Financial inclusion is a critical issue, but simply providing access to financial products isn’t enough. True inclusion requires financial literacy, empowering individuals to make informed decisions.
Helal Lootah, co-founder and co-CEO of Lune Technologies, a Dubai-based data company that develops financial data analytics solutions for the MENA banking, financial services, and insurance industry, explores the challenges and opportunities of AI in financial inclusion, using the UAE as an example.
Financial inclusion has emerged as a critical cornerstone in modelling the dynamics of a thriving economy and its monetary foundation. The concept of ‘financial inclusion’ however, often gets misconstrued as the provision of basic access to financial products while true inclusion starts with ‘financial literacy’, the empowerment of individuals to make informed decisions and actively participate in the financial ecosystem.
Financial literacy ultimately translates to improved decision-making in budgeting, spending behaviour, financial planning, and ability to recognise opportunities. Equally, financial illiteracy translates to missed opportunities, often resulting in hefty costs on account of unsustainable spending habits and absence of thoughtful planning.
A survey conducted by the US National Financial Educators Council in 2022 found that the average annual cost of financial illiteracy stood at an excess of $1,800, approximately five per cent of annual household income with 9.2 per cent of US families netting between $35,000 to $49,999 annually.
Yet while traditional advisors, digital banking, and fintechs have made strides, the future of inclusion and true literacy hinges on artificial intelligence powered financial technologies and their unique ability of modelling an individual’s capabilities versus their goals.
The fact is, the financial landscape is witnessing a rise in complexity whereby even the financially literate are being tested, indicating that an understanding of personal finance fundamentals is no longer sufficient. The surge in digital transactions, often blamed for impulsive spending, might be better attributed to the intangible nature of the experience.
Unlike cash, digital payments lack a physical record, hindering users’ ability to track their spending and potentially leading to poorer financial decisions. However, the rise of mobile banking and financial applications indicates a growing comfort level with managing finances digitally, arguing that a key component to enhanced decision making is data visualisation.
Yet data visualisation remains limited to past transactions (behaviour) and present status such as account balances and herein lays the role of AI-powered solutions. Incorporating AI into financial technologies enable a wider range of possibilities through data analytics that are transformed into insights and recommendations tailored for individual users.
This goes beyond a traditional dashboards to include elements such as personalised savings plans and investment recommendations. AI’s ability to revolutionise money management is undeniable.
In the United Arab Emirates, financial inclusion, the highest in the Gulf at 46 per cent in 2020, is a key priority under the National Agenda, recognised as a cornerstone of socio-economic well-being and a core driver of comprehensive economic growth. This commitment is reflected in the UAE’s leadership within the MENA region’s fintech market, attracting a record-breaking $2.5billion of investments in 2022.
Moreover, this is further amplified by the Emirates’ National Strategy for Artificial Intelligence 2031 that aims to capitalise on AI across vital industries including the financial sector. Yet while local fintechs have proven successful across the UAE in enhancing financial services and increasing accessibility till date and despite the open adoption of AI across the nation, further integration is required for these solutions to achieve their full potential.
This requires fintechs developing a truly symbiotic relationship with established financial institutions, namely banks, given the wealth of data such institutions hold that can be deployed by AI to generate truly personalised insights.
In the Emirates’ strive for sustained leadership in innovative finance and inclusion, open banking and AI will continue to be pivotal. Critical to advancing that agenda however will be the active collaboration amongst ecosystem members including emerging fintechs, legacy financial institutions, and regulatory bodies, forging unprecedented synergies.
