Leveraging technology to achieve Universal Financial Access

FinTech has changed the financial services landscape around the globe and is giving new impetus to the adoption of financial tools and services.

Financial inclusion, a concept which focuses on the access of useful and affordable financial products and services to individuals and businesses that meet their needs, is an integral element to improve the overall quality of life. Access to financial services is the door to reduce poverty and ensure individual equality, allowing them to expand the business, secure their future by investing in education and health, managing risks and everything that leads to a better life. Overall, it is a necessary building block to achieve sustainable development in the world.

While there has been rapid progress towards financial inclusion, an estimated 2 billion adults worldwide don’t have a basic account. Most of them are poor, and a large proportion comes from Africa. Possible reasons hindering access to financial services are:

• Lack of affordable financial services
• Gender inequalities
• Lack of nearby financial services provider
• Lack of trust
• Traditional financial services
• Lack of financial literacy
• Lack of IDs and un-authenticated documents often hinders the opening of a bank account
• Lack of customized financial products to meet customer needs

Technology – the pathway to inclusion

Technological innovation has already shown amazing outcomes in improving access to financial services, over the years, notably by lowering costs and risks and extending services into hard-to-reach regions, where traditional financial institutions and services can’t reach. Financial technology, so-called FinTech has changed the financial services landscape around the globe and is giving new impetus to the adoption of financial tools and services.

Here are the leading FinTech trends that are emerging as a game-changer in the financial services industry:

The widespread use of smartphones, the internet and social media generates a massive amount of electronic data, called Big Data. This real-time data can be leveraged for real-time monitoring and analysis of financial activities. The existing customer data can be used by the financial service providers to develop new tools and services, customized according to the client needs.

The use of advanced analytics and artificial intelligence (AI) are presently experiencing a peak in development. Financial institutions are adopting them to manage very large volumes of data and information coming from its customers.  AI has changed the traditional financial services picture, ranging from banking and insurance to analysis and asset management.

• Many banks have introduced AI-powered banking applications such as chat bots with conversational skills for enhanced customer engagement and experience.
• For fraud detection and risk management
• For customer insurance
• Market research and analysis

The financial industry is trailblazing the way forward to seize the opportunities of decentralized, distributed and public digital ledger technology called Blockchain. Using distributed-ledger technology is assisting financial services providers to lower the worldwide cost of cross-border payments, securities trading and compliance. The increased concerns about security have made blockchain an important tool in the financial industry to build trust between consumers and business. The primary use of blockchain today is as a distributed ledger for cryptocurrencies, such as Bitcoin and Ethereum which will enable financial institutions to decrease reliance on cash.

(Image Credit: Twitter)

To ensure data protection and avoid transaction frauds in financial services, biometric technologies are outclassing traditional methods of security. Biometric identification often uses voice, facial recognition, fingerprint and retinal scanning, alone or in combination with smart cards, encryption keys and digital signatures for authentication. Moreover, biometrics promote quick personal authentication, removing the need to remember multiple long passwords.

The growing market of mobile phones has facilitated expanded access to financial services, reaching remote areas where bank branches may not reach. Mobile banking offers services such as account creation (with or without linking to a financial institution), fund transfer, bill payments, transaction review, bank account management, online purchases etc with great convenience, ease to access, security and much more, anytime, anywhere. Mobile phones and internet offer unprecedented opportunities for access and usage of basic financial services such as bank account, payment services. A simple mobile phone can make access to financial services but when coupled with the internet, it expands the range of possibilities. The explosion of online payment applications has also transformed the nature of mobile banking.

According to the Global Findex database, the share of account owners sending or receiving payments digitally (mobile phones and internet) has surged from 67 percent to 76 percent globally between 2014 and 2017, and in the developing world from 57 percent to 70 percent.

Regional outlook:

The Global Findex database, a new World Bank report on the use of financial services, released back in April 2018 sheds light on the significant use of digital technology, notably mobile phones and internet to conduct financial transactions.

According to the report, globally, 69 percent of adults (about 3.8 billion people) now have an account at a bank or mobile money provider, up from 62 percent in 2014 and just 51 percent in 2011. From 2014 to 2017, 515 million adults obtained an account, and 1.2 billion have done so since 2011. Rapid changes and innovations in technology, especially the internet, mobile phones, digital payment gateway and other FinTech applications have triggered financial access and inclusion.

• In Sub-Saharan Africa, the share of adults with a mobile money account almost doubled, to 21 percent as compared to accounts belonging to a particular financial institution that remained flat. In Burkina Faso, Côte d'Ivoire, Gabon, Kenya, Senegal, Tanzania, Uganda, and Zimbabwe, 20 percent or more of adults use only a mobile money account.
• The share of adults with an account rose by 23 percentage points in South Asia, reaching 70 percent. The upsurge was driven by India where a government policy to increase financial inclusion through biometric identification pushed the share with an account up to 80 percent, with big gains among women and poorer adults. 
• In the Middle East and North Africa (MEA) region, 20 million unbanked adults send or receive domestic remittances using cash or an over-the-counter service, including 7 million in the Arab Republic of Egypt. With only 35 percent of women having an account, as compared to 52 percent of men, the region also has the largest gender gap.
• Latin America and the Caribbean: With 55 percent of adults owning a mobile phone and internet access which is 15 percentage points more than the developing world average, the region offers a huge potential for financial technology use. Since 2014, the share of adults making or receiving digital payments has risen by about 8 percentage points or more in such economies as Bolivia, Brazil, Colombia, Haiti, and Peru. About 20 percent of adults with an account use mobile or the internet to make a transaction through an account in Argentina, Brazil, and Costa Rica. 
• In Europe and Central Asia, account ownership rose from 58 percent of adults in 2014 to 65 percent in 2017, driven by digital government services. The share of adults making or receiving digital payments jumped by 14 percentage points to 60 percent.
• The use of digital financial transaction grew in East Asia and the Pacific, especially in China where the share of account owners using the internet for bill payments or purchases more than doubled to 57 percent. However, account-ownership remained relatively flat with little changes from 2014. The region has low gender inequality, men and women are equally likely to have an account in Cambodia, Indonesia, Myanmar, and Vietnam. 

Taking all the above statistics into account, it can be concluded that tech-driven financial inclusion, especially mobile and internet are facilitating growth and offering a promising future for unbanked population, worldwide. Mobile money is gaining ground and is emerging as the fastest delivery channel in so many countries, while few regions still lag behind.

 

(Image Credit: Twitter)

What does it need to achieve Universal Financial Access?

“All progress is precarious, and the solution of one problem brings us face to face with another problem”

Marking the above words of Martin Luther King, Jr. it can be concluded that with the increasing opportunities, follows the risks surrounding digital financial services. To mitigate the risks associated with the expanded digital financial inclusion, collective efforts, legal and regulatory frameworks; global cooperation is needed to deliver the services in a responsible and sustainable way. However, the unprecedented opportunities digital finance offers for inclusion can outweigh the risks associated with it.

To offer digital financial services for financially excluded and underserved populations, we need to consider these mandatory points:

• Financial and digital literacy to understand the need to access financial services and awareness
• Financial services need to be tailored to the needs of disadvantaged groups such as women, poor people, and first-time users, who may have low literacy and numeracy skills
• Revamping ICT infrastructure to avoid network outrage and other technical issues that may hinder digital access to financial services.
• Digitizing wage and pension payments from government and private sectors to expand account ownership and ensure its usage
• Strong consumer protection standards, data privacy and security standards to build customer trust in financial institutions
• Prioritizing national digital IDs to allow an easier access to opening accounts
• Promoting biometric technology to authenticate digital identities and increase the number of account holders.
• Legal and regulatory framework to promote national strategy on financial inclusion and development. Regulation, more importantly for documentation requirements for opening an account.
• Strong political commitment and partnership among government,policy-makers, public and private sectors, civil society to fix the disparities between men and women and between the rich and poor while investing in digital financial services. 
• Identifying and managing risks associated with digital financial inclusion
• Leveraging data and statistics to help make financial services more accessible to the unbanked.

Digital finance is developing rapidly and the picture is continuing to shift rapidly with the advancement of new technologies. Digital financial inclusion offers the potential for a much more rapid increase in access than the traditional banking system could ever provide.