News•Business• 13.11.2018 • Dirk Zetzsche/University of Luxembourg
Dirk Zetzsche of the University of Luxembourg
Photo: University of Luxembourg
A four-pillar strategy developed for the Alliance for Financial Inclusion could help support the use of fintech to help 1.7 billion adults gain access to financial services, writes Prof. Dirk Zetzsche.
In the last three years, 515 million adults acquired a financial account, and between 2010 and 2017, 1.2 billion people opened an account with a formal financial institution, mobile money or finance provider for the first time. Despite the impressive progress much remains to be done: as of 2017, 1.7 billion people 16 years or older still did not have access to an account.
How can around a third of the world’s adults be integrated into the financial system? Together with my co-authors, Prof. Douglas Arner (University of Hong Kong) and Prof. Ross Buckley (UNSW Sydney), both experts in the field of fintech, I was commissioned to find an answer to this question by the Alliance for Financial Inclusion (AFI), a global thought leader supported by governments and private donors seeking to empower policymakers around the globe to increase access to financial services for the poorest populations.
The first pillar requires building digital identification and electronic know your customer (e-KYC) systems to simplify access to the financial system in areas where formal ID is often lacking. The second pillar develops digital payment infrastructure and open electronic payments systems, as these are the primary way to facilitate digital financial flows in an economy. The third pillar combines the promotion of account opening and access with the electronic provision of government services, particularly for public transfers and payments, so as to scale up the use of digital finance and related services. Building on these three pillars, a fully-fledged ecosystem can be developed in the fourth and final pillar--design of digital financial markets and systems that support broader access to finance and investment.
Widening access to financial services is not without risks. One such risk is the emergence of an insurmountable digital divide between countries that provide the conditions to support mobile phone access and develop a strategy for digital financial infrastructure, and those that do not or cannot. Further, divides within countries are posing major challenges. For example, financial access often varies greatly between more affluent urban dwellers and poor, rural residents and the elderly. In addition, the gender gap in financial inclusion has not closed.
However, we are optimistic that these challenges can be addressed in the design of financial systems and hope that this report will be able to give more countries the tools to widen financial access as well as helping the AFI in its mission to drive financial inclusion globally.