Opening Remarks by IFC CEO Philippe Le Houérou
at the IFC Panel on FinTech Innovators as Drivers of Inclusive Economies
Washington, DC | October 16, 2019
Ladies and gentlemen: Good afternoon and welcome to the IFC Panel on FinTech Innovators as Drivers of Inclusive Economies.
Twelve months ago, at our Annual Meetings in Bali, the World Bank Group and International Monetary Fund launched the Bali Fintech Agenda. The framework aims to help countries harness the benefits of financial technology in providing financial services, while also managing its risks.
Bringing the unbanked into the formal financial system is the goal of the World Bank Group’s Universal Financial Access initiative. Launched in 2015, the initiative aims to enable 1 billion people to have access to a transaction account by 2020. We are on our way to reach this goal, with 721 million newly banked adults as of the end of last year.
We are honored to have an outstanding group of industry participants, including innovators and regulators, here today. Our panelists will provide a unique window into how technological innovation is improving access to financial services and promoting financial inclusion in developing countries.
An estimated 1.7 billion adults worldwide, or about one-third of all adults, do not have a financial transaction account. Of those unbanked, about two-thirds cite limited funds as the reason. In plain English, it means that financial services aren’t yet affordable for the poor.
Lowering the cost of financial services
So, the first and major way fintech is helping is by bringing down the cost of financial services. New tools developed from technological innovations, such as cloud-based services, are transforming the way financial service firms operate. They are making processes faster and more efficient, thereby lowering the costs of operation.
Reducing barriers to financial services
Fintech innovations are also reducing physical barriers to financial services. One of the best-known examples is M-Pesa, which started in Kenya 12 year ago as a simple way to send payments via mobile phone. Now, mobile money is helping to deliver financial inclusion across Kenya and in some other countries within and outside Africa.
Meanwhile, measures to bring financial services to where people live and work are providing greater financial inclusion for women, who in some countries face cultural, distance, and safety impediments in visiting bank branches.
Reducing documentation barriers
Fintech innovations are also reducing documentation barriers. Around a billion people worldwide, half of whom reside in Sub-Saharan Africa, lack any form of government-recognized identification.
Recording and storing ID-related documents, like birth certificates, on government servers helps support the opening of transaction accounts. Fintech can also be used to store Know Your Customer information digitally, making it easier to authenticate transactions.
In India, a biometric-based digital ID system has provided digital access to over 1.2 billion people. This is the foundation for the India Stack—a set of applications that allows governments, business, and developers to interact with one another on a paperless and cashless basis.
Finally, fintech is helping excluded populations demonstrate their creditworthiness. As fintech companies gather more data about the transactions and payment behavior of online users, they can predict consumer behavior and assess repayment risk.
Guia Bolso, a fintech company in Brazil, uses this type of data analysis to understand its users’ incomes and expenses. From it, it generates a financial wellness score and offers its users preselected financial products from banks and other fintech companies.
Fintech is opening the world of financial services to hundreds of millions of the unbanked. Yet, financial technology is not risk-free.
An effective regulatory environment is critical for fintech to grow. Data-driven business models are particularly challenging for regulators, with important implications for data protection and privacy, data-offshoring, and competition policy.
Financial service providers also need to build robust interface and back-office systems to ensure customer data is protected and to minimize the risk of fraudulent digital transactions.
Lastly, unequal access to technology limits the potential of fintech and increases the digital divide. A lack of access to smartphones, affordable data plans, and financial literacy all disproportionately disadvantage developing countries, as well as the poor and women. Moreover, to grow a digital economy where fintech can thrive, infrastructure such as fixed broadband, mobile telecommunications, data centers, and even electricity that runs 24/7 at financially sustainable rates is required.
Ladies and gentlemen: Fintech is a disruptive technology that is delivering stronger financial inclusion, sustained growth, and shared prosperity across the developing world. Its adoption is a priority for the World Bank Group and for me personally. I look forward to hearing next from our panelists, who are leaders in fintech innovation, delivery, and regulation.