The United Nations emphasises financial inclusion as a driver for economic development, including it as component eight of the Sustainable Development Goals for 2030. The World Bank defines financial inclusion as crucial economic development and social progress that ensures equal access to financial products and services.
In recent years, accessibility to financial services has improved rapidly as financial technology has advanced. The 2022 World Bank report revealed that 71 percent of people in developing countries had access to a bank account in 2021, a 42 percent jump from a decade earlier.
The key driver of this development in financial inclusion is the growth of digital payments, which surged during the COVID-19 pandemic, according to the CFA Institute.
Role of digital payments
Digital payment technologies, such as digital wallets, online mobile banking apps, and contactless transactions, contribute to the growth of financial inclusion. Compared to traditional methods, digital payments offer multiple benefits.
Reduced costs are one reason digital payments have become a significant cause of economic growth. They allow lower barriers to entry for underserved people.
With more people having digital financial accounts, the underprivileged can receive wages, government benefits, or remittances more easily.
Digital transactions provide a safer alternative to physical cash transactions. The digital records for each transaction help people manage their finances and increase transparency in businesses. They also help mitigate the risks of theft or fraudulent activities.
Accessibility
Digital payment solutions significantly improve accessibility to financial services. They eliminate geographical barriers for people living in remote areas as long as there is internet access.
Online platforms make it easier for people to conduct transactions, pay bills, and access credit and insurance services from anywhere. They also allow instant payments that happen in seconds without the need for third parties.
The accessibility of digital payments extends to people with disabilities. Mobile banking apps often include features such as voice commands, screen readers, and accessible interfaces that cater to them.
Case Studies
Many digital payment initiatives have successfully promoted financial inclusion in marginalised communities.
One of them is India’s Jan Dhan-Asdhar-Mobile (JAM) Trinity initiative, which was launched in 2014. The Pradhan Mantri Jan Dhan Yojana programme aims to provide universal access to banking facilities with at least one basic banking account for every household. This programme promotes financial inclusion in rural areas by offering zero-balance accounts with debit cards.
Meanwhile, the Aadhar programme introduces a biometric digital identity for Indian residents, simplifying access to financial services. Lastly, the Mobile Network programme focuses on growing mobile network infrastructure to facilitate digital payments.
Challenges and Solutions
Still, the challenges of achieving financial inclusion through digital payments persist. In 2022, 1.4 billion adults remained unbanked. Meanwhile, increased accessibility also comes with the consequence of more people becoming prone to potentially unscrupulous lending practices, especially since the underprivileged often lack sufficient financial knowledge to avoid such schemes.
Thus, financial education is crucial so that more people can effectively protect their wealth. The government should initiate financial literacy programmes for the people. The programmes could also be conducted through online platforms to reach more communities.
In addition, increasing security technology is also important to overcome the risk of fraudulent activities. AI technology might solve this problem, as it can efficiently detect suspicious patterns and mitigate fraud schemes.
Future Outlook
Digital payments’ future role in driving financial inclusion will become more prominent as mobile and internet penetration increases. Governments should prioritise investment in telecommunications and internet infrastructure to reach their optimal potential.
AI-powered solutions are expected to continue to develop and offer many ways to accelerate digital finance adoption. With the advancement of technology, security and customer experience will also improve.
- Digital Payments
