FinTech for Financial Inclusion: The time to act is now
FinTech for Financial Inclusion: The time to act is now
We live in a hashtag generation! There is a constant urge to stay connected with pervasive access to digital technology.
- There are now more than 4 billion internet users around the world. A quarter of a billion users came online for the first time in 2017. Africa has seen the fastest growth rates.
- There are 5.135 billion mobile phone users across the globe with a total of 8.48 billion mobile phone connection.
The rise in digital technology is transforming our personal relationships, the way we do business and fundamentals of finance and economics. In fact, new technology-based business models quash traditional economic thinking that it is unprofitable to sell at less than cost. It is not uncommon to see customers availing services for free or even being paid—in the form of cash-backs, discounts, loyalty bonus — rather than charged.
Within this context, technology-driven financial services or FinTech play a huge role in advancing financial inclusion. We have already seen the FinTech innovations in action:
- East Asia: Smartphone application-based payments and financial services in China.
- South Asia: Digital identity platforms for authentication of payments and financial transactions.
- Africa: Mobile money for payments and finance such as savings, credit, cross-border remittances, micro-insurance and even government bonds.
- Arab Region: Payment and identity solutions for refugees and Forcibly Displaced Persons (FDPs).
While appreciating its role in financial inclusion, it is worth noting that FinTech creates new regulatory challenges and poses consumer protection, data privacy and cybersecurity risks. Take a look at suggestions for FinTech companies, and regulators/policymakers to leverage the best of what FinTech can offer towards financial inclusion:
Move beyond credit: The genesis of the microfinance revolution started on the bedrock of savings. Poorest of the poor collected savings — however little — that in turn, were used for credit intermediation. However, as the sector evolved, credit became the sole focus — often leading to over-indebtedness, unfair lending practises and other consumer protection issues. It is important to draw learnings from microfinance evolution as FinTech innovations for inclusion unfold. Poor and the unserved segments have a bouquet of financial services needs beyond just credit. While expanding credit is important, it is also vital to reduce cost of remittances, create efficiency in payments, facilitate safe saving avenues and declutter insurance services.
Value-added services: It is a myth that simply providing access to financial services to the poor and unserved will lift them out of poverty. Access to savings, credit and other products will certainly help them be resilient to financial shocks. However, in the interest of financial wellbeing and sustainable income generation, they need skills to produce, market, sell goods and services including financial management. FinTech companies are well positioned to leverage their platforms to complement financial services with these value-added services.
Privacy and transparency by design: Drawing parallels from what Peter Drucker said, we seem to be living in the age where convenience eats data for breakfast, lunch and dinner. While convenience is important, it should not be at the cost of rampant abuse of customer’s personal and financial data. It is expected that data driven financial services integrate elements of privacy, security and transparency while developing products and business processes.
Build capacity: Rapid evolution in technology-based financial services calls for building capacity and an organizational culture that embraces, and nurtures innovation among regulators. In this endeavor, AFI has lined up a slew of activities including training and joint learning programs. AFI is facilitating peer learning activities to share best practices for balancing financial innovations with oversight. The upcoming 2018 AFI Global Policy Forum in Russia is held under the theme, "Innovation, Inclusion and Impact." The recently launched Financial Inclusion in the Arab Region Initiative (FIARI) is helping accelerate conducive policies and actions for enhancing Arab societies’ access to financial services through an effective coordination mechanism, peer-learning and capacity building initiatives.
Regulators are urged to instil innovation within and beyond as they carry out their primary mandate of stability, integrity and consumer protection.
Enhance cybersecurity frameworks: FinTech has profoundly benefited from Moore’s law. However, an MIT paper says that a corollary of Murphy’s law is also applicable to FinTech. The paper aptly puts “whatever can go wrong will go wrong faster and bigger when computers are involved.” Without delay, regulators need to urgently work towards frameworks that prevent, manage and mitigate cyber threats.
Partnership and cooperation: Essential nature of FinTech is that it is borderless. However, the mandate of regulators is limited to their respective jurisdictions. As AFI Executive Director, Dr. Alfred Hannig rightly suggests, “it is important to enhance Public Private Dialogue (PPD) and global dialogue with the private sector, technology companies, researchers, development partners, and regulators from developed and developing economies to enhance the mutual understanding of the FinTech innovations’ risk profiles, their role in financial inclusion, and contribution to solutions to enhance compliance to International Standards.”
Moving the needle
The time has come to move from prophesizing about technology and innovations to taking action; FinTech companies and regulators should work together to move the needle with respect to financial inclusion and bring meaningful impact.
We at AFI are encouraging our members to take a step further and begin tracking and measuring their progress by making commitments in FinTech for Financial Inclusion during the 2018 GPF in Sochi Russia where “Innovation, Inclusion, Impact” will be shared across the AFI network.
This is a call for action for regulators, FinTech companies and other stakeholders in the eco-system to leverage innovations in a responsible and safe manner to reach out to vulnerable sections of the society such as women, Forcibly Displaced Persons (FDPs) and the poor.