Technology has improved the levels of financial inclusion across the globe but has also created challenges, particularly in developing countries. (Photo by Courage007/Shutterstock)
Technology has radically changed financial services by providing myriad opportunities but also challenges. However, when looking ahead to the post-pandemic world, ‘social purpose’ should play a key role in changing financial services, as it is essential for ‘building back better’ and ushering in a sustainable future.
However, when analysing how technology and purpose have changed financial services, it is essential to divide the topic into three parts: what impact has technology had on financial services over the years; how technology’s impact on financial services changed due to the outbreak of the Covid-19 pandemic; and why it is important to put a social purpose at the forefront of financial services in the post-pandemic world.
How has technology changed financial services?
The rise of technology has been a game changer for all industries, but this disruption has been particularly notable for financial services.
There have been many ways in which technology has transformed the financial services industry, most notably in transactions, and how we manage and move money.
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Technology has also driven competition among financial services providers to launch newer and more technologically advanced products and services. What is more, it has also allowed new market entrants with disruptive business models to shake up the industry landscape.
What has changed because of Covid-19?
Since the outbreak of the Covid-19 pandemic, there has been an even greater reliance on technology tools, and particularly information and communications technology tools, across the world.
This has brought even quicker digital transformation to the financial services industry, with customers being offered access to ever more services and products at the click of a button.
This increase in digitisation has improved the levels of financial inclusion across the globe. Some of the measures taken to combat the spread of the virus have encouraged the use of online banking and mobile payments among smaller, more remote companies and people of all ages across the world, which has clear and positive implications for financial inclusion.
However, this digital uptake has also created challenges. The acceleration of digital banking has dented progress being made in inclusive growth, because people who are not part of the digital economy are being left further behind.
This is particularly prevalent in developing countries, as a high number of people, and especially women, have restricted access to mobile phones or the internet, which in turn limits their opportunities to make money. Ensuring that there is the right digital infrastructure in place to assist all people, and especially female entrepreneurs, is key for promoting financial inclusion in developing areas.
More specifically, the World Bank estimates that there are 1.7 billion unbanked people across the world who are potential customers for retail banking, and more than 200 million micro, small and medium-sized enterprises (MSMEs). It says that “the potential revenue in tapping this unbanked retail and MSME market is estimated to be $200bn”.
This presents an enticing business opportunity for financial services companies and alternative finance players to not only increase their client base by offering products and services to people that lack access to financial services but to also promote financial inclusion and deliver societal impact.
For financial service providers, focusing more on social purpose is key in order to build back better. It is essential that these companies realise that purpose and profit are not mutually exclusive entities, and that by embracing responsible investing and environmental, social and governance criteria, they can enjoy better performances and larger profits in the long term.
Diversity and inclusion is the future of financial services
Looking ahead, social purpose should play a key role in changing financial services in the post-pandemic world, not only in terms of products and services offered but also in terms of hiring and maintaining a diverse array of employees and fostering an inclusive culture.
The financial services industry needs to embrace more diversity and inclusion policies, promote gender diversity at the boardroom level, and form the right work environment for people of all backgrounds to rise up the corporate ladder.
The Financial Times reported that “almost three-quarters of black women working in Big Tech, finance and professional services said they believed they were being paid less than comparable peers”, in a London School of Economics and Political Science survey.
On top of that, financial services companies score very low in terms of socio-economic diversity. Research by Bridge Group reveals that almost nine out of ten senior roles in financial services in the UK are held by people from higher socio-economic backgrounds, as defined by parental occupation.
Overlooking diversity should no longer be an option for the financial services industry. The industry should back initiatives that encourage gender, race and socio-economic diversity, push for more representation of all backgrounds in the workplace, implement more inclusive recruitment policies and foster an inclusive culture.
In short, technology and social purpose can have a great impact on the financial services industry, as they can play a crucial role in addressing inequalities, increasing the participation of people of all backgrounds in the financial services industry, reducing the gender gap, promoting the UN’s Sustainable Development Goals, and focusing on advancing sustainable economic growth and financial inclusion around the world.
This article is based upon Sofia Karadima's speech given on 13 October at the 2021 Alternative Finance Forum in Thessaloniki, Greece.