Financial Inclusion in the Age of FinTech: A multiple case study of FinTech companies’ role for financial inclusion in India

Abstract

Today, there exists a global problem of financial exclusion, meaning that over two billion people and 200 million micro, small and medium-sized businesses have limited access, or no access at all, to basic formal financial services and products. The problem of financial exclusion is most severe in developing countries and despite various initiatives undertaken by governments and NGOs, the progress towards financial inclusion has been slow. However, the newly emerged FinTech sector, with FinTech companies employing new business models at the forefront, is now being described as a potential solution to the problem of financial exclusion. Therefore, the purpose of this thesis is to investigate how FinTech companies could actually contribute to the improvement of financial inclusion, by examining how their business models account for the barriers to financial inclusion, as well as what the main challenges for FinTech companies to improve financial inclusion will be. Having severe problems of financial exclusion while simultaneously emerging as a global FinTech hub, India was chosen as an empirical setting for the research. The study further applies a qualitative research strategy by conducting 10 semi-structured interviews with FinTech companies located in Bangalore, India. The study found that FinTech companies will likely be able to greatly improve financial inclusion in the upper half of the financially excluded segment, where financial and digital literacy levels are higher. However, the high acquisition costs that the FinTech companies face in the lower half of the financially excluded segment question their ability to provide affordable and sustainable solutions to the lower part of the segment. As it also was indicated that the FinTech companies are not adequately addressing the issue of financial illiteracy, overcoming the challenge of acquisition costs might in fact turn out harmful for the financially excluded if the issue of financial illiteracy is not simultaneously addressed.