Throughout history, the idea of reaching full inclusion -- enabling everyone to access the mainstream financial system -- seemed like fantasy. Financial services have always been expensive to produce and deliver, making it unprofitable to serve everyone. In addition, they often involve the need to evaluate and risk-rate customers, and to verify their identity information, all of which has always been costly and complex. Mainstream services were for people who had some means and had traditional identity documents. Other people had to rely on high-cost alternatives, or had no access at all.
And then, we got cell phones. Suddenly, here was a new delivery system that could reach nearly everyone, through a channel that was already there, already built, and that could, furthermore, serve them inexpensively. No more need to build and staff high-cost branches. Everyone, today, can have a bank branch in their hand.
Recognizing this new opportunity, the World Bank set a transformational goal -- that every adult on earth should have financial access by 2020.
They defined inclusion as having a transaction account, since for most people, that’s the easiest and most-needed starting point. Once that exists, other services can be added on top of it, from lending to savings to insurance. As the consumer’s financial information becomes increasingly digitized and consolidated in the phone, it becomes possible for financial providers to evaluate that digital profile to extend more products. It also becomes possible to authenticate identity -- which is critical because the anti-money laundering Know-Your-Customer regulations currently block millions of people from the system because they lack traditional ID documents.
Technology is making this shift possible, but of course, it isn’t easy, nor is it a panacea. Some people still don’t have mobile phones -- although that problem is rapidly evaporating -- the UN says more people have had access to mobile phones than to plumbing since 2013. Of those who do, many don’t adopt electronic financial accounts, and many who do so become vulnerable to scams and predatory products, especially since hundreds of millions of these consumers are being exposed to financial services for the first time.
Those challenges, in turn, create an urgent need for regulatory modernization. Finance is being digitized, and regulation will have to be digitized too in order for government to protect consumers and assure financial stability. So the World Bank’s work includes a focus on modernizing the regulatory infrastructure itself, building up capacity to understand new technologies and address risk.
In this episode, Harish describes this whole transformative landscape. He talks about the Financial Inclusion Global Initiative, or FIGI, a three-year program with three partners, and three global themes -- cybersecurity, e-payments acceptance, and digital ID. He explains why people don’t have access to accounts, how digital ID can satisfy documentation requirements, and the varied regulatory models evolving in different counties. He talks the World Bank’s research on blockchain and distributed ledger technology (DLT) as critical components of a better system.
The United States has been a relatively slow adopter of mobile phones, partly because most Americans traditionally had landlines. That means cell phone adoption is much more advanced outside the United States, which in turn means that the US can learn many lessons from countries that are leapfrogging over us in digital transformation of finance and financial regulation. Much of this modernization is being driven by NGOs like the Omidyar Network, where I’m a Senior Advisor, and the Gates Foundation. For example, Omidyar and Gates have financed a Regtech for Regulators Accelerator, or R2A, which is bringing technology solutions to regulatory challenges in multiple countries.
More on Harish
Harish is Lead Financial Sector Specialist in the World Bank’s Finance, Competitiveness and Innovation Global Practice, heading a global team working on payments and market infrastructures. He is a core member of the cross-sectoral teams addressing Universal Financial Access 2020, ID for Development, government payments, Digital Economy and FinTech. Harish represents the World Bank in the working groups of the Committee on Payment Market Infrastructures (CPMI) at the Bank for International Settlements and FinTech-related working groups at the Financial Stability Board (FSB).
Previously, Harish worked with VISA Inc. in the South Asia region in various senior roles in business development, operations and risk management. Prior to VISA, he served in positions at Citigroup, Infosys and other technology companies in the areas of payment systems and retail banking.
Harish holds an undergraduate degree in Electrical and Electronics Engineering from IIT-Madras and a Post Graduate Diploma in Management, from IIM-Calcutta, specializing in IT systems and finance.
More for our listeners
We have great podcasts in the queue. From London, we’ll have a talk with P.J. Di Giammarino of JWG and the Regtech Council. We’ll also have a far-ranging conversation with Peter Renton, who leads Lend Academy and the LendIt conference series. As part of our series focused on global developments in fintech and regtech, we’ll talk to Anju Patwardhan of CreditEase and Stanford University, who describes fintech developments in China. And we’ll have a show with the co-founders of EarnUp, and one with Walter Cruttenden, Co-Founder of Acorns and Co-founder and CEO of Blast.
A few places I’ll be speaking this fall include:
Singapore Fintech Festival, November 12-16, Singapore
LendIt Europe, November 19-20, London
Consumer Federation of America Financial Services Conference, November 29-30, Washington, DC
ABA Financial Crimes Conference, December 2-4, Washington, DC
RegTech Rising, December 3-5, London
Fintech Connect, December 5-6, London
Boston Regtech Meetup, December 10, Boston, MA
I also have a number of events coming up where I’ll be speaking directly to groups of regulators.
Watch for upcoming information on my collaboration with Brett King on his new book, Bank 4.0, which you can now buy on Amazon. I co-wrote the regulatory chapter with Brett, and we’ll have a show and events on that as well.
Last year, my autumn conference circuit became a “world tour” designed to speak in seven countries in seven weeks. I chronicled it with mini-videos about what I was learning, and since a lot of people told me they enjoyed joining in those adventures, I’m doing it again this year. My fall travels will be fewer countries but more events, in America, Europe and Asia. Please follow along with me on Twitter, LinkedIn, and Facebook and come to jsbarefoot.com for more information on it all and to subscribe to my newsletters and get the latest podcasts as soon as they come out.
Also, here’s my fall newsletter, titled Whirlwind.