BOOK EXTRACT Figure 1: Essential lifecycle of financial needs of low-income people
to open and access their accounts without difficulty – and without intermediaries exploiting the financial illiteracy of underserved people.
MONEY
TRANSFERS •Old age •Unemployment •Disability
TRANSFERS •Domestic remittances
•Payments for services
INSURANCE •Life •Health •Business •Other
CREDIT •Health •Education •Agriculture/Non- farm enterprise •Retire old habits
SAVINGS AND INVESTMENT •Savings bank accounts
•Small savings in mutual funds •Fixed deposits
Recommendations for developing countries First, developing countries should launch programmes to digitise IDs and create a positive ecosystem for e-commerce and financial services. The Indian government has led the way with its Aadhaar ID system, which has helped more people get bank accounts and access other financial services. Second, the public sector should
Source: Democratizing Finance: The Radical Promise of Fintech
However, for financial services to move out of the bank branch, providers require:
• Physical infrastructure, such as electricity, mobile and internet networks
• Technology solutions, such as mobile phone applications and sufficient security
• Financial institutions, such as banks and insurance companies, that are willing to customise products and services for the underserved
• Government regulation in the telecoms, banking and insurance sectors
Fintech and government While fintech can provide significant assistance to low-income populations in emerging economies, it requires the commitment of social actors with power and influence to direct technological designs towards the goal of improving financial inclusion in emerging economies. The Chinese and Indian governments, for example, have made financial inclusion
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and equality central aspects of their economic policies. Fintech can facilitate direct links between
governments and individuals. Government to Person (G2P) applications include wage and pension payments, health subsidies, unemployment allowances and disability benefits. Digitising these types of social transfers can help enrol large numbers of underserved persons in social programmes while reducing costs – which could incentivise governments to promote G2P applications. Digitising government payments could increase bank account ownership among adults worldwide without a bank account – around 80 million of them opened their first account to collect public sector wages. Governments can enable even greater financial inclusion by digitally transferring funds, subsidies and pensions. However, for digital government transfers
to work, the technology ecosystem must be ready to use. All citizens should be able
develop partnerships with start-ups to invest in telecom and payment infrastructure for rural areas. In emerging economies, the combination of mobile, e-commerce and digital payment options helps growth, better development and higher living standards. Governments should continue working with the private sector to develop public– private partnerships offering access to broadband, e-commerce and payment solutions in the most remote areas. Finally, newly created fintech ecosystems are a great stepping stone for government services and wealth redistribution. One of the biggest barriers to creating social security or other redistribution services is the lack of official identities among the most remote citizens. Without IDs and residential addresses, citizens cannot access government services, and they become vulnerable to theft, loss and corruption. Fintech solutions can help to gather valuable data and create digital wallets or other means for people to receive benefits.
Marion Laboure is a Senior Strategist at Deutsche Bank Research and a Lecturer at Harvard University. 'Democratizing Finance' was co-written with Nicolas Deffrennes and published by Harvard University Press.
'Democratizing Finance' is available from
https://uk.bookshop.org using the QR code
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