Is Fintech Always Inclusive?

We have all heard stories about how a simple mobile phone can transform a vegetable seller’s life by helping her borrow money to buy supplies, store earnings as mobile money and re-pay loans, all without a formal bank account. Similarly, low-income households and small and medium-sized enterprises (SMEs), who are often left out of the formal financial system, can borrow money at a fraction of the cost of a bank loan using their online transaction records or documented sales as collateral.

Fintech has made these advances in financial inclusion possible. But is fintech always inclusive?  In our working paper, Fintech: Financial Inclusion or Exclusion, we looked into whether certain groups are unintentionally left behind by digitalization. Using cross-country and emerging fintech data, we found that greater use of fintech was significantly associated with narrowing the class divide and the rural divide, but it was not associated with closing the gender divide. That last finding surprised us as we had expected it would be similar to the first two findings.  

Narrowing the class divide and the rural divide

Through technological advances such as mobile phones, artificial intelligence and data analytics, lower income groups and rural folk have access to financial services in a way they never did before. Mobile money and digital wallets allow people to get a loan, pay, save and manage cashflows all on their phone, without having to travel to a bank branch. And even without internet access, farmers in India are able to make small value payments offline on a feature phone.

In these ways and others, fintech has been able to make financial services more accessible to low-income and rural populations, thus helping to bridge the gap between rich and poor and urban and rural. But the same cannot be said about the gender gap. 

What about the gender divide?

Unlike the results for the class and rural divides, our analysis found no correlation of fintech with the gender divide for digital financial inclusion. These findings are in line with other studies which have found that gender gaps persist in digital models like mobile money.

Why doesn’t fintech have an effect on the gender divide, as it does with the class and rural divides?  Gendered social norms that prevent women from accessing financial services or technology, unequal laws and regulations, and a lack of access to the basic requirements for digital financial services, such as an ID, all contribute to the gender divide in digital financial inclusion. Fintech alone cannot overcome challenges such as these which are more deeply rooted in society.

Achieving the promise of fintech

To address these challenges, we need a multi-pronged approach which pulls together the resources and expertise from multiple agencies across government and the private sector to enhance women’s digital skills and literacy, collect sex-disaggregated data, encourage financial institutions and fintech firms to design products for women and improve women’s access to the internet. Those structural barriers which are more deeply rooted in cultural and social norms may require the efforts of a broad range of actors to influence.

The good news is that we can learn from initiatives and businesses who are already leading the way. For instance, Data2X is an initiative that collects gender-disaggregated financial inclusion data. Lucy is an app in Singapore that is specially designed for women to track family expenses, make payments and manage cash. The promise of fintech can truly be achieved only if we work together across institutions and sectors to address these gaps.