On fintech and financial inclusion
In a world where access to financial services and high-speed broadband internet is not universal or affordable,
At the World Bank Group (WBG), we look at financial inclusion across three dimensions – ‘Access, Usage, and Quality’ of financial services. Fintech has the potential to lower costs, while increasing speed and accessibility, allowing for more tailored financial services that can scale. 1.7 billion adults remain unbanked, fintech is helping make financial services more accessible to an increasing number of people.While globally
Beyond mobile money, fintech has also shown promise in areas such as Government to Person payments and cross-border remittances. Our paper on Digital Financial Services explains how this potential has been apparent during the COVID-19 crisis, when digital delivery channels have helped governments quickly and securely reach vulnerable consumers with cash transfers and emergency liquidity – allowing the transfer of funds with limited physical contact.
Global remittances in particular may see a complete transformation through the use of technology. Cross-border remittances account for $600bn in value and often exceed official developmental aid figures. The average global cost to send these funds in the form of cash is 6.8 percent, while a fully digital transaction drops the cost to 3.3 percent and reduces issues of liquidity.
Digital disruption, however, is not new, and we have long been able to summon movies, food and transportation at the touch of a button. Yet, the impact on the financial sector is different, primarily due to a) the impact it can have on financial integrity and stability b) new entrants with unconventional business models that don’t fit neatly into existing legal frameworks and are difficult to monitor and c) the bearing on consumer protection.
This has led to a dilemma for policymakers worldwide when trying to achieve the right balance between enabling innovative fintech and safeguarding the financial system. They have taken different approaches- such as the use of regulatory sandboxes to direct regulatory amendments, which we highlight in our paper on Evaluating different fintech approaches.
Despite their utility, innovative technologies do have inherent risk. Fraud, issues of competition, data leakage, and unprotected consumer funds number among them. Responsible financial innovation requires balancing opportunity and innovation with safeguards to protect consumers. Our forthcoming paper on Consumer Risks in Fintech provides an overview new manifestation of risks to consumers and emerging approaches that can help mitigate such risks.
At the WBG, we support digital transformation in our client countries by:
- Building the financial infrastructure and foundational building blocks including the regulatory and policy frameworks, digitally-enabled identity, and robust payment and credit infrastructures for sustainable, technology-led financial economies.
- Boosting the capacity of governments to harness fintech, data, and expertise while responding proactively to changing regulatory and supervisory requirements.
- Brokering collaboration between different players- both public and private- in the financial ecosystem to bring about symbiotic positive change.
One specific area where the WBG has been focusing its efforts is on the gender lens and the plight of micro, small, and medium enterprises (MSMEs). For instance, in India and in Ethiopia we are supporting women-led MSMEs – mostly vendors, seamstresses or marginal farmers – in using digital platforms. Working closely with the governments and fintechs on the ground, we are developing an application to support digital literacy while delivering targeted business insights and advice. Moreover, this data along with other alternative data such as repayment of store credit and collaborative behaviors will contribute to a credit score providing a route for access to finance to those without formal credit histories. The use of alternative data is gaining popularity in a number of other countries from Chile to Sierra Leone where innovative solutions harness the value of transaction data from ecommerce and payment platforms, mobile phones, or even social networks as alternative sources of information to assess creditworthiness. This is financial empowerment in action—especially when combined with measures to protect consumers and financial education to prevent over-indebtedness.
Another important technology that is being tested for its role in developing markets and inclusion is distributed ledger technology (DLT). The WBG is working with the government of Haiti to export their high quality mangoes and avocados using DLT. This supports the supply chain and maintains symmetry of information hence de-risking the investment of third parties that conduct the quality control while allowing the farmer to keep ownership until the final sale to the consumer.
stability of a country, and aids the achievement of the UN Sustainable Development Goals. Through our work, we aim to give the 1.7 billion remaining unbanked —mostly poor, mostly women—access to basic financial services, and we are using fintech to help us. We take a minute to pause and to learn from our experiences, build on the progress made so far, and look into the future—to the next 20 years—as our journey continues.It has a multiplier effect, contributes to the economic development and
This article was first published in the Fintech times- Edition 39’.