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Global regulatory database to help policymakers unlock fintech’s potential

Indermit Gill, Vice President, Equitable Growth, Finance and Institutions (EFI), World Bank Group

COVID-19 has accelerated demand for digital financial services (DFS) and fintech technology—and in doing so it has concentrated the minds of policymakers and financial regulators everywhere. Technological innovation, after all, tends to outpace regulatory change. That can prompt market participants to shop around for jurisdictions with weaker rules.

Not surprisingly, regulators are racing to plug the gaps. A variety of legislative initiatives loom over the fintech landscape. They cover everything from  data privacy and consumer protection to digital-only banks.  Knowing exactly how these initiatives are being designed can enable policymakers, researchers, and development organizations to identify, compare, and contrast the merits of each.

That’s why the World Bank Group assembled its Global Database of Fintech RegulationsThis new database brings constitutes a curated library of enabling laws, regulations, and guidelines from nearly 200 countries—all in a searchable and easy-to-use format. 

This database sheds important light on some of the causes of the global digital divide. Some countries have strong enabling regulations for fintech and digital financial services. Others simply lack the necessary regulatory infrastructure. The database provides useful insights into the basic legal and regulatory requirements for creating a vibrant fintech ecosystem.

Foundational requirements for Fintech

First, a definition is in order. The World Bank and the IMF use the term “fintech” to describe “advances in technology that have the potential to transform the provision of financial services spurring the development of new business models, applications, processes, and products.” Smart phones, for example, have been transformative in this regard: they have enabled millions of people across the world to carry out financial transactions instantaneously—without ever having to step into a bank branch. But fintech today also leverages newer innovations such as distributed ledger technology and artificial intelligence.

To effectively support innovation in the industry, a first step should be to put in place the foundational legislation—along with guiding principles on how they should apply to emerging areas such as distributed-ledger technologies or cloud computing. Such legislation should cover data protection and cybersecurity, the ability to conduct electronic transactions, and Electronic Know Your Customer (eKYC) processes, among other things.

Our data show that foundational legislation exists in most countries. Yet there are important gaps. For example, some countries in East Asia, Sub-Saharan Africa, and Latin America and the Caribbean have yet to implement the basic data-protection regulations necessary for fintech to take root. Moreover, the definition and interpretation of personal information is often inconsistent in data regulations across jurisdictions.

Figure 1: Coverage of Foundational Legislation around the World

Figure 1: Coverage of Foundational Legislation around the World
Source: WBG Global Database of Fintech Regulations

Measures related to digital signatures are also necessary regulations. Such signatures involve an electronic, encrypted stamp of authentication on digital information. When backed by appropriate regulations, they can offer a high level of security in payments—along with speed and increased efficiency.

Digital ID regulations are equally important. Digital IDs—when implemented appropriately—can streamline Customer Due Diligence (CDD) requirements, lowering the cost for fintech providers without compromising safety and integrity. One key benefit of digital IDs is their ability to contain static information such as age, name, and gender while also maintaining a digital trail of dynamic information about the individual. Our database lists countries that have any form of electronic ID (eID)—not necessarily a ‘digital ID’.

Treatment of Fintech products

Many fintech products today are covered by existing regulation under the principle of ‘same activity, same treatment.’  Nevertheless, fintech-specific regulation has been developed in some cases.

For instance, in the case of digital banking, our data shows that most jurisdictions apply existing banking laws and regulations to banks within their remit, regardless of the technology they adopt or the presence (or absence) of branches. However, certain jurisdictions—such as Hong Kong, Singapore, and the Philippines—have separate license arrangements for digital-only banks.  Others, such as the UK and Australia, chose a middle ground—one that involves transitional arrangements and restricted licensing in the initial phase.

The treatment of cryptocurrencies warrants closer attention. Although legislation has been introduced by some countries, most have only released guidelines but not gone on to incorporate them into law. El Salvador is the first country that has chosen to make cryptocurrency a legal tender. More commonly however, countries have merely issued warnings to consumers on the volatility of cryptocurrencies. The potential risks of cryptocurrencies with respect to money-laundering and the financing of terrorism remain a key concern for policymakers—along with how cryptocurrencies should be treated for tax purposes.

Central Bank Digital Currencies (CBDC) are also a subject of interest in many jurisdictions. Bahamas so far the only country that has formally launched such a currency, but others such as China are not far behind.

Figure 2: CBDC around the world
Country fintech regulation
Source: WBG Global Database of Fintech Regulations

Responsible progress in the fintech sector will depend on appropriate regulation—which always requires careful calibration.

In assessing whether their regulatory framework is adequate or needs to be adjusted, financial authorities will need to weigh multiple elements. Some jurisdictions have adopted the use of innovation facilitators, such as “sandboxes,” to support the fintech sector and help them analyze market trends. But whatever path they take, authorities will need to balance the potential benefits for society—faster financial development and greater inclusion—against the potential risks to financial stability and market integrity and to the welfare of consumers and investors. 

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The Digital Development Global Practice recently launched a new approach to accelerate its work on gender equality, with an ambitious vision that centers women and girls across its financing and analytics. The approach orients solutions to the five foundational pillars of the digital economy: digital infrastructure, digital public platforms, digital financial services, digital businesses, and digital skills. It also emphasizes the need for more and better sex-disaggregated data and to tackle risks, such as algorithmic bias and online gender-based violence.

Digital Infrastructure

Within infrastructure, practical solutions that increase access, affordability, and usage are critical. Intentional design that locates public Internet access points in safe spaces (for example, libraries and community centers) is a good start. Other interventions that support the closing of adoption gaps improve the affordability of devices and data plans and tailor digital skills programs for women. Traditionally underutilized universal service and access funds can help. However, only four out of 69 countries have deployed these funds to close the gender digital divide.  Device affordability schemes also show promise. The recently approved Uganda Digital Acceleration Project will test some of these innovations.

Digital Public Platforms

Access to digital public platforms often requires digital identification, which women lack compared to men. Barriers that women face often include legal requirements to present additional documents, for example, a marriage certificate. High registration costs and inconveniently located registration points also deter women. The Nigeria Digital Identification for Development Project conducted a qualitative study designed to understand the needs of women and marginalized groups, which surfaced several solutions. These include working through trusted networks and women’s groups to share information; locating registration centers close to communities; and designing registration policies that prioritize vulnerable groups. Other options include women-only registration centers, mobile registration services, and female enrollment agents.

Digital Financial Services

Digital payments, whether to provide wages, social assistance, or agricultural transfers, can save women time and provide added privacy, security, and control, thereby contributing to women’s empowerment. This is a key focus on the G2Px initiative, launched in early 2020 in partnership with the Bill and Melinda Gates Foundation.

In Benin, where an estimated 19 percent of women make or receive digital payments compared to 38 percent of men, another World Bank initiative aims to provide women smallholders with a safe and private place to store their money and connect them with other financial services. Complementary training on digital financial literacy for recipients and promoting a network of women agents can also help, as social norms often limit women’s ability to interact with male agents.

Digital Businesses

Women entrepreneurs often face a range of barriers, including unequal access to financing, legal discrimination, differences in skills, less access to networks, and more care responsibilities. They are also poorly represented in technology startups. To address these constraints, the Digital Cabo Verde Project aims to support women entrepreneurs with business and entrepreneurial mindset training, access to business networks, peer support, and mentoring.

Beyond comprehensive support for women-led businesses, tackling investor bias is critical. Research suggests that the persistent gender gap in financing cannot easily be explained by differences in education, experience, sector, intellectual property, or geography.

Digital Skills

Building digital skills starts early with hands-on exposure to technology to build girls’ interest and confidence. Typically, complementing technical skills training with soft skills, engaging role models, and creating structured linkages to the labor market through internships, apprenticeships, and job placement programs have positive outcomes. The Kosovo Digital Economy Project, which trains rural women in programming and web design to become online freelancers, shows how digital skills training can create pathways to economic prosperity. Women with disabilities, older women, and illiterate adults may require tailored curricula and flexible programs with active outreach to develop their basic digital skills — another key area for engagement.

Cutting across these pillars is the need to address restrictive gender norms that prevent women from fully participating in the digital economy. Solutions to tackle these vary with context but addressing gender stereotypes and engaging men and boys are essential steps in shifting beliefs and behaviors.

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ONU

Some 2.9 billion people still have never used the internet, and 96 per cent live in developing countries, a new UN report has found. According to the International Telecommunication Union (ITU), the estimated number of people who have gone online this year actually went up, to 4.9 billion, partially because of a “COVID connectivity boost”.

This is good news for global development, but ITU said that people’s ability to connect remains profoundly unequal – as many hundreds of millions might only go online infrequently, using shared devices or facing connection speeds that hamper their internet use.

“While almost two-thirds of the world’s population is now online, there is a lot more to do to get everyone connected to the Internet, » Houlin Zhao, ITU Secretary-General said.

“ITU will work with all parties to make sure that the building blocks are in place to connect the remaining 2.9 billion. We are determined to ensure no one will be left behind. »

‘Connectivity boost’

The UN agency’s report found that the unusually sharp rise in the number of people online suggests that measures taken during the pandemic contributed to the “COVID connectivity boost.”

There were an estimated 782 million additional people who went online since 2019, an increase of 17 per cent due to measures such as lockdowns, school closures and the need to access services like remote banking.

Uneven growth 

According to the document, users globally grew by more than 10 per cent in the first year of the COVID crisis, which was the largest annual increase in a decade. But it pointed out that growth has been uneven.

Internet access is often unaffordable in poorer nations and almost three-quarters of people have never been online in the 46 least-developed countries.

A ‘connectivity Grand Canyon’

Speaking in Geneva, Doreen Bogdan-Martin, Director of the ITU said: “The internet divide runs deep between developed and developing countries. Only a third of the population in Africa is using the internet.

“In Europe, the shares are almost 90 per cent, which is the gap between those two regions of almost 60 percentage points. And there is what the UN Secretary-General António Guterres, has called in his Common Agenda blueprint for the future, “a connectivity Grand Canyon”.

‘Digitally excluded’

The report found that younger people, men and urban dwellers are more likely to use the Internet than older adults, women and those in rural areas, with the gender gap more pronounced in developing nations.

Poverty, illiteracy, limited electricity access and a lack of digital skills continued to hinder “digitally excluded” communities, ITU noted.

GBM

For citizens in countries around the world, paying taxes is among their most challenging and time-consuming interactions with government.  For many governments, enhancing tax compliance and collecting sufficient revenue have been a matter of necessity to finance public goods and services.

That is why tax administrations are undertaking the digital transformation and automation of their systems. The adoption of technology can enable successful and sustainable tax reforms, ensure the proper taxation of the digital economy, and reduce the obstacles to compliance. The COVID-19 pandemic, which led to a boom in the use of digital commerce, made this change especially urgent for tax administrations.

The transformation has progressed increasingly rapidly over the past decade, as the cost of digital technologies has plunged and powerful tools to develop applications have become more user-friendly. One example of the falling cost: Cloud storage is now over 50% cheaper than it was a few years ago.

The rise of big data is an important factor in the shift because it can allow easy cross-checking of information, which enhances compliance by taxpayers. Overall, global data volume from mobile payment providers, electronic cash registers, online marketplaces, and other digital sources is expected to nearly triple from 2020 to 2024. 

Digital transformation is also being driven by the rapid growth of e-commerce, which is projected to expand 24% from 2020 to 2025, making it an increasingly important part of the tax base.

The increasing use of cashless payments, through mobile phones and other devices, is also powering the change. Such payments can be easily reviewed by tax administrations and often leave a digital trail that can be audited.

Digitalization makes life easier for authorities by easing the administrative burden, which gives officials more time to focus on higher-value activities.  But it also allows authorities to simplify procedures and reduce the compliance burden on taxpayers. Research shows that in South Korea, for example, digitalization has reduced compliance costs by as much as 19% in the 2011-2016 period.

A real-time, more user-friendly future

With these changes underway, taxation is likely to look a lot different in the future:

  • Instead of storing huge amounts of taxpayer data, administrations will have access to encrypted, distributed ledgers that allow them to capture tax information seamlessly and in real time. This has the added benefit of making tax administrations “less visible” to the public.
  • The decisions of the tax administrations will increasingly be supported and strengthened by artificial intelligence. But the system will need to be closely monitored for errors.
  • Tax administrations could become warehouses for more and more government data. That will give them a central role in the formulation of economic policy, enabling policymakers to review transactions in the economy and allowing better forecasting.
  • The tax system could become much more user-friendly. Services could include prefilled tax returns, taxpayers’ access to their own filing information, the sharing of data with banks to expedite credit approval, along with privacy preserving queries on the tax file by researchers and local communities.
  • Tax administrations will streamline the interface between taxpayers and tax officials, for instance by connecting corporate accounting systems with the tax administrations’ e-filing and e-payment platforms.

Making change work

Despite all the benefits, this transformation is up against major challenges. Research shows that most digital transformation initiatives don’t succeed. Of the $1.3 trillion spent in 2018, an estimated $900 billion was wasted.

To have the desired result, the digitalization of tax systems must enlist a broad coalition of stakeholders to make the necessary legal reforms and provide the funding. 

The shift should also focus on providing value by simplifying procedures and permanently bringing taxpayers into the e-filing, e-payment, and e-document ecosystem. The value could be provided by reduced compliance costs, increased tax certainty, and higher compliance.

In addition, reform should aim to change the culture from managing processes to managing data, and administrations should focus on getting the right data. One high-income jurisdiction told us that there were errors in 15% of their taxpayer files and that 98% of returns could be prefilled with data from just banks.

Finally, tax administrations must develop scalable and interoperable systems that can be used across departments, in headquarters and in the field. 

The process can be cumbersome, but by providing finance and technical assistance, the World Bank has already supported administrators’ efforts on automation and digitalization in dozens of countries—benefiting governments and citizens alike.

UIT

ITU Digital World 2021 SME Awards showcase sustainable digital solutions, helping creative start-ups forge partnerships and attract investment

​Inspiring technology solutions hold the potential to change and improve lives across the globe through the drive and dedication of small and medium-sized enterprises (SMEs).

Winning solutions from digital SMEs based in Hong Kong (China), Mexico, Saudi Arabia, Switzerland, South Korea, and the United States were showcased and announced at the ITU Digital World Awards Ceremony, the finale of the ITU Digital World 2021 event and a key SME promotion programme from the United Nations tech agency on Wednesday.

The International Telecommunication Union (ITU) – the UN’s specialized agency for information and communication technologies (ICTs) – has highlighted SMEs as crucial contributors to help harness the world’s ongoing digital transformation to ensure sustainable development.

The latest ITU Digital World Awards recognized outstanding SME contributions to advance connectivity, smart cities and smart living, e-health, digital finance, and education technology.

“Innovative tech SMEs – fast-moving and responsive to the needs of different markets on the ground – have a vital role to play in accelerating digital transformation, » said ITU Secretary-General Houlin Zhao. “Governments and the ICT industry need to act together to foster a climate that supports technology and business innovation, helping companies like our award winners scale up and flourish. »

Six winners emerged this year, spanning the five key categories.

Winning SMEs

The winners were:
Company Category​ Country
Benefit Vantage Limited – Ipification Connectivity Hong Kong, China
WIWI Connectivity Mexico
URBIT GROUP LLC Digital finance United States of America
Baobabooks Education Sàrl Education technology Switzerland
Mawidy E-health Kingdom of Saudi Arabia
SCE Korea, Inc. Smart cities, smart living Republic of Korea

ITU Deputy Secretary-General Malcolm Johnson recognized the winners and presented their certificates in the presence of Viet Nam’s Deputy Minister of Information and Communications, Phan Tam.

This seventh edition of the Awards marked the final event of a three-month online conference and exhibition co-hosted by Viet Nam. Opening in September, ITU Digital World 2021 also marked the 50th anniversary of ITU’s flagship Telecom conference and exhibition series.

During the ceremony, a new partnership for ITU with US technology firm Hewlett Packard Enterprise (HPE) was announced, aimed at accelerating the programme next year and equipping SMEs with access to HPE tools, networks, and mentoring.

Competitive selection

The competition was open to all SMEs worldwide, with winning projects ranging from mobile authentication and information accessibility to connectivity for public transport, financial technology (fintech), creative writing, and healthcare powered by artificial intelligence (AI).A jury of experts, representing the fields of business, technology and entrepreneurship, selected the winners from a total of 133 eligible applicants from 53 countries.

Prepping transformative SMEs

The ITU Digital World Awards formed part of an expert-led SME Programme of online masterclasses and pitching for digital SMEs. Maintaining the virtual format, the final awards ceremony celebrated the creativity and innovation behind digital solutions meeting real-world needs.

The special masterclasses explored areas such as sustainable start-ups and SME-corporate collaboration, bidding for government procurement opportunities, customer service and innovation, e-health, designing for disability inclusion and fundraising. The SME Programme and Awards are key components of ITU Digital World 2021, which was co-hosted with the Government of Viet Nam and took place from September-December 2021.

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