Role of emerging digital platforms such as IoT, Blockchain, VR, etc. in financial inclusion, challenges and the way forward
The Digital platform can simply be defined as the technological tool and services an organization uses to deliver its digital strategy. It helps organizations to improve user experience in order to attract customers. The emerging digital platform technology like VR (Virtual Reality), Blockchain, IOTs (Internet of Things), etc. plays a crucial role in financial inclusion – means these technologies can improve the accessibility of financial services to all individuals at an affordable cost.
It is difficult to provide banking and other financial services in the remote or rural areas due to infrastructural issues, unavailability of small size deposit and small size transactions, etc. This problem can be solved through innovation in digital technology. Nowadays most of the rural people have mobile phones which helps them to make transactions (make or receive payments) and create an opportunity to expand their businesses. These digital technologies will help in bringing more people into the financial fold and create more jobs thereby creating a positive impact on economic growth and reducing income inequality.
Facilities under financial inclusion are not restricted merely to opening of bank accounts, but also include other financial services such as credit facility, remittance facility, and financial advisory services. Rapid advancement in digital technologies like AI (Artificial Intelligence), blockchain, etc. helps in transforming the financial services landscape and also creates opportunities and challenges for users and service providers.
The adoption of these technologies will help companies to achieve greater scale, penetrate new markets more rapidly, and understand their customers better. With the prospect of reaching new customers, many organizations have started using digital technology like IOTs, blockchain, Cloud and analytics, etc as a tool to improve the accessibility of financial services via benefits such as cost reduction, no requirement of offline presence, saving of time, etc.
Some of the emerging digital platforms which have the potential to provide financial services are-
Customer-centric models: The availability of data of every digital transaction help service providers to interact more easily and adapt to the financial needs of customers. Cloud and analytics allow financial service providers to more effectively serve the financially excluded. This also includes automated SMS facility that provides customers with reminders and encourages them to save or pay a loan on time.
AI and Big data analytics: Information available through digital sources can be analyzed using technology which is referred as “big data” analytics. This creates opportunities to reduce the costs of dealing with clients. Several private sector companies have started using big data for credit and insurance facilities to bring down the costs of providing these services, especially for low-income customers.
Internet of Things (IOT): It is a network of devices connected to the Internet, which receives and sends data. Many organizations use these devices to collect data so that they can analyze it and make appropriate improvements in their services to increase its accessibility. Banks can use sensors and analytics to gather more information about customers and offer more customized services. Insurers and commercial banks use sensor attached assets to track shipments. This technology can also gather other insights, such as customer waiting time in banks so that banks can improve their customer service on-site hiring more staff to communicate with customers. Bank can anticipate the needs of customers through the data collected and offer solutions that can help customers take sound and smart financial decision.
Blockchain technology: Blockchain technologies support financial inclusion by providing universal identity ownership, ownership of moveable assets, trade finance, land titling, and support for interoperable mobile payments infrastructure etc services. Cash and card based transactions are slowly being replaced by digital assets, which is more convenient and less susceptible to the threat of theft . Customers don’t want barriers when it comes to making or accepting payments, they want to move their money conveniently and affordably.
AR/VR – Organizations use virtual reality to reach to as many new customers as they can. Many financial institutions are also using AR and VR to help improve the experience of their customers. Most of the banks have their AR apps that help customers to find the nearest banks and ATMs. Customers can scan the area with their phones and see information about location, distance, and services at nearby banks. VR can be used to set up a virtual reality app that let users access their banking transaction records, all the tips and advice related to wealth management are displayed in a single pool.
Digitizing government-to-person (G2P) payments: The Indian government’s initiative to link direct transfers and other subsidies to the national identification system made substantial progress in including the poor in the digital space.
These digital platforms also face a lot of challenges in accessing Financial Services through Customers.
Some of the Key challenges faced are –
Challenges of consumer protection and lack of financial education: Due to lack of familiarity with trending digital technology, customers often experience difficulties in trusting and adopting these technologies. Proper financial education can address this challenge and protect those consumers against digitization’s risks. Due to Continuous increment in major attacks, hacks and cyber warfare, it is difficult for people to trust technologies like Blockchain, payment banks etc.
Ensure access to technology: Without full access to technology, the digital financial services will not reach to all individuals. Slow and unreliable internet services and lack of coverage, particularly in rural areas where the challenges faced to provide financial services. To properly address this issue, countries need to focus on ensuring access to the internet for all.
Restriction of using cloud-based Technology: Many countries still restrict financial institutions from taking advantage of cloud-based solutions. It is usually important for smaller players and in smaller economies where shared, cloud-based solutions can better enable the financial service provider to offer expanded access to financial services.
These emerging digital platforms offer incredible new opportunities in providing financial services, but also new challenges and threats. These technologies help in improving access to the financial services to all individuals by providing financial advice through banking apps, use of digital assets for transaction, virtual reality apps, better customer service by knowing customer needs, etc.. This digital revolution is fundamentally reshaping finance, but a lot still needs to be done to ensure scaling up of services while delivering both convenience and security, fighting fraud, and guaranteeing sufficient consumer protection.
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About the Author:
This article has been contributed by Govind Haldiya, who is passionate about finance and technology.