The role of the COVID-19 pandemic in boosting digital financial inclusion

Posted on:Dec 13,2021


Digital payments hold great potential to expand access to financial services. The COVID-19 pandemic forced governments to take measures to save lives, such as lockdowns that restricted economic activity, which in turn increased the need for contactless financial services and products and accelerated the transition to digital financial services in many economies. The use of digital payments by some governments as a means to support vulnerable citizens, actions by central banks to encourage customers to adopt digital financial services and products, and measures to protect people’s health influenced and even continuously confirmed consumer desire for digital financial services during the pandemic. A positive trend in the adoption of digital payments was observed during the pandemic. However, consumer protection and financial capability are only two of the threats associated with the adoption of digital money. To promote sustainable and equitable digital financial inclusion, governments, banks, and FinTechs must take steps to address customers’ diverse situations and capabilities, develop digital financial products tailored to their needs and capabilities, and adhere to appropriate regulatory protections.


During the crisis COVID-19 the way people shop and eat changed dramatically. Shopping behaviour has changed profoundly due to the fear of the spread of the coronavirus. Several studies have examined the impact of the pandemic on changing consumer behaviour in the digital finance industry (Vázquez et al., 2021, Jawaid et al., 2021). Customers using contact-based services were negatively affected by the pandemic. Extraordinary efforts were made to prevent the spread of the virus. Health experts urged customers not to touch banknotes and coins as they can be carriers of the coronavirus. In addition, the World Health Organisation (WHO) asked people to use digital financial services to reduce the transmission of the coronavirus (Auer et al., 2020).

The lockdown and social distancing imposed by the authorities to contain the spread of the virus have led to a significant increase in the value and number of online transactions. The pandemic has the potential to revolutionize digital financial services. Advances in digital money, online banking, and fintech services can significantly impact small businesses and low-income households. The ability of digital financial services to increase financial inclusion and thus economic growth is a potential boon. While these services are expected to grow in popularity, they have also created hurdles for smaller businesses to expand and revealed unequal access to digital infrastructure. Hence, various measures need to be taken in the near future to ensure full inclusion in this industry. Low and middle income households that have little or no access to traditional financial institutions have already benefited from the shift to digital financial services before the pandemic even began (IMFBlog). Just as the SARS pandemic in China in 2003 drove the adoption of digital payments and e-commerce, social distancing and lockdowns measures are also accelerating the adoption of digital financial services. There were examples of some countries facilitating this shift by lowering fees and decreasing restrictions on mobile based money transactions.

Digital financial services have played an essential role in developing and delivering services and technologies that have partially mitigated the pandemic’s impact on people’s lives. A general acceleration of digital financial inclusion has been encouraged in developed and developing countries (Sahay et al., 2021). People found in the use of digital financial services the optimal alteranative to meet their financial activities after the long period of being physically isolated and deprived of their livelihoods and financial security. On the other hand, traditional financial institutions were forced to rethink their business models and delivery mechanisms fundamentally. They had to invest heavily in the way they delivered their services. In doing so, they often accelerated a process of progressive digitization of their already underway financial offerings.

Literature Review

FinTech : History, Definition and Ecosystem

FinTech is a financial innovation, which can be an organization, product, or service that reduces risk or cost or provides a better service to stakeholders than before (Nekesa et al., 2018). People around the world rely on the financial sector, especially banking. This new era of financial services, known as “FinTech”, has yet to be fully explored and can therefore be considered a promising environment for the financial industry. FinTech originated in a Citigroup project in the early 1990s, where the term was coined. However, It was not until 2014 till government agencies, businesses, and consumers began to take notice of this sector. Although FinTech is considered a contemporary collaboration between financial services and information technology, this relationship has existed for a long time. where the financial and technological advances are intertwined and reinforce each other over time.

The term “FinTech” is a combination of two terms “Financial” and “Technolgy.” It defines as the use of technology to provide financial solutions (Leong, 2018). In other words, FinTechs develop technology-based products and services. In the eyes of many, FinTechs are the most significant development in the financial industry and have the potential to transform it through reduced costs and improved services. One of the most important trends is the rise of FinTechs, which are radically changing the way traditional businesses operate. Unlike traditional financial service providers, FinTech companies are designed to be low cost and cost effective. There are a variety of services offered by FinTechs to help people manage their money. These include payment services, loans, insurance and even personal finance management.

Mobile payment is a new type of system used by banks or financial companies (e.g. Paypal, Google Pay and Apple Pay) where users can do their payments through apps downloaded on smart mobile devices. Smart mobile devices connect customers, merchants and payment providers, to make payments to merchants through apps available on smartphones or through a rapid response code (QR) along with authorization and authentication. Mobile payments are another step towards cashless payments as a new payment method. Since their introduction, mobile payments have quickly become an essential choice for users as technology advances and digitization continues. There are several researches have been done to study and explore mobile payments. Previous research in this regard has examined the factors that influence the adoption and experience of FinTech systems in general and mobile payments or electronic wallets in specific (Daragmeh et al., 2021, Immanuel et al., 2020, Daragmeh et al., 2021).

As shown in chart 1, the FinTech ecosystem consists of five elements: startups, technology companies, government, customers, and traditional financial institutions such as banks (Lee et al., 2018). This ecosystem is crucial for the emergence of technological advances needed to increase efficiency in the financial services sector and the overall customer experience. Many industries can also benefit from a well-developed ecosystem and boost the local economy.

  • FinTech start-ups: The finTech sector is characterized by many new start-ups offering breakthrough financial solutions. As the driving force behind recent advances in payments, lending, wealth management, insurance, crowdfunding, and capital markets, these companies deserve special recognition as an essential part of the ecosystem (Lee et al., 2018). Many elements of the financial value chain directly impact the customers of FinTech start-ups. FinTech start-ups use digital channels as a point of contact and each of them differs in terms of payment, security and user rights, and service quality. Moreover, FinTech start-ups focus on the needs of niche markets by offering more personalized services to their customers than traditional financial institutions (Lee et aél., 2018). Account management, Wealth management, investing and saving, crowd investing, crowdfunding, insurance, financial planning, peer-to-peer (P2P) lending, and money transfers are among the most common financial services offered by FinTech start-ups.
  • Government: It is arguably the most important actor in this ecosystem. By issuing regulations, government agencies are responsible for providing the financial infrastructure that sets the game’s rules and creates the conditions for competition. At this stage, the most crucial role of government is to shape the climate. Policy decisions by the relevant government institutions and an understanding of the FinTech concept can open a window of opportunity (Zetzsche et al., 2017). There is a lot of money being invested in the FinTech sector. If governments give it a high priority in its development strategy and formulates policies and strategies that are aligned with it, countries can open new avenues for foreign investment. Many countries, both developed and developing, have made FinTech one of their top development priorities and have successfully attracted investors and start-ups by creating an enticing investment climate.
  • Customers/Users: The ability to identify customer needs is a key characteristic of FinTech start-ups (Gimpel et al., 2018). FinTechs are increasingly focusing on providing high-value, customized services to specific market segments (Lee et al., 2018). This strategy is critical for attracting new customers as customers weigh the benefits and risks of using a FinTech before making a decision (Ryu, 2018). FinTechs place a high value on customer satisfaction because word of mouth is so critical to their success in such a highly competitive market (Lee et al., 2018). FinTechs, according to Ryu (2018), need to get to know their customers in order to provide effective service and meet their customers’ needs (Ryu). To attract clients, FinTechs need to understand thier need, and offer services that are easy to use, convenient, and customized (Lee et al., 2018). FinTechs in competition to attract customers who were previously served by well-established financial firms that were unable to meet their specific and individual needs.
  • Traditional Financial Institutions: Banks, insurance companies, and capital market intermediary institutions are the prominent actors of the financial system. These institutions refer to the old, known and trusted institutional structures that have historically created the financial system, which are large, slow-moving in nature, working within the framework of certain principles. Many of these counted up to the 2008 Financial Crisis. However, with the 2008 Financial Crisis, the loss of confidence in the financial system caused some of these structures to disappear and some of them caused serious restructuring. These organizations act as the key players in the FinTech ecosystem by collaborating or partnering with start-ups (Alt et al., 2018). Traditional financial institutions initially viewed FinTech start-ups as a threat, but have since begun to collaborate with them in mutually beneficial ways (Lee et al., 2018). In order to bring new services to the market with lower operating costs and more competitive prices, some commercial banks have started to develop and invest in FinTech start-ups by buying them and setting up their own incubators.
  • Technology Developers: Technology developers are providing digital technologies such as cloud computing, Big Data, Internet of Things, and artificial intelligence that play a role in the success of FinTech start-ups (Lee et al., 2018, Alt et al., 2018). Thanks to new technologies, new features in electronic tools were once only available to bank employees (Alt et al., 2018). Start-up companies in the financial sector can automate their business processes and offer unrivalled services and products using the above mentioned digital technologies. When it comes to creating an enabling environment for FinTech start-ups to provide innovative services, the relationship between technology developers and the FinTech ecosystem is critical (Lee et al., 2018).

The role of FinTech in accelerating financial inclusion

The importance of financial inclusion in reviving the global economy after a pandemic cannot be overstated. Eight of the United Nations’ 17 Sustainable Development Goals (SDGs) include ensuring access to financial services and products as a prerequisite for eradicating poverty, hunger and gender inequality. Financial inclusion not only can spur economic growth and promote industry and innovation, but also has the power to do so. Countries, especially those in the developing world, will recover from the pandemic’s financial damage. According to the McKinsey Global Institute, digital finance will add $3.7 trillion to the GDP of emerging markets by 2025. There are still a number of misconceptions surrounding the concept of financial inclusion as a whole. One of them is that it only affects people in low- and middle-income countries. An estimated 22% of Americans, the largest economy globally, do not have access to a bank account (Ventura, 2021). Thus, another common myth is born. This myth is reinforced by the preferred slogan for universal access to financial services: “Banking the unbanked.” A checking account for everyone is still an essential part of financial inclusion, but it has taken on a new meaning in today’s digital world.

Using technology, FinTechs create and deliver financial products and services in a novel way. FinTechs work to reshape financial services to achieve financial inclusion, which in turn contributes broad prosperity and the country’s inclusive growth . By lowering costs and extending financial inclusion to unbanked, low-income, rural and other populations, FinTech companies can significantly contribute to the country’s economy by bringing new ideas, business models and applications to the table (Berkmen et al., 2019).

Fintech have the potential to significantly improve and increase financial inclusion compared to traditional financial inclusion players, they move much faster and on a much larger scale. Fintech help reduce operational costs, increase efficiency, and reach people in remote and rural areas. FinTech has expanded its scope far beyond traditional microcredit products. Financial products tailored to the needs of low-income people, such as micro-savings and remittance products, are developed and distributed through the use of cutting-edge technology. They can help people who have been excluded from the financial system build a credit score so they can participate in the economy. They can also help those who are unable to meet their financial obligations by consolidating debt, offering lower interest rates and providing individually tailored advice. Hence, Fintech has the potential to expand access to financial services radically.

FinTech payment adoption during the COVID-19 pandemic

Unexpected shocks of various causes can promote the adoption of technologies in unanticipated ways. Add to that, these shocks can also lead to longer-term changes in society and the economy. The COVID-19 pandemic was initially a shock to healthcare sector and public health. However, the rapidity of transmission forced society into social distancing or stricter lockdown measures imposed by the government. This was the case both in places affected by the actual transmission of COVID-19 and in those that were not. Despite the significant human and economic costs that the spread of COVID-19 has caused, there are also some benefits and potential positives. There is growing evidence that the technology sector, particularly companies that facilitate communication and the exchange of products and services over long distances, have experienced significant growth in adoption and use. Such services have proven to be indispensable. They have helped many households and businesses to mitigate some of the health and socio-economic consequences of the pandemic. They have allowed certain important components of daily life to continue as usual. FinTech industry shown a significant growth during the pandemic, and is expected to continue growing in the future. According to Statista, the fintech market reached nearly $111.2 billion globally in 2019 and is expected to grow to $325.3 billion by 2030, driven by the increasing use of digital payments, rising investment in blockchain technology, the exponential expansion of e-commerce, and the effect of the pandemic (Global Fin Tech Market Report). See chart 2.

Furthermore, the pandemic has accelerated a shift in payment habits worldwide. Almost half of Finns reduced their cash use during the pandemic, and the majority believe that cash use has declined permanently. Contactless mobile payments and online purchases had already gained popularity, but the COVID-19 pandemic has pushed people to use these methods more often. However, cash is still an important payment method for many people, serving as a fallback option when electronic payments are disrupted. Contactless mobile payments eliminate the need for a physical contact while customers can do their payments through virtual medium. The pandemic has highlighted the importance of contactless digital financial services. Where customers can benefit from the significance advances in financial technology services. As the global COVID-19 outbreak becomes more critical, authorities have discussed how people can reduce their risk of infection. Health experts have urged people to avoid proximity and reduce direct contact with others and surfaces as much as possible. They also warned customers to reduce their handling of cash and wash their hands after touching paper/coins money. The World Health Organization (WHO) recently called for people to be more careful when handling cash. In particular, it has urged people to avoid cash when shopping in stores consciously and instead switch to contactless payment methods.

In addition to the streaming boom, the pandemic has led to fewer transactions being made with cash. This has led to mobile payments via smartphone experiencing a growth spurt this year. As shown in chart 3, The Statista Digital Market Outlook predicts that the value of mobile payments using smartphones will continue to rise in the coming years. It predicts growth of 28 percent between 2019 and 2024. (Infographic)

Several scholars have examined factors influencing consumer adoption of digital financial services during the pandemic. (Daragmeh et al., 2021) found that the fear from infection of corona virus was a critical factor to influence elder generations including generation X to adopt mobile payment during the pandemic, as they consider it as a preventive tool to avoid the infection instead of using cash or contact based payment that could be carrier of virus. The study highlights the role of the COVID-19 pandemic in encouraging populations that were less willing to use digital financial services before the pandemic. (Immanuel et al., 2020) have used Technology acceptance model to study the factors affect Indonesians to adopt mobile payments/cashless payment during the pandemic. The study revealed that consumers personal attitude towards m-payments influenced by their knowledge of the health role of this kind payments during the pandemic. (Daragmeh et al., 2021) studied the potential for consumers’ continued usage of an electronic wallets through an integrated model of the Technology Continuous Theory (TCT) and Health Belief Model (HBM). The study found that while the COVID-19 pandemic strongly influenced the current use of e-wallets; the pivotal factor affecting their continued use is based on consumer self-efficacy. Researchers have suggested the protective behavior during the pandemic COVID-19 as a way for policy makers to encourage customers to use e-wallets. They also suggested that banks and FinTechs should develop further strategies to attract customers to e-Wallets by reassuring them the value and benefits of this kind of financial service. Moreover Perceptions of health risk which includes perceived susceptibility and perceived severity have been shown to influence intentions to continue therapy through consent, feelings of usefulness, and satisfaction (C.C.S, -Prathap SK, 2020). Due to the growing threat of covid-19 in India, the study’s authors urged policy makers to resort to mobile payments and banking to differentiate themselves from the public.

Impact of the COVID-19 pandemic on digital financial inclusion

Financial inclusion enables people to achieve financial stability, increase their productivity, and lead stable, healthy, and satisfied lives. It can make the difference between prosperity and poverty in the long run. To achieve financial inclusion for all, we still have a long way to go. According to the Financial Inclusion Index issued by world bank, 1.7 billion people (or 30% of adults) are unbanked and therefore financially excluded (Global Findex Database 2017). The proportion of women, rural, unemployed, and casual workers is disproportionately high. The key to improving financial inclusion – and thus ending the reign of cash – lies in improving digital inclusion, which is critical to succeeding in today’s global marketplace.

As COVID-19 spread across the globe in March 2020, the entire planet was put on lockdown. Many governments quickly distributed economic aid for low-income families through digital channels to a population unfamiliar with digital financial services. Millions of customers were also led to adopt digital behaviours, such as online education and e-Commerce, which sparked greater interest in digital financial tools. In some places, such as Latin America, digital finance has the potential to be transformed by the epidemic and help the region’s most vulnerable unbanked or underbanked residents. Through partnerships with fintech companies, the Brazilian government has launched a food subsidy program for families with children in public schools. Over three million households were assisted in Colombia through a nationwide government program. The program used a hybrid strategy of first transferring payments directly to the accounts of Colombians with bank accounts and then using digital wallets to reach the 1.5 million unbanked households. More than 40 million people in Brazil, Colombia and Argentina benefited from social assistance programs related to COVID-19. The number of unbanked people in Brazil dropped by an incredible 73%.

As a result of the COVID-19 problems, financial service providers in Africa have concluded that digitization is inevitable and have made aggressive plans for change. Digital in Finance: Financial service providers have introduced procedures to reduce face-to-face interaction and/or cash handling. Financial service providers in the three countries have responded to the pandemic differently. For example, the Rwandan government has partnered with mobile service providers to offer “90 days free of charge” for mobile phone transactions to encourage the use of mobile payments. Zambian regulators have relaxed restrictions on transactions through agents to encourage financial service providers to use agents. The use of non-personal channels allowed access to financially blocked customers. However, there were also barriers. First, the financially disadvantaged, especially women and rural dwellers, have limited access to digital technologies. Second, in both countries, digital literacy remained a barrier for some segments, particularly women and rural communities. Third, trust, privacy, and transparency issues slowed the adoption of digital distribution methods. Threats to the financial system include money laundering, market abuse, consumer protection, and cybersecurity. Financial regulators must actively monitor and manage evolving risks to maintain financial stability while promoting financial inclusion .


To mitigate the impact of the COVID-19 outbreak, countries in both the developing and developed world must act quickly. The pandemic has also opened up a wealth of opportunities to advance financial inclusion programs through the use of digital technology. To help countries with less established digital financial services, it may be possible to gather resources and implement adaptive financial rules as development partners and central banks have taken the lead in developing and implementing financial inclusion plans. With the widespread use of mobile phones and the wide availability of the internet, there are many opportunities for innovation in the financial sector. To ensure that everyone has equal access to financial services, strategies must include segments that are not bank customers.

Meanwhile, financial service providers should make efforts to protect consumers from fraud and hacking and ensure the security of their financial data. As a result of the financial crisis, there is an opportunity to leverage mobile-based technological solutions for the unbanked segment of the population. Finally, further financial support is needed to ensure that mobile intermediaries and small and medium enterprises (SMEs) can continue their activities amid the crisis. SMEs and mobile intermediaries would benefit from strategies such as lower microcredit costs and more flexible loan repayment terms. The contagion and severity of the crisis can be reduced through FinTech services. Accordingly, policymakers suggested making efforts and decisions to attract customers to digital rather than contact-based payment methods.


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Ahmad Daragmeh
Doctoral School of Economics and Regional Studies,
Hungarian University of Agriculture and LifeSciences, H-2100 Gödöllö,

Dr. Judit Bárczi
associate professor, Hungarian University of Agriculture and Life Sciences,2100 Gödöllö, Hungary;