Last Updated on Thursday, 27 June, 2024 at 1:25 pm by Andre Camilleri
Flavia Passanisi received a Master of Science in Strategic Management & Marketing from the Faculty of Economics, Management, and Accountancy at the University of Malta. Upon submission of her dissertation, Flavia joined Deloitte Malta as a Consultant within the Risk Advisory practice.
In the aftermath of the 2008 financial crisis, a fledgling industry known as FinTech emerged with the ambitious goal of ‘democratising financial services’, aiming to address the unmet needs of market segments typically overlooked by traditional banking institutions.
According to the World Bank, the rise of FinTech has sparked a surge in total global bank account ownership, leaping from 51% in 2011 to an impressive 76% in 2021.
This growth, particularly pronounced in developing economies, signifies more than just numerical advancement – it’s about empowerment. Empowering microenterprises, narrowing the gender gap in bank account ownership to 6% for the first time, and bolstering financial resilience through savings and insurance.
FinTech companies operate on an intangible-driven business model that offers a more scalable alternative to traditional banking. The strategic combination of e-finance, internet technologies, social networking, artificial intelligence, blockchains and big data analytics enables these companies to deliver a host of benefits to end-users, such as reduced transaction costs, increased accessibility to financing and investment opportunities.
However, as FinTech’s ascent continues, debate rages over its impact on financial inclusivity. Scepticism abounds as some studies caution against potential risks and concerns linked to the rapid proliferation of digital financial services, including cybersecurity threats, fraud, and systemic risks.
It is against this dynamic scenario that my research aimed to provide clarity, evaluating FinTech’s transformative potential and identifying the components crucial for promoting Digital Financial Inclusion. To achieve this objective, I employed a systematic review methodology, analysing existing academic research to explore the underlying phenomena and ongoing debates within the field.
The research findings revealed that while there is no unanimous scientific consensus on FinTech as a transformative model for financial inclusivity, its potential is unquestionably acknowledged.
The foundational concept lies in its ability to seamlessly integrate innovative financial technology with the evolving requirements and accessibility challenges of a financial system, challenging the fundamental aspects of finance, including intermediation, risk management and regulation.
A stark instance of such transformative impact is to be found in the context of developing countries where user households are more likely to receive remittances frequently, with a total value received significantly higher than that of non-user households. This impact is attributed to technology’s ability to simplify peer-to-peer transactions, thus broadening the scope of financial activity.
Viewed from a broader perspective, FinTech’s transformative potential extends to its impact on the economy, with research highlighting its significant role in economic expansion.
Liquidity constraints often impede consumption, a key driver of economic development. In this context, FinTech platforms emerge as a mitigating force. They facilitate the mobilisation of resources for productive investments, leading to more efficient resource allocation in the financial market. This, in turn, facilitates inter-temporal consumption, boosting demand, increasing aggregate expenditure, and ultimately driving GDP growth.
The analysis conducted, led me to the identification of a theoretical framework which could offer a holistic approach to Digital Financial Inclusion by intertwining three crucial dimensions: Digital Inclusion, Social Inclusion, and Financial Inclusion. At the core of this framework is Digital Financial Inclusion, acting as the central point where these dimensions intersect.
The viability of this framework is then shown to significantly hinge on the presence of a supportive regulatory and legal environment that effectively balances the promotion of innovation with the protection of consumer rights. Well-grounded reflections advocate for a regulatory architecture based on activities, rather than entities, to ensure impartial rules for the technological solutions used by financial operators and equal protection for customers. Thus, emphasising the imperative to comprehend the social context in which technology is deployed.
While the first dimension focuses on ensuring access to financial services and promoting financial literacy, the second dimension addresses the aspects of accessibility, affordability, and proficiency in digital tools and platforms. Lastly, the third dimension explores the role of social networks and capital in enhancing financial inclusion, recognising the valuable informative role that connections within communities, family, and friends play in facilitating the diffusion of digital financial services.
As my study outlined a theoretical framework, an aspect worth considering for future research is theory testing. Given the unique nature of FinTech service provision – marked by borderless operations yet customised to individual customers – testing the proposed model in various contexts is essential. The impacts and outcomes of the framework may differ depending on geographical locations and demographics.
This article is a summary of the student’s dissertation submitted in partial fulfilment of a Master of Science degree in Strategic Management & Marketing. The article is not officially endorsed by the University of Malta. The opinions expressed therein are solely those of the respective alumni and do not reflect those of the University of Malta.
