Fintech has laid a foundation for a financially inclusive society.
Nowadays, we have ease of access to an array of different financial service providers through digital means. However, it’s not everyone in South Africa that can enjoy this convenience as internet and mobile data remains a barrier to some. To overcome these barriers, disruptors are finding innovative ways to close the gap, using fintech to increase financial inclusion.
“Financial inclusion is essential because it gives vulnerable, low-income communities access to appropriate and affordable financial products or services. Basic bank accounts allow people to store money, earn interest, save for the future and build up a credit record. This in turn opens doors for investment, entrepreneurial or educational opportunities or the ability to insure against risk,” says the Head of Marketing at Wonga, James Williams.
According to Stats SA, about half of the country’s adult population lives below the upper bound poverty line. Williams believes that financial service providers are starting to wake up to the potential of this market, and the potential that fintech has, for helping them reach low income communities. He cites the following three examples.
Often consumers with limited exposure to the formal market view financial products as confusing, intimidating and laden with hidden costs. This issue contributes to the popularity of informal saving schemes like stokvels which, according to Nedbank research, hold savings amounting to R44 billion each year in South Africa.
The new Insurance Act introduced a micro-insurance licence category which will reduce the cost of compliance for micro-insurers. This makes it more affordable for low income groups to access services like life insurance, funeral cover and health insurance.
According to research by Deloitte, 90% of informal trader retail transactions are conducted in cash. Many informal traders are unbanked and prefer cash transactions because they are wary of the bank charges or tax obligations associated with tracked electronic payments. This makes it difficult for them to access lines of credit from suppliers which can lead to higher stock costs as well as delaying the acquisition of stock.