Riding The Wave: The Dream of Financial Independence during Pandemic
The uncertainties resulting from the ongoing pandemic have certainly impacted the healthy financial system, both for the financial services sector (FSS) and consumers. The pandemic, stemming from problems with medical care, business performance, and expectations, continues to take its toll on the financial system, making national financial stability seem a faraway dream. From state financial policies, taxation policies to financial system stability policies have been taken to make the national financial system function effectively and efficiently again.
For the financial services sector, these policies should be better considered as short-term government aid since this sector is not the only one that has always been a priority. On the other hand, this sector should indeed work side by side with the government to support the national financial system by, for example, strengthening the capital capacity both from banking institutions, finance and investment industry to insurance companies. Regardless of how hard the pandemic hits us, the financial services sector must be resilient enough to support the national financial system. In other words, this sector should be financially independent of the other sectors so that all the ongoing current accounts become funding and financing sources, both for the national development agenda, such as the National Economic Recovery Program and for the financial services sector itself.
However, the financial independence of this sector depends heavily on many actors and factors. When a payment system runs into difficulties, it ultimately leads to instability in the financial system, as we have seen today. At the same time, shocks in the financial system can also affect the availability of the payment system. Therefore, mitigating systemic risk should have always been of great importance, as maintaining overall financial stability is key to the financial independence of the financial sector. Systemic risk is potential instability arising from the contagion of part or all of the financial system due to interactions in terms of business size, complexity, interconnectedness, and procyclicality.
So, the question is: how can the financial services sector, from upstream to downstream, be able to mitigate systemic risk and accelerate its financial independence to make a greater contribution to national financial stability in the midst of this pandemic season. Accelerating financial inclusion is one of the efforts that can be made, especially by regulators, to strengthen the resilience of this sector and its financial independence at a faster pace. According to the Reserve Bank of India, financial inclusion means the process of ensuring access to appropriate financial products and services needed by all sections of society in general and vulnerable groups, such as weaker sections and low-income groups in particular, at an affordable cost in a fair and transparent manner through regulated, mainstream institutional players.
For this reason, accelerating financial inclusion is certainly beneficial to all the financial services sector, as well as to individuals and government, as it overcomes many barriers, such as price, information, product design, and channel. In general, the financial services sector has the opportunity to creatively design and offer various financial services and products since they now can reach the entire society through financial inclusion. On the other hand, individuals have the opportunity to improve their financial well-being by customizing and hyper-personalizing new sources of income, both through financial services and products even though they are unbanked. Meanwhile, the customization of new financial services and products at the same time opens up new sources of funding for the government to meet the national development agenda. In short, accelerating financial inclusion promises financial independence for the financial services sector which later contributes more to national financial stability.
Not only that but overcoming those previous barriers through financial inclusion has allowed for an open exchange of information that gives consumers access to information that they would not have access to without financial inclusion. This consequently promotes a fair and competitive market. Greater transparency between financial services makes it easier for consumers to compare the prices and features of similar financial services and products. Therefore, financial inclusion implicitly leads to a better ecosystem for financial services by reducing shadow banking and irresponsible financing, cited from Bank Indonesia.
Here, Open Finance is the key to accelerating financial inclusion. The Open Finance system allows consumers and companies to access consumers’ entire financial footprint and securely use their personal data to tailor useful financial services and products to them. The Financial Data API has permission to connect data from multiple platforms, including formal and informal financial services, digital assets, and e-commerce, and track both income and transaction history of consumers anywhere, anytime. Through the Financial Data API, the Open Finance system puts the benefits of personal financial data back into the hands of individuals as consumers.
In other words, Open Finance which enables financial inclusion also brings financial independence for individuals which in turn leads to financial independence for the financial services sector itself. Financial Data API promotes better financial management by giving consumers full access to their financial landscape, giving them a better overview of their entire financial situation, from spending habits to monthly payments. They know what kind of solution to look for if they want to improve their financial well-being. Both bank companies and consumers who have a formal job and use formal financial services get access to current accounts, savings, investments, mortgages, loans, pensions, and insurance through Financial Data API.
On another note, Financial Data API also helps unbanked consumers to access financial services and products that were previously only available to banked individuals. By accessing consumers’ financial data from a variety of fintech platforms, such as P2P lenders, digital payment methods and wallets as well as e-commerce, Financial Data API enables non-traditional financial services to better understand unbanked consumers, and then offer various personalized financial services and products to improve consumers’ financial well-being. Besides, financial Data API also verifies consumers’ identities in a faster and more efficient way. In the end, unbanked consumers, most of whom have irregular income, will no longer face traditional difficulties, such as loan approval, when they want to expand their new income sources.
