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Can FinTech Deliver Financial Inclusion?

By Rhydian Lewis OBE, CEO and Founder, RateSetter

Financial inclusion is a hot topic as technology makes it possible to serve communities previously unreached, helping billions of people access the financial ecosystem.

Progress is most striking in developing markets: take, for example, the transformation of payments using mobile phones in Africa, or the growth of online micro-loans in Asia, both providing a boon to economic development.

In the UK – traditionally seen as a fully penetrated market – access remains a persistent issue. 1.5m people have no bank account and debate continues around whether consumers and businesses have fair access to credit.

But there is another area that has featured less prominently in financial inclusion considerations: how ordinary people access a return on their money. My view is that financial inclusion is as much about access to returns as access to credit.  

Financial services firms intermediate access to returns. This has led to large, confusing management fee structures and outsized spreads between rates for savers and borrowers. On top of this, regulation seeks to protect us from investments that are deemed inappropriate.

The outcome is an odd patchwork of access whereby ordinary investors are exposed to some asset classes but unable to access others. Over time, consumers have become discouraged from taking an interest in investing – with inconsistent levels of access and with highly-intermediated returns, who wouldn’t become disillusioned?

This becomes a vicious circle. People give up because they don’t see the benefits that investing can deliver. The outcome is a form of financial exclusion. We know that returns on capital have historically outstripped economic growth, so it follows that making it difficult for ordinary people to access financial returns entrenches exclusivity and reduces mobility.

Fortunately, the obstacles to access are falling away. The internet enables greater price transparency, faster settlement times and mass dissemination of real-time information, putting everyone on the same footing and enabling firms to extend the reach of their products. It also brings greater control for investors themselves, encouraging engagement. This backdrop has inspired new business models which widen access in a cost-efficient way.

Over the last decade, FinTech has prised open the banking machine and rebuilt its constituent parts with tailored products that can be enjoyed more widely than before. Neo-banks allow for simpler account opening and management of personal finances; new payment companies are lowering the cost of cross-border transfers; and the peer-to-peer sector has opened up lending as a new asset class available to ordinary investors.  

Each corner of FinTech is establishing its own track-record on access. My own firm, RateSetter, has just reached the milestone of generating £100m in returns for our 50,000 investors. Yes, they have accepted some extra risk to generate these returns, but this is as much a story about FinTech increasing access to income-generating assets that were previously unavailable to normal investors.

Access goes to the heart of fair financial services. Widening access allows the value of finance to be spread; people see the benefits and therefore become more engaged. This greater engagement becomes a virtuous circle.

The hurdles people face to access financial returns are often overlooked and are rarely considered a burning issue compared to other imbalances in the financial ecosystem. But, over the long run, the impact on wealth diversity and financial inclusion is significant. FinTech is changing the direction of travel positively, and I am confident that the fruits of investing will continue to become more accessible to ever more people.

Access goes to the heart of fair financial services. Widening access allows the value of finance to be spread; people see the benefits and therefore become more engaged. This greater engagement becomes a virtuous circle.

The hurdles people face to access financial returns are often overlooked and are rarely considered a burning issue compared to other imbalances in the financial ecosystem. But, over the long run, the impact on wealth diversity and financial inclusion is significant. FinTech is changing the direction of travel positively, and I am confident that the fruits of investing will continue to become more accessible to ever more people.