Fintech revolution & financial inclusion

In South Asia, more specifically in Bangladesh, the most significant financial innovation of this decade has neither been an opening of bank branches, an expansion in banks, nor an increased governmental regulation of finance. Rather, innovation has been brought by the mobile phone, which is increasingly using digital wallets, financial agents, real-time payment systems, and data analytics for loans to convert smartphones into debit cards, ATMs, as well as bank statements, all in one package. This article discusses how financial democracy in Bangladesh is being made possible by fintech, including examples from bKash, Nagad, as well as an analysis of the potential for financial empowerment in Bangladesh by examining the promises as well as challenges of digital lending.

Fintech & Financial Inclusion: Today, financial inclusion is defined as adequate access to necessary financial services such as payment, savings, credit, and insurance, which should be delivered in an affordable, efficient, and secure manner. The old banking infrastructure failed to provide services to low-income people because of costs incurred in running branches, paperwork, and low returns for low-value account holdings. A fintech solution of e-KYC for identifying customers, agents for cash management, and secure transaction services has transformed the lives of women also, who generally face issues of mobility, time, or paperwork.

Bangladesh’s Leap: The “Smart Bangladesh” project, in partnership with Bangladesh Bank, marked the beginning of a new age in mobile financial services (MFS). Today, electronic wallets have become a norm in urban areas as well as in villages. Today, it’s more about habit than provision. Today, people make regular use of mobile services to send money, pay bills, purchase, and receive salaries as well as benefits, all without using cash.

bKash: A Wallet for All. bKash, which has been around since 2011, is all about keep things simple and scaling up quickly. bKash brought banking to people’s doors by having an uncomplicated interface, an array of agents, and an easy-to-understand USSD menu system, which enabled even an ignorant factory employee to send money to his/her home, a small shopkeeper to pay his/her vendors, a parent to send money to his/her child’s educational institution without having to visit banks at all in most cases! bKash, in a period of time, expanded from money transfer to include all payment processes, savings, bank partnerships, bill payment, etc. That is how bKash showed to the world that financial inclusion is possible using trust, pricing transparency, and good technological integration for scaling up.

Nagad: Public Trust, Digital Speed. Established in 2019, as an initiative of Bangladesh Post Office, Nagad capitalised upon governmental infrastructure to make it more accessible at an affordable price. The simplified e-KYC procedure enabled people who didn’t even have a smartphone to open an account using only a national ID card. The combination of beneficial governmental infrastructure and superior technological infrastructure increased accessibility for Nagad, lowering costs, which emerged as an advantageous outcome in rivalry between Nagad and bKash.

Beyond Payments – The Digital Credit Frontier. While payment products provide the foundation, it is credit that sustains economic livelihoods. The future of financial inclusion is in nano and microlending via mobile wallets, with fair rates, based on alternative data such as transaction data, device data, but not traditional collateral-based lending. This ensures that small business owners manage cash flow, small grocery stores keep stock, and people sustain themselves during financial crises. This concept, if improperly designed, could lead to creating debt traps for customers. Furthermore, financial literacy training for customers is critical to understand what they agree to by clicking the “Accept” button during sign-ups for financial products.

How Fintech Changes the Equation: Fintech lowers costs as it dispenses with the requirement for brick-and-mortar channels, making even small transactions profitable. e-KYC facilitates faster opening of accounts, which is quite easy even for those lacking documents and time for account opening. After wallets, customers usually migrate from peer-to-peer transactions to salaries, bill payments, transactions at merchants, savings, and credits. The transaction information assists in creating a “thin file” score, which is capable of bringing the unbanked population into formal financial systems as they get integrated into lending products as well, which changes financial inclusion from merely having an account to achieving financial milestones like education, healthcare, and startup capital for a small business by clients.

Evidence That Matters - Use, Not Just Users. Registered wallets, however, only tell part of the story of what genuine inclusion looks like, which is reflected in usage—consistent bill payment, business acceptances, salary deposits, and savings. During this time of the pandemic, wallets enabled speedy payment of utilities and groceries. Government-to-person transfers were received faster with less loss of funds. Women accessed wallets, which overcame issues of transport as well as social constraints. Micro-entrepreneurs established financial histories for better supplier lines of credit and insurance pilots.

Why Guardrails Are Not Optional. Innovation without protection leads to mistrust. Consumers require clear disclosures, fair fees, transaction receipts, and easy conflict resolution. Surprise fees and hidden puzzles must be avoided. Connectivity is also critical. A closed system is value-destructive, but easy money movement between wallets, banks, and QR code systems promote competitive advantage as a result of service, rather than exclusion. Correspondingly, as more money moves via fintech, regulators must examine real-time liquidity, settlement, cybersecurity, as well as systemic issues. Though alternative data increases access, individuals have to maintain data control. Principles relating to consent, data use, fairness in algorithms, and traceable audits must apply. Digital competence is also vital to inclusion, as customers should be able to recognize phishing apps, protect secret PINs, and sidestep scams. Education in parallel to infrastructure development is needed.

Naming The Challenges That We Face: The digital divide is an issue that is still prevalent to date. Many people lack smartphones, internet connectivity, as well as electric power. Solutions going forward should continue to support USSD, as well as SMS, for feature phone customers. Inactive accounts remain another issue, as customers sign up for wallets but do not activate them for further usage. Substantive involvement needs to be achieved by other services such as auto-savings, micro-insurance, as well as fees for schools. The convenience of “tap to borrow” loans needs to be accompanied by effective safeguards such as affordability, cooling-off, as well as shared credit information to avoid debt cycles. Agent credibility is yet another issue that is common in this sector. Liquidity, as well as a lack of training, remain a threat to credibility at this level of interaction. Finally, regulators in this sector must keep up with the pace at which innovations occur in this sector

A Practical Policy Toolkit. Universal access to digital technologies needs to be a shared national ambition. This encompasses even wider coverage of 4G/5G networks, more affordable smartphones, and financial literacy in education, including for women and young people. USSD services must also avoid excluding those who only use basic phones. Payment systems must be treated as infrastructure in the public interest. An interoperable instant payment services platform, together with a national QR code, would enable payment from any wallet to any merchant, facilitating low-cost, hassle-free transfers between platforms. Sand box regulations for pilots could promote development in micro-insurance, agriculture finance, and integrated debt products in proportion to level of risk, as informed by regulation’s risk tolerance. Digital responsible lending should include pricing clarity, affordability analysis, nano-loan pricing limits, and data mandatory for uploading to, and reporting to, credit bureaus to reward those who demonstrate prudent use but punish those who default repeatedly to deter future excesses. User protections must also be strong, including publicly trackable complaints, punishment for repeat offenders, and real-time customer support available (not only FAQs). Cost comparison platforms should also be publicly available to empower customers further. Cybersecurity and data protection also require increased prioritization in data usage, including binding standards, timely reporting of breaches, independent audits, and data usage in line with rights to protect customers better from cybercrime, misuse, loss, theft, damage, or unauthorized access to data.

What’s Next: From Rail-Building to Value-Building. There are three frontiers in financial inclusion that need to be explored in depth. First, embedded finance needs to be integrated into platforms people already use, like marketplaces, farm management applications, ridesharing, and gig economies. Finance needs to be a ‘feature, not a destination.’ Secondly, climate-resilient finance needs to be delivered via wallets for solar power, crop insurance, and season-specific farm loans. Financial inclusion itself needs to provide support for climate resilience in minimal, simple, flexible products. Thirdly, artificial intelligence needs to provide personalized services, as well as better lending, but it needs to be interpretable, fair, and bias-free. Right answers aren’t enough; people should have remedies when they go wrong.

Conclusion: Fintech has already enabled millions of people in Bangladesh to transition from lining up to get cash to using their phones for payment. bKash showed that financial empowerment can start from having a trustworthy transaction agent and using a money wallet as simple as sending an SMS message to a friend. Nagad showed that even governmental infrastructure support for financial inclusion does not have to remain in a physical, paper-based, and inconvenient-to-access manner but, in fact, needs to—and must—be transformed to give people more freedom, more opportunities, and more convenience. The future will depend on ensuring this evolution remains bold yet protected, inclusive yet secure.

Dr. Serajul I. Bhuiyan is a professor of journalism and mass communications at Savannah State University, Savannah, Georgia, USA. sibhuiyan@yahoo.com