The Social Impact of FintechCan a “Trial & Error” Approach Drive Social Change?

December 1, 2023 | 6 min read

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The Social Impact of Fintech

In a Nutshell

Can fintech be a driver of social change, or does it promise more than it actually delivers? This article will take a deep dive into fintech’s potential for positive social impact, the steps actually being taken, and what practices the industry can adopt to improve its positive outflow.

How Can Fintech Deliver on its Social Promises?

Innovation in the fintech space has a lot of positive effects. For example, greater convenience, more comprehensive services, and faster and more efficient transactions, to name a few. However, did you know that fintech has a lot of capacity for social good as well?

For instance, increasing financial inclusion among people without access to traditional banking. It can help spread financial literacy, and present financing and business opportunities to people outside traditional hubs like New York, San Francisco, and London.

But, how is the industry actually approaching this? What's been promised, what actual social good has been achieved, and what still needs to be done? Let’s talk about it.

The Social Promise of Fintech

The fintech sector is capable of enhancing social welfare through financial inclusion. This fact has fueled its rapid expansion and attracted a considerable portion of impact-driven investment capital.

The global influx of equity funding into fintech companies has nearly doubled in the past year. These companies now boast a combined market value of $133.84 billion. Furthermore, projections suggest rapid growth; the fintech space could be valued at $556.58 billion by 2030.

Social change may not be the leading factor influencing all investors’ decisions. Regardless, the capacity to make a large-scale social impact is a key driver of this growth.

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Industry leaders are focused on widening financial access to those previously excluded from banking services. This initiative aims to bolster financial health and enhance digital security. Major players like PayPal, Mastercard, Visa, and Shopify are at the forefront of this movement. These brands are shaping their offerings to foster financial inclusivity and equitable economic development.

Fintech now garners about a quarter of all investment funds focused on social impact, outpacing any other sector. This translates to nearly $230 billion in managed assets, highlighting the industry's significant role in shaping a more inclusive financial future.

The State of Fintech's Social Role

Despite what we just discussed, there's a growing realization that the “fintech revolution” might not be fully living up to everyone’s lofty expectations.

The main issue? There's a significant gap in understanding and measuring the real impact these companies are making. Investors are left to speculate about the actual effects of these firms' activities. Meanwhile, fintech leaders often promote their products as societal game-changers without solid proof of their effectiveness.

There's a notable lack of transparency among fintech firms regarding product impact. Many focus more on broader social responsibility efforts than on the direct impact of their primary business. Despite their missions promising positive customer impacts, many fintech companies fall short in this disclosure.

Take Visa, for example. They've pledged to digitize 50 million small and micro businesses by the end of 2023. Yet, details about their progress or the results of this initiative are limited, with their last impact report dating back to 2020. Similarly, Mastercard made their commitment to bring 1 billion people, including 50 million small merchants, into the digital economy by 2025. However, there's a lack of concrete data on how their products are truly helping the underserved.

Other brands, like PayPal and Shopify, have room for improvement in terms of disclosure as well. PayPal shares some information on the reach of its products among small and medium businesses, yet data on their impact on individual underserved consumers is missing. Shopify provides insights on their products' reach in non-urban and emerging markets, but again, details on other key groups are scant.

In the current environment, many firms view impact considerations more as risks than opportunities. This perspective likely contributes to the disconnect between their mission statements and actual impact disclosures. However, if these companies realign their operations more closely with their missions, they can open up new opportunities. This shift would not only enhance their own operations, but also enable investors to make more informed decisions.

Fulfilling Fintech's Promises

There are several smart and effective ways for fintech firms to boost how they measure and manage their social impact. Here are a few practical ways in which that can be done:

Start With Interim Metrics

Sometimes, it takes a while to see the fruits of your efforts. In the meantime, why not focus on smaller interim metrics? This could be things like how affordable one’s products are for those who usually get overlooked. Or, how many people are using a specific financial education tool. Don’t forget to bring in some outside experts to validate these figures, too, as this can help substantiate claims.

Be Ready to Pivot When Needed

The world’s always changing, and so are the needs of fintech customers and investors. It’s important to stay flexible in how firms approach the impact of their products. This means keeping an eye on a bunch of different areas, like financial inclusion, health, and digital responsibility. It also means being able to tweak reports to provide the information that investors are looking for.

Focus on Impact Goals That Match the Business

It’s easy to get caught up in big, vague goals like “boosting economic growth.” But what really matters is zeroing in on how a brand can make a difference with what they do best. Whether creating cutting-edge products or making things more affordable and accessible, aligning goals with actual services is crucial. And remember, it’s just as important to share how these changes affect different stakeholders.

Trial and Error: The Engine of Innovation

The path to groundbreaking solutions in fintech is paved with experiments, risks, and an openness to failure. Embracing a trial-and-error approach could help fintech companies innovate fearlessly, exploring new ideas and technologies that could revolutionize social equity (among other things). Through continuous learning and adaptation, fintech can refine its products and services in order to drive impactful change.

By championing transparency, inclusion, and a culture of experimentation, fintech firms do more than pave the way for their own success. They also set a blueprint for other industries to follow. 

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