Banking on the Future (12 Days of Fintech #4)

How do we help 3.5 billion people better access financial services? I think about this question often due to the focus of my work, which is applying technology to solve big problems (particularly in domain spaces like finance and in health). Nearly half of the world's population either has no access to financial services, or is "underbanked", with many fewer products and services available, typically at a higher unit cost than the wealthy enjoy.

How to we fix this inequity?

I try to come up with structural solutions, which is enhanced by the many governments I have worked with over the past decade. Our 4th day of 12 Days of Fintech takes a look at Digital Financial Services (DFS).

Broadening financial access

Generically speaking, DFS enables us to broaden financial access using technology. It often is expressed through mobile devices, although there have been some place-and-space-based solutions like Paytm in India. There are a number of considerations that come into play when evaluating how to implement DFS. For example, I recently completed some work with ICIMOD, an NGO serving the poorest areas of the 8 countries bordering the Hindu Kush Himalaya (HKH) region. Our consolidated analysis of the extant data showed that access to communications networks remains constrained, emphasizing the importance of UN Global Goal #9:

But let's assume that we're in a place where you have digital access. What does DFS enable you to do? What are its implications?

DFS provides can operate with 90% fewer people and cost 50% less to build than conventional banks

For one thing, there are dramatically fewer people needed. The projected 50%+ job loss is propelled by technologies that allow you to run a bank with 90% fewer people:

Legacy financial services companies can't cut people fast enough to keep pace. New entrants can launch relatively rapidly, particularly with the rise of BaaS (Banking As A Service) providers furnishing the backend.

The benefits for consumers are significant. Lower build and lower run costs mean that certain markets can now affordably support someone with an average balance of US$ 10 versus needing US $1,000. However, it's not all a bed of roses. Compliance, customer due diligence, and other AML/KYC costs can exceed US$100 per account... which makes the math unsustainable. New technologies may be able to bridge the gap, and regulatory flexibility around financial access may also help.

Policy to create a rising tide

The Commonwealth Fintech Toolkit provides a broader policy and implementation framework around how governments can support and empower innovation within financial services while discharging their responsibilities to dimensions such as managing risk, promoting stability, and protecting consumers. We have a more extended discussion of topics and case studies related to DFS (and crypto) in that report. I had an enlightening two years working with a team alongside the Commonwealth Secretariat to develop this resource.

More on DFS, frameworks for understanding its architecture, and some of the privacy and security implications related to it can be found in Chapter 4 of Global Fintech!

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Global Fintech: Financial Innovation in the Connected World

How the global financial services sector has been transformed by artificial intelligence, data science, and blockchain.

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The opinions in this column are my own, and do not necessarily reflect those of Imperial College Business School, Esme Learning, ADEX, or any other entity with which I am affiliated. My private investment & advisory portfolio is disclosed at?www.VisionaryFuture.com.

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Catch up on the back posts in?12 Days of Fintech!

#1 Fintech: The Convergence Revolution

#2: Edge Effects

#3: Open Banking & the API Economy