The fintech revolution has provided the average consumer with a convenient alternative to traditional financial services. As this blog has pointed out before, it has also given unbanked and underbanked populations more opportunities to participate in their local economies. Thus, it makes sense that the fintech revolution will have a significant impact on the economy on a global scale.
While the specific effects of this revolution on the global economy may not be easy to predict at the moment, fintech products have risen in popularity substantially in recent years, and it’s possible to argue that fintech in general is still in its infancy. In order to fully understand the ways in which fintech will change the financial circumstances of people throughout the world, financial experts must continue to monitor new innovations. That said, it’s likely that fintech will have a positive effect on the world’s economy.
First of all, it’s important to understand that there are many areas of the world where people lack access to financial services. Studies have shown that individuals and families who don’t have access to traditional financial services often struggle to make major investments or purchases. As a result,they may remain in a perpetual state of poverty.
More Efficient Cross-Border Transfers
Fintech has the power to change this situation. Through fintech, underbanked individuals have an opportunity to save money, make investments, and access capital to grow their own small businesses.
It’s also worth noting that fintech products often allow users to conduct cross-border transfers more efficiently than ever before. Some experts have pointed out that this can help to remove some of the barriers that have previously stopped under banked populations from participating in the global economy. When it’s easy to send and receive money from anywhere in the world, it simply makes sense that the flow of money will increase globally. This can help to transform areas and regions where people generally struggle financially.
Remember, “fintech” is a fairly broad term that applies to a wide range of services and products. For example, fintech is already having a major impact on the insurance sector in parts of the world where individuals and businesses typically lack insurance. Citizens in countries such as Ghana and Brazil are now insured (whereas they formerly may not have been) as a result off intech-based insurance providers.
This can allow people to grow local businesses, for instance, without being overly concerned about the financial risks. It’s difficult to justify taking the risks involved in starting a local business when you don’t have adequate insurance to protect yourself. Due to fintech, this will become less of a concern for many people throughout the world. Additionally, as they grow their businesses, they’ll be able to employ local residents and further build their region’s economy.
A Substantial Impact on Local Economies
The fact that fintech-based lending companies use alternative credit scoring methods also means that people in traditionally under banked regions will have even more opportunities to grow their businesses.
People who previously lacked access to key financial services often do not have a long credit history. As a result, this can make it difficult for traditional financial services companies to assess whether they are worthy of obtaining a loan. Consequently, such people often struggle to access the capital they need in order to turn their small business ideas into thriving operations.
On the other hand, fintech lending firms have the necessary tools to leverage other financial information gleaned from sources such as social media behavior and mobile data. Since they can more accurately evaluate a potential lendee’s financial circumstances, they are often more likely to approve loans than traditional financial institutions. Again, when more under banked people begin to use these loans to grow their businesses, the impact on local economies will be substantial.
A Ripple Effect across the Globe
Of course, as those local economies transform, the ripple effects will spread throughout the world, especially when citizens in those areas begin to embrace fintech products that facilitate cross-border transfers. Populations that may have once lacked the funds and/or the opportunities to contribute to the global economy will soon enter the marketplace in greater numbers than ever before.For example, perhaps a small business owner in an economically depressed region obtains a loan and insurance from a fintech company to grow and protect their business. As the business thrives, they may need to order supplies to help to expand it. If they cannot find the goods they need locally, then they’ll use fintech products to place orders from international sources. In turn, this will provide those companies with a growing customer base. As a result, they’ll earn more money, which will have a similarly positive impact on the economy of their region.
It’s fairly easy to understand why many are optimistic about the way that fintech will affect the global economy when you consider the topic from this perspective. Again, while the specific ways in which fintech will change the world economy are yet to be seen, it’s clear that the general impact will be positive for everyone.