#RegTech has the potential to boost Financial Inclusion
When I was the master of ceremony at “The Banking Scene 2019” (https://thebankingscene.com) proudly leading the banking for humanity track. I have been moved, thrilled and inspired by the speakers. I would like to thank you for your contribution and making it an insightful day. It was an honor to introduce these great inspirational speakers:
Rick Coeckelbergs, Chris Buijink, Chris Skinner, Vivek Bajaj, Laurent Marochini, Rigo Van den Broeck, Adrien Kirschfink, Tamaz Georgadze, James Vaccaro, Esther Stegman, Gunter Benischek, Philip List, Dr Anino Emuwa, Joanna Gaweda, Peter van Hees, Kam Chana, Peter Geclowicz
Financial Inclusion is close to my heart for a long time. Triggered by the discussions yesterday, I wanted to share my thoughts about Financial Inclusion and elaborate a bit more on the link with #RegTech.
What is financial inclusion?
As defined by the World Bank Groups, financial inclusion means “that individuals and businesses have access to useful and affordable financial products and services that meet their needs — transactions, payments, savings, credit and insurance — delivered in a responsible and sustainable way.”
The ability to have access to a transaction account is the first step towards financial inclusion. This is because a transaction account allows for the storage, remittance and receipt of money. It is for this reason that the World Bank Group’s Universal Financial Access initiative is primarily focused on ensuring that people globally have access to a transaction account. The account acts as a doorway to other financial services.
With financial access, businesses and families are able to go about their day-to-day activities and helps them in planning for virtually everything from unexpected emergencies to long-term goals. There is a high likelihood of account-holders to use other financial services, like insurance and credit, for a myriad of activities say for example starting/expanding a business or investing in education.
A great deal of progress has been made towards financial inclusion with more than 1 billion adults globally gaining access to a financial account since 2011. Despite the remarkable progress made towards financial inclusion, the World Bank’s Global Findex database reveals that a third of adults — a whopping 1.7 billion — remains unbanked. Approximately half of this population includes women in poor households, rural areas or not in the workforce. In developing countries, the account ownership gender gap remains at 9% which hinders women from effectively controlling their financial lives. However, the gender inequality is less in countries with high levels of mobile money account ownership.
From Served to Un-served Population
Innovations in technology have been driving the access to financial services and financial inclusion. Mobile phones among other access points bring financial services closer to the people instead of having them journey long distances (especially in rural areas) to physical banks. Additionally, financial technology companies are causing disruptions in the financial sector arena, making expansion of access to financial services easier.
Generally, the un-served population are characterized by the lack of a basic bank account, no (or limited) access to financial services, and reliance on a cash economy. On the other hand, the served population are known to have a transaction account and use a broad range of financial services.
In the past, there was little attention paid to the low-income-earning population. They were simply left out of the financial sector landscape. However, with the rapid changes in technology and the disruptive forces of financial technologies as well as RegTech, financial service providers are now expanding their focus to accommodate the large population of the un-banked low-income individuals.
We’ve seen traditional banks offering their services on digital apps for smartphone owners or via USSD technology for feature phones. There’s steady increase in the number of microfinance institutions offering affordable credit as well as savings facilities. Mobile networks are also at the fore front offering tailor-made financial products to their customers. The number of financial cooperatives is also on the rise attracting a large population of the un-banked. For example, in Kenya, it is a regulatory requirement for all public transport providers to be part of a financial cooperatives. This goes on to show the level of commitment towards financial inclusion.
Closing the Gap
The World Bank Group, being a key player in the advancement of global financial inclusion, developed a unified and integrated approach to helping countries achieve financial access as well as responsible financial inclusion. This approach focuses on the following areas:
1. National Financial Inclusion Strategies: the NFIS offers technical assistance to governments for the design and implementation of national roadmaps and action plans for the achievement of the nation’s financial inclusion objectives.
2. Modernization of Retail Payment Systems and Government Payments: the World Bank Group helps countries design strategies that promote the use of electronic payments over the use of paper-based instruments. Digitizing government payments increases financial access and significantly lowers costs of administration of payment schemes while also reducing fraud and corruption.
3. Leveraging Technology for Financial Inclusion: World Bank partners with national authorities in creating enabling environments that take advantage of financial technology opportunities, level the playing field, and lead to expansion of access to financial products.
4. Strengthening Competition and Expansion of Access Points: the bank supports regulatory as well as supervisory reforms hence opening up access and ensuring a level playing field for both banks and non-bank financial services providers like Telco’s, financial technology firms, and cooperatives.
5. Financial Capability: the World Bank Group collaborates with governments in designing National Financial Education Strategies (NFES), data collection, and creation of surveys to measure financial literacy levels, capability and awareness. The collaboration also works in designing and evaluation of financial capability programs.
The Ultimate Call for #RegTech
I my humble opinion RegTech plays an important role in closing the gap by lowering cost and taking away the operational burden providing financial services to everyone. This is in line with leveraging technology for Financial Inclusion mentioned by the World Bank Group. Let’s take an example in Europe; small asset managers provide an essential service to those with low to moderate wealth, but the increased costs and administrative burden that are the result of the new MiFID II regulations are about to drive these asset managers out of business. The only way to prevent this from happening is if RegTech solutions can automate the administrative and regulatory processes. This is what motivates me personally every day and is our ambition at Blanco.
Not only in Europe, but also in developing countries, Digital Service Providers play a key role in achieving financial inclusion goals. Think about how onboarding new groups of customers that traditionally were unbanked, raises new compliance concerns. AML and KYC are already hot topics at the moment. RegTech solutions mitigates this risk by providing compliant and affordable solutions for banks and FinTech companies.
But it takes 3 to tango to be compliant. Bank, RegTech and Regulator. Reading the publication from N. Gurung and L Perlman, I personally am more and more convinced that the regulator is also playing a very important role towards Financial Inclusion. Not only can the Regulator benefit from RegTech solutions (for example: using AI and machine learning to supervise its members) to solve internal challenges (SupTech), but the Regulator may boost the financial ecosystem by playing and active role in resolving regulatory concerns (for example: MyInfo KYC Utility in Singapore).
I’m looking forward to your comments and if you want to know more insight about #financial #inclusion and Assetmanagement. Bernadette Wijnings (CFO of www.useblanco.com) wrote a brilliant chapter in the RegTechBlackBook (www.regtechblackbook.com)
