Two "Slices" of the Financial Picture
Based on the foundation of the 4.0 revolution, financial services have become more prevalent in countries, especially developing ones. However, about 30% of adults worldwide still lack access to traditional financial systems. Therefore, forming comprehensive finance to ensure everyone can access and use financial services at reasonable costs and convenience is a 21st-century trend.
Vietnam is not an exception to this global trend. The government has collaborated early with the World Bank (WB) to develop a National Comprehensive Financial Strategy. Specifically, on January 22, 2020, the Prime Minister issued Decision No. 149/QD-TTg, approving the National Comprehensive Financial Strategy to 2025 with an orientation to 2030 (Decision 149).
This decision aims to maximize the number of people accessing and safely using suitable financial products and services at reasonable costs, responsibly and sustainably, provided by legal organizations. Decision 149 sets specific targets for 2025: at least 80% of adults will have transaction accounts at licensed institutions; 25-30% of adults will save at credit institutions (CIs).
Despite the support of technology, traditional CIs seem slow to cover all service user groups, particularly low-income people and those in remote areas. It is undeniable that traditional CIs have led the digital transformation to popularize modern financial services. Consequently, the proportion of adults with transaction accounts or savings has grown rapidly, but this is just a "slice" in large urban areas with full infrastructure.
Data from the WB shows another "slice." From 2017 to 2022, the proportion of account holders grew over 20%. However, when segmented by income levels, the growth rate for low-income adults was only about 6% over five years, while higher-income groups grew faster. The reason for not having an account in 2022 was that "the financial institution is too far away," cited by over 23%, despite income improvements in this group.
Empowering the Disadvantaged
In remote areas with sparse populations, the demand for financial services primarily involves basic payment activities. Due to the low profit margins of these transactions, balancing profit and the cost of operating a branch in remote areas becomes challenging for traditional CIs.
To address this, some banks have experimented with agency systems, but the economic effectiveness was not as expected. Moreover, most customers in remote areas often do not meet bank access standards due to insufficient customer scoring information, low and irregular income.
WB data also shows that for payment activities, while the national average for payments through CIs and payment intermediaries exceeds 23%, the rate for low-income groups is only 2.9%, with cash payments at 51.2%. The low-income group's need to access modern financial services exists, as they need loans for sudden expenses. This creates fertile ground for "black credit" to thrive and become a hot issue recently.
Therefore, to effectively implement Decision 149 and ensure the goal of "leaving no one behind," it is necessary to create all conditions for disadvantaged groups to access "white credit" channels. These are official, sustainable financial service channels operating within the legal framework and under the supervision of competent state agencies.
From the results of three years of implementing Decision 149, it initially shows that using two tools—microfinance institutions and fintech companies—is an effective solution. Based on digital technology, including the Internet of Things, 5G wireless technology, big data, and artificial intelligence, new financial institution models have emerged. These models can meet market needs, promote comprehensive financial development, and provide stable, sustainable, reasonably-priced financial services to segments of customers who are ineligible or unable to access traditional CIs.
Operating on a digital platform eliminates geographical distance and simplifies building personal financial data. Due to the network structure of financial institutions operating on digital technology, operating costs are significantly lower than traditional banks.
Fintech plays a pivotal role in bridging the financial inclusion gap. By leveraging technology, fintech companies can streamline the process of loan approval and reduce operational costs, making financial services more accessible to SMEs and low-income households.
Digital transformation facilitates financial inclusion by digitizing financial services, reaching underserved populations in remote areas. This includes providing access to savings accounts, insurance, and investment opportunities previously out of reach.
The integration of fintech solutions into the financial system enhances transparency and accountability. Digital records and transactions provide a clear audit trail, reducing fraud risk and ensuring fair and transparent financial activities.
Overcoming Challenges
Despite the promising potential of fintech, challenges remain. Building trust among users, particularly those in remote areas, is crucial. Many may be unfamiliar with digital financial services and hesitant to adopt new technologies.
Investing in financial literacy programs is essential to educate people about digital financial services' benefits and uses. Additionally, fintech companies must ensure their platforms are user-friendly and accessible to people with varying digital literacy levels.
The future of financial services in remote areas is promising, with technology playing a crucial role in bridging the gap between underserved populations and financial institutions. By leveraging the strengths of traditional CIs and fintech companies, a robust and inclusive financial system can support the growth and development of SMEs and low-income households.
All stakeholders, including government agencies, financial institutions, and fintech companies, must work together towards financial inclusion. By fostering collaboration and innovation, a more equitable and prosperous future for all can be created.
This comprehensive approach, focusing on utilizing technology and addressing regulatory barriers, can ensure that no one is left behind in the pursuit of financial inclusion and economic development.
