Transforming Financial Sector: The Role AI Plays in Achieving Inclusion for All
FinTech's Fair Game:
Artificial intelligence (AI) is revolutionizing the financial sector, ensuring that banks aren't solely about profit anymore, but about fairness and accessibility. With AI, the financial system becomes more equitable, opening doors for those long-ignored by traditional institutions.
Across the globe, billions of individuals remain on the fringe of mainstream financial services. They lack access to credit, banking services, or savings options, not due to neglect, but because the system was built to prioritize profit over accessibility.
Financial knowledge is still wanting, with governments and private sectors delaying meaningful changes in this critical area. As a result, millions continue to languish outside the system, unable to better their circumstances. In 2023, roughly 20.3 million adults in the UK endured financially vulnerable situations, trapped by steep-cost loan options that charge high-interest rates for meager credit resources, perpetuating their downward spiral.
AI is here to change that narrative. It's breaking barriers, eradicating limitations due to education levels, location, or bias, and providing new opportunities for financial inclusion. This isn't just about helping the needy; it's about challenging the financial industry to rethink its operations and processes.
Rethinking Lending
The flawed credit system doesn't cater to individuals with thin credit files or limited financial tools. This often affects young people, new immigrants, the self-employed, and those recovering from setbacks such as illness, job loss, or divorce.
Conventional credit scoring models are simplistic, reducing individuals to a binary black and white score based on past financial behavior. But AI is smarter, examining open banking data such as mobile phone payments, utility bills, subscription services, and spending patterns. This allows AI to build a more realistic, current picture of someone's financial health, helping lenders make more informed and sustainable lending decisions.
With the decline of payday lending and subprime credit card lenders due to tighter regulations, alternative avenues for credit have been scarce. However, the integration of AI and open banking technologies is offering stronger evidence for creditworthiness, filling this void and supporting fair lending practices.
Creating a Better Tomorrow
The revolution in assessing financial health is already underway, with more individuals receiving fairly priced, responsible credit. Lenders gain a deeper understanding of applicants' financial situations, thus reducing the risk of default and encouraging more ethical lending.
AI can also help prevent borrowers from spiraling into debt. Traditional lending can incite borrowing beyond repayment capacity. Still, AI tools can identify warning signs of financial strain and recommend more manageable alternatives, such as flexible repayment plans, financial coaching, or budgeting assistance. This proactive support steers individuals away from predatory high-cost credit products and payday loans.
Financial Empowerment Through Education
The neglect of financial education is one of the most overlooked aspects of financial inclusion. Many are forced to navigate complicated financial products without proper guidance. Schools rarely teach financial literacy, and banks often provide minimal support beyond product sign-up.
The significance of a positive credit score cannot be overstated; it impacts land purchases, car ownership, holiday travel expenses, and phone contracts. However, many are unaware of negative factors impacting their credit profiles, such as closing a bank account or applying for credit too frequently.
AI can help bridge this education gap by creating intelligent digital assistants offering personalized advice on budgeting, savings, and understanding interest rates. As these tools advance, they can be tailored using open banking data to provide targeted tips and support, making financial planning more accessible and less daunting.
It's not just about giving knowledge; it's about giving power. AI can help users identify patterns in spending, enabling them to make necessary adjustments before issues escalate. It anticipates problems and promotes long-term financial vitality, not just temporary fixes.
Connecting with Left-Behind Communities
The closure of high street bank branches has resulted in financial deserts across countries. AI-powered financial platforms can help fill this void. With a smartphone, people can open accounts, apply for loans, or receive financial support without needing to visit a branch. No more long drives and endless queues. Digital tools and apps are becoming increasingly user-friendly and accessible to people of all ages and levels of financial literacy.
Many feel judged or excluded by traditional banking environments, and some harbor deep mistrust in these services. Digital tools powered by AI provide a non-judgmental, easy-to-understand alternative that allows people to engage with their finances on their own terms, fostering trust and long-term financial resilience.
To create a fairer financial system, ethical AI practices and transparent algorithms are essential. Bias in AI systems must be eliminated through regular audits, and individuals must retain control over their data. Only trustworthy businesses should have access to this data, and sharing should be heavily regulated and transparent. Financial inclusion is meaningless if it comes at the expense of privacy or fairness.
The next generation of AI in finance is transforming the financial landscape. Banks, lenders, FinTechs, and policymakers need to work together to make this fairer future a reality, not just a distant dream.
- The integration of artificial intelligence and open banking technologies is reshaping personal-finance, particularly in lending, by closer examining individual's financial health, resulting in more informed lending decisions and fairer credit opportunities, especially for those traditionally excluded such as young people, new immigrants, and the self-employed.
- In addition to revolutionizing lending practices, AI is targeting the financial education gap by developing intelligent digital assistants that offer personalized advice on budgeting, savings, and understanding interest rates, making financial planning more accessible and less daunting for individuals.
- Recognizing the importance of financial inclusion, technology firms are leveraging AI to create user-friendly, non-judgmental digital tools and applications, allowing people to access financial services from their smartphones, and foster trust among those who may have previously felt excluded or judged by traditional banking practices.
