Financial inclusion has emerged as one of the priorities in the G20’s agenda, as it is an essential ingredient for economic development and the reduction of poverty. New technologies, especially the use of the mobile phones, are now becoming catalysts of this small revolution that will allow huge segments of the population that remains unbanked as of today to gain access to financial services.
The G20, under Germany’s presidency, has committed to promote financial inclusion by focusing on digital channels, and Argentina, whose president, Mauricio Macri, visited Spain last week, and which will assume the forum’s presidency in 2018, is expected to continue pursuing this agenda.
In accordance with BBVA Research’s Multidimensional Index of Financial Inclusion - MIFI – Israel, South Korea and Canada are the world’s top-three countries by level of Financial Inclusion*. Surprisingly, the fourth country in this ranking is Brazil, an exception in Latin America, where financial inclusion is a pending issue in many countries. The case of Argentina - ranked 70th, according to BBVA Research – is especially striking. The study concludes that the use of financial services observed in this country remains relatively low compared to its neighboring countries. One of the aspects that needs to be improved is the further development of the regulatory framework in the country, still in its infant stage.
Since 2016, the Argentine Government and the Inter-American Development Bank have been working on drawing up an integral financial inclusion strategy, envisaging measures to facilitate access to financial products and improve financial education levels among the general public. Argentina is thus seeking to replicate the successful initiatives rolled out in countries such as Peru, Colombia or Paraguay, which are ranked at the top of the Global Microscope Ranking 2016, prepared by The Economist’s intelligence unit, with support from the Inter-American Development Bank. The challenge? To align technology and regulations to ensure the scalability and the reach of financial services. For example, in Argentina, only 3 of the 37 electronic currency products have more than two million users.
An example of the G20’s commitment to financial inclusion is the recent conference organized by the German Ministry of Finance and the Bundesbank in Wiesbaden (Germany), in the context of Germany’s G20 presidency, focusing on the opportunities and challenges of digital transformation, where BBVA played a relevant role. In this forum, BBVA’s Executive Board Director, José Manuel González-Páramo analyzed the impact that digital transformation is having on sectors that are struggling to gain access to banking services. On the side of demand, he explained that technology helps people access banking services, especially using mobile devices. High mobile penetration rates in emerging economies have the potential of helping overcome some of the structural barriers keeping financial inclusion levels low, such as geographic dispersion and administrative paperwork, thus improving time-efficiency ratios. On the supply side, he noted that digital transformation reduces costs for financial institutions.
Technology helps people access banking services, especially using mobile devices
The World Bank has also set out to achieve universal financial access by 2020. For that purpose, it has launched Universal Financial Access 2020 (UFA), with support from the BBVA Microfinance Foundation and another 29 organizations across the world. According to World Bank data, from 2011 through 2014, the number of people with access to a bank account increased by 700 million globally, and now stands at 62% of the global adult population.
What can regulations do to drive financial inclusion?
The idea that digitizing financial services is a key factor for financial inclusion keeps gaining supporters, based on evidence that it helps bridge some of the gaps keeping people away from the financial system, such as costs, time, distance and trust among the parties. Thus, both financial and non-financial institutions have started offering new digital financial services with the purpose of reaching out to millions of new customers.
According to Chief Economist of the Financial Inclusion Unit David Tuesta, regulators are key at the time of “making it easier for financial institutions to implement technologies that facilitate interacting with and winning over banking customers. Technology plays a key role in the sense that it enables savings in terms of both cost, times and branch visits, offering convenient products and increasing people’s trust on finance.”
Regulators are key at the time of making it easier for financial institutions to implement technologies that facilitate interacting with and winning over banking customers
Sector Standard-Setting Bodies (SSBs) value the potential of these new digital financial services in the promotion of financial inclusion, but also realize the nature of the risks that will come with the process. In February 2016, the Global Partnership for Financial Inclusion (GPFI) published a White Paper to raise awareness about this changing scenario. The document proposes a more active role of regulators in matters such as the inclusive protection of consumers, improving identity and privacy protection regulations and placing crowdfunding at the base of the pyramid
However, as BBVA Research points out in its April 2016 Digital Economy Outlook report, so far, the creation of a regulatory framework compatible with traditional financial regulation mandates is still a national responsibility. However, efforts being carried out by international regulatory bodies represent a significant step forward, and could prove essential by providing guidance for both member and non-member countries’ efforts tackling the challenge of financial inclusion.