Financial Inclusion and Regulatory Technology: Bridging the Gap

KEY  TAKEAWAYS

• Financial inclusion is a way to get financial services to those who do not have proper access to them.
• With RegTech it has become possible to get basic financial systems to even those living in the middle of nowhere.
• Understanding what financial inclusion is and how RegTech can bridge the gap to promote inclusion.
• Getting a look at the future of financial inclusion fueled by RegTech.

Do you want to buy a car or a house without taking out a loan? Well, most of us can’t.

Then what about emergency health care? It’s the same here too.

For many who do not have access to financial services, it’s pretty much impossible to have enough saved up to even pay our bills, much less pass it on to the next generation.

Financial inclusion is a pretty major issue for many people around the world. 

So, What is Financial Inclusion?

It is basically the idea that everyone, no matter their economic background, will have access to basic financial services.

But it has been pretty hard to achieve, with millions across the globe still lacking access to even the most basic of financial services.

But recently, there has been a light at the end of this tunnel. Regulatory technology (Reg Tech) like LEI Lookup has become a pretty great tool for helping the underprivileged bridge the gap and also promote financial inclusion. 

The Importance of Financial Inclusion

Financial inclusion is not just a matter of convenience anymore. It has become one of the most basic human rights. 

Having the ability to access financial services allows individuals and businesses to save, invest, and protect themselves from unexpected financial shocks.

It also helps fuel economic growth and reduce poverty by giving people access to tools that can help them build a better future. 

However, many people still do not even have access to the most traditional banking systems.

Well, this can pretty much be due to many reasons, like having no IDs, living in remote areas, or the high costs of traditional banking.

DID YOU KNOW?
Globally, more men have bank accounts than women (65% to 58%). This discrepancy is highest in areas of South Asia, where it reaches 55% male vs only 37% female account ownership. Furthermore, of the global unbanked population of 2 billion, 1.1 billion are women.

The Role of Regulatory Technology

So, what is Reg Tech exactly?

It is the management of regulatory processes in the financial sector with technology, with its main focus being regulatory monitoring, reporting, and compliance by financial institutions.

Aside from this, Reg Tech’s applications also extend to other industries like healthcare, energy, and much more.

But when seen in the context of financial inclusion, RegTech is pretty important for overcoming the lack of access to financial services for marginalized people. Here’s how:

Digital Identity Solutions

Well, one of the most common issues faced by many is the lack of formal ID. 

They either do not have one or might have just lost it due to various reasons.

And without any proper identification, it is almost impossible to even have a bank account, let alone open one.

Now, with RegTech, people can use digital identity platforms to get access to their Govt-issued IDs.

Enhanced Due Diligence

So, before opening any accounts, financial institutions are also required to do their due diligence on their customers to prevent money laundering and terrorist financing. 

But, doing all the legwork manually can be a pretty time-consuming and expensive process.

But with the latest RegTech solutions, they can automate the due diligence process and make it easier and faster.

Risk Assessment

Assessing the creditworthiness of individuals and businesses is a vital aspect of providing financial services. 

These tools can take advantage of big data and AI to analyze credit risk, making it easier for financial institutions to give credit to even those who may not have a traditional credit history.

Regulatory Compliance

Compliance is a pretty major part of the whole financial sector. 

There are many regulations in place that protect customers and make sure that banks practice fair and transparent financial practices.

Regulatory compliance is a necessary aspect of financial inclusion. Many regulations are set in place to protect consumers and ensure fair and transparent financial practices. 

RegTech solutions help these institutions stay compliant with these regulations.

This can help reduce the risk of regulatory fines and penalties that could lead to increased costs for customers.

A Key Component of RegTech

LEIs are unique 20-character codes that identify legal entities participating in financial transactions. 

They help improve transparency and reduce systematic risks in financial markets.

LEI lookup services allow financial institutions and regulators to quickly and accurately find out the entities involved in transactions. 

This feature can be pretty handy in complex financial markets where there are many parties involved in multiple transactions.

By providing a standardized identifier for each legal entity, LEIs help simplify regulatory reporting and promote the exchange of information among financial institutions and regulators.

Aside from this, these services can help fight against financial crime too.

They can help identify any suspicious transactions and prevent money laundering and fraud. 

Overall, LEIs are a pretty major part of the RegTech ecosystem, helping in the efficient and transparent functioning of financial markets.

The Future of Financial Inclusion through RegTech

Here are some trends to watch in terms of financial inclusion through RegTech in the future:

Mobile Banking and Digital Wallets

Smartphones are pretty much everywhere these days. And yes, this means that even your creepy old uncle living in the mountains has one.

And, this also means that people, even in the far corners of civilization, have some kind of access to financial services with the help of mobile banking and digital wallets. 

RegTech solutions will continue to enhance the security and accessibility of these platforms.

Blockchain and Cryptocurrencies

Blockchain technology is a pretty transparent and tamperproof ledger system.

RegTech applications can use blockchain to help provide compliance with growing regulatory frameworks in the cryptocurrency space, making these assets more accessible to the masses.

AI-Powered Personalisation

AI can also be used to create custom financial services. It can tailor the services to each person’s individual needs and preferences.

This can make financial products more appealing and accessible to a broader range of people.

Financial Education

Did you know that RegTech can also help improve the financial literacy of people?

With the use of digital education platforms and tools, we can empower people with knowledge that allows them to make better financial decisions and take advantage of any available services to teach them about the market.

The regtech market size is forecast to increase by USD 15.67 billion between 2022 and 2027, accelerating at a CAGR of 21.18%. In 2017, the US held the largest market share, projecting an annual revenue of USD 1.53 billion.  

The Bottom Line

Financial inclusion is a vital goal for societies worldwide, and RegTech is emerging as a powerful ally in achieving it. 

By taking care of the barriers that stop people from accessing financial services and automating compliance and transparency, RegTech can help bridge the gap and bring financial services to those who need them most. 

And, as technology continues to evolve, the potential for RegTech to drive further progress in financial inclusion remains bright, promising a future where everyone has the opportunity to participate fully in the global economy.

Also Read: Smart Approaches to Risk Management in the Financial World

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