A replay of this conversation is available here.
“Financial health is part of a holistic stack. You’re not going to be financially healthy if you are not well physically. People need to be able to upskill and to access an education and opportunities.”
Kami Dar, Uniti Networks
Siavash Alamouti, Executive Chariman at mimik, set the stage with some high-level definitions. Fintech is a very broad term that describes the use of technology to re-imagine financial services. Tech fin describes technologies that are used to improve existing financial services. Today’s discussion will address both as we focus on the impact and not on the technology itself.
Since 2010 over a trillion dollars of private investment has gone into fintech. The peak was in 2021 with over $220B of investment. And in the first half of 2022 we almost had $110B invested in fintech companies. Almost half of these investments have been in the Americas.
We will discuss both the positive and negative effects of this massive investment.
Emily Aiken, Ph.D. student at the UC Berkeley School of Information
My research is primarily on the digitization of social protection systems, especially in low and middle-income countries, and it’s really hard to overstate the impacts of recent innovations in financial services technologies for delivering social protection benefits in these types of contexts. In the past couple years, particularly during the COVID pandemic, there’s been a discontinuity in the way social protection programs are run. Pre-pandemic social protection programs in low and middle income countries provided benefits to recipients in person. These cash transfers mean going door-to-door to hand physical cash to people, which is not possible during a pandemic when there are movement restrictions and lockdowns. As a result, something on the order of 90% of social protection programs run during the COVID pandemic moved to some level of digital service to deliver those benefits, especially around cash transfers. This is a huge change and would not have been possible ten years ago.
Two really important innovations in low-income countries were mobile money – the ability to send cash via feature phones without needing access to mobile data – and increasing adoption of bank accounts, especially in middle-income countries. This allowed governments to run these programs at scale and to deliver benefits with unprecedented speed. Of course, this digitization of social protection programs leads to major implications in terms of limitations, such as digital exclusion, and ethical concerns about the potential for private actors, now in the social services delivery equation, to have influence in this area.
Kami Dar, Co-Founder and Chief Executive of Uniti Networks
One lens that we have at my company is the issue of digital exclusion of access and access to financial services. We view financial health as part of a more holistic stack. We know that you’re not going to be financially healthy if you are not well physically. People need to be able to upskill and to access an education and opportunities.
While we see fintech as an essential on the path towards equity, we reinforce that by access to virtual doctors, digital education and digital reading. A couple of financial services that I want to add to that stack are insurance, pensions, and lending, which are hard to access in emerging markets. We’re working in Ghana with cocoa farmers where they have access to precisely one brick and mortar bank, which is not optimal for diversity of buying choices.
There are few things less secure than being handed cash benefits. In South Africa, about $88B is spent on social transfers that people pick up at a corner store and everyone knows that people are queued up there to get cash. This drives people to spend that cash at a local retailer because it is not secure to walk around with it. This is driving $88B of very inefficient economic spend. Many people would probably want to send some of that money to their family. There are much better ways to use that money than buying paper towels and potato chips, but that’s what happens because of the insecurity of cash.
Our company provides smartphones with a financial services application suite on them and one of the most significant impacts has been allowing people to save money. We also see high impact with access to financing and micro-lending to build a more equitable economic system.
Laura Fontana, Solutions Lead for Digital Assets at the Bank of New York Mellon
My experience is in working at large financial institutions in the United States. I led an effort to create a mobile-only bank experience for customers in the United States who did not want to come into a branch and were struggling with money management. Many are part of the 5% of the US population that is un- or under-banked and many do not have good credit scores. Our goal was to develop a digital service that would mimic what people did at home in terms of putting their cash in different envelopes to make sure that they had rent money, utility money and the like. It was a phenomenal product but it was discontinued because there was a regulatory view that it was an inconsistent customer experience and it could compromise the bank’s ability to prove that we were offering undifferentiated services to any client. That is an example of a kind of barrier that a large institution has to deal with in creating innovative solutions.
A key area for innovation is using customer data to address wealth and poverty gaps. In the US, banks operate under very clear regulations about customer data. Personal and financial data belongs to the customer. While the bank is the custodian of that data, it cannot be used, managed or shared by the bank. Banks make proprietary decisions about the financial products that a customer is using, but that data cannot be used broadly to solve their problems.
Social media technology platforms such as Facebook, Apple, Netflix, Google, and Twitter are exploiters of customer data for their own financial benefit. They use algorithms indiscriminately to maximize customer engagement and advertising revenue. If there is so much value in customer data for a given platform, why shouldn’t that data be considered a financial asset to the customer? Customer data revenue models should be scrutinized for opportunities to improve identity services. They can be used to improve eligibility for capital services like lending and investment. Instead of keeping the bar for being an accredited investor so high, it could come down and allow many people to participate.
