The intersection of finance and digital technologies is not without challenges. From a regulatory perspective, it requires collaboration between financial, communications, and competition regulators. This also comes with the risk of overregulation or the stifling of innovation, particularly as service providers experiment with financial models for including the unbanked.
However, the main critiques to financial inclusion through digital technologies is that credit models such as digital lending result in the growth of lending companies while borrowers remain over-indebted or trapped in debt for non-performing loans. Over-indebted borrowers are unable to repay their loans on time and they often have to borrow from other apps in order to meet their obligations. In addition to greater financial growth, these lending companies gain data that gives them a competitive advantage.
The use of big data and artificial intelligence (AI) to provide financial services heightens the risk of intrusion into privacy. For example, many countries do not have regulations on protection of personal data used for digital lending apps. Lending apps therefore set the rules on issues such as what data to access and when to dispose of it.
Automated decision making is another challenge. Financial decisions can be made from an analysis of a person's online activity, sometimes without the person’s knowledge. The balance between inclusive finance and protection of personal autonomy is therefore a policy consideration for financial inclusion.
In addition, as with other industries that rely on big data, there is a tendency towards creating huge technology corporations that become dominant service providers. In Kenya, for example, concerns are being raised about the crippling effect of outages on the popular mobile money service M-Pesa.
As more business models for inclusive finance emerge, countries are also coming up with regulations to meet the challenges that come with such models. Some of these include requiring inclusive finance actors to be locally based or to deposit commitment fees within the country, as well as requirements for licensing, taxation, and data protection.