DIGITAL AND GENDER DIVIDE

The Dark side of Fintech: is it worsening the inclusion of the vulnerables?

The Dark side of Fintech: is it worsening the inclusion of the vulnerables?

Fintech has achieved a lot of making financial services simpler and more intuitive, but it has failed to solve society’s big financial challenges. 

Fintech has so far always been touted as a force for good. But is it really?

The business model of Fintech startups is geared towards solving real-life problems. Payment apps, for example, make it almost free, and painless, for migrant workers to send money home, wherever home is. Even to the most remote village. 

In lending, fintech platforms have emerged that leverage alternative data to assess creditworthiness, enabling access to loans for those traditionally excluded from the banking system.

And in insurance, fintech innovations are streamlining claims processing and offering personalized policies that cater to individual needs.

However, the question remains whether these advancements truly address the deeper systemic issues: is Fintech including someone, but excluding others?

The dark side of Fintech

As digital financial services become more ubiquitous and gain greater traction, researchers and regulators are becoming more aware of the “dark side of Fintech”. 

Some groups in society seem to have few, if none, access to the digital infrastructure necessary to benefit of the Fintech offering. Women, the elderly, the poor, and minority groups cannot afford a device and an internet connection – in some cases, they are not allowed to.

This digital divide exacerbates existing inequalities, leaving vulnerable populations further marginalized. As Governments and society push for innovation, it is crucial to ensure that Fintech solutions are inclusive and equitable.

The dark side of Fintech also refers to algorithm biases and predatory lending practices that have a negative impact on vulnerable groups.  The lack of regulation in this rapidly evolving sector can lead to exploitation, where the very individuals Fintech aims to help may find themselves trapped in cycles of debt or unfair treatment.

To truly harness the potential of Fintech, stakeholders must prioritize ethical practices and inclusivity, ensuring that progress benefits everyone. This requires collaboration between fintech companies, regulators, and community organizations to create a framework that promotes fairness and access. By addressing these challenges head-on, we can work towards a future where fintech serves as a bridge to financial empowerment rather than a barrier.

After the pandemic outbreak, the switch towards digital financial services has grown even bigger. For example, those without access to digital payments or deposit accounts are excluded from government support that is delivered via government-to-person (G2P) payments. This exclusion not only hinders economic recovery but also perpetuates cycles of poverty. Therefore, it is imperative that policymakers and industry leaders collaborate to design solutions that bridge this gap.

Even in the US, where financial inclusion is high – 93% of adults have a bank account – there is a 13% point gap between the wealthiest households and the poorest. This disparity highlights the urgent need for targeted interventions that address the specific barriers faced by these marginalized groups. Financial literacy programs, affordable technology access, and tailored financial products could play a pivotal role in closing this gap.

New services, old problems 

In the still brief history of Fintech, we have seen three waves of innovation.

The first two innovated products and channels, but they didn’t fundamentally change the business model of financial services. As a result, the chronic underprovision of financial services persisted or worsened. 

The third wave of Fintech is about embedded finance: the integration of banking, payment and insurance services in the offering – and customer journeys – of other industries.

And this third wave has the potential to disrupt traditional paradigms by leveraging data analytics, blockchain technology, and artificial intelligence. These innovations can enhance transparency, reduce costs, and improve accessibility, ultimately fostering a more inclusive financial ecosystem. By prioritizing user-centric design and ethical considerations, fintech can evolve to meet the diverse needs of all consumers, ensuring that no one is left behind in the digital financial revolution.

Vulnerable Groups in the Fintech Era

Digital Literacy and Accessibility Issues

Many people struggle with using new technology, especially those who aren't familiar with it. This lack of digital literacy can prevent them from accessing essential financial services. For fintech to be truly inclusive, it must address these gaps in knowledge and accessibility.

The groups most affected by the digital divide are the elderly, the poor and, in many countries, women.

To combat these challenges, fintech companies should invest in educational initiatives that empower these demographics. Partnering with community organizations and leveraging local resources can help enhance digital skills and build trust in new technologies. Furthermore, creating user-friendly interfaces and providing multilingual support will ensure that financial services are accessible to everyone, regardless of their background or experience.

Gender Disparities

In the fintech world, gender gaps are a major obstacle. Women frequently encounter systemic challenges that limit their access to financial services and technology.

Women often face more barriers than men when it comes to adopting fintech. These barriers can include limited access to technology, lower levels of digital literacy, and cultural norms that restrict their financial independence. Addressing these issues is crucial to ensure that fintech benefits everyone equally.

Tackling these gaps is essential for building an inclusive financial environment. This requires a multi-faceted approach, including targeted outreach, mentorship programs, and collaboration with organizations that advocate for women's rights. By fostering an inclusive atmosphere, fintech can not only enhance economic opportunities for women but also drive innovation and growth in the industry.

Promoting female leadership within fintech companies, especially in the Global South markets, can inspire more women to engage with these services.

Elderly, Disabled, and Technological Barriers

Older adults may find it particularly challenging to adapt to new financial technologies. The rapid pace of technological change can leave them feeling overwhelmed and excluded. Simplifying user interfaces and providing targeted support can help bridge this gap.

Inclusive design has been a key focus for fintech companies aiming to cater to diverse populations. By prioritizing accessibility and usability, companies can ensure that all users, regardless of age or ability, can navigate financial tools effectively.

Also, disabled people face many challenges when they have to use digital financial services. Interfaces should be designed with accessibility in mind, incorporating features such as screen readers, voice commands, and customizable settings. This will empower disabled individuals to manage their finances independently and confidently.