuals such as households and businesses, it is referred to as a retail CBDC.
This report outlines various business models that incorporate last-mile retailers into digital ordering platforms, offering them convenience, transparency, and a wide range of products.
This report identifies several emerging risks related to open finance, and proposes ways in which these risks can be measured, monitored, and mitigated against by leveraging the data available in open finance ecosystems.