Digital advances are providing governments with unprecedented opportunities to improve rates of financial inclusion through fintech-driven programmes and solutions.
This was the view of senior state authority representatives from Colombia, India, Brazil and Azerbaijan during an international webinar exploring how fintech-driven innovation – which has accelerated worldwide during the global pandemic – is helping governments with the delivery of services and programmes.
The ‘What Role for Fintech in Driving Financial Inclusion In The Developing World?’ discussion, convened on 7 October 2021 by Global Government Fintech and which featured a private-sector perspective from Mastercard, heard how governments are increasingly putting their faith in fintech solutions but also how such innovations are throwing up new questions and challenges for policymakers.
Fintech solutions include the use of smart-phone technology for the distribution of government payments, and the digitisation of financial transactions more broadly. But obstacles can range from infrastructure challenges such as mobile reception in rural areas; to cultural challenges such as a lack of trust in certain institutions; and technical or regulatory questions in areas such as data privacy and ID verification.
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Ana Maria Prieto, Deputy Director in Colombia’s Ministry of Finance’s Financial Regulation Unit, framed the discussion by describing the financial landscape as “facing the most disruptive transformation ever”. Farid Osmanov, Executive Director of the Central Bank of Azerbaijan, spoke of the “profound” effect of the pandemic on financial systems worldwide.
But out of disruption – and the global crisis – springs opportunity. With governments turning to digital means to deliver social solidarity payments, more than 40 million citizens are estimated to have become ‘financially included’ across Latin America during the pandemic, according to Darren Ware, Mastercard’s Vice–President for Government Engagement for Latin America and Caribbean.
Colombia wants ‘more efficient and inclusive’ finance
Colombia, which has a population of about 50 million citizens, is keen to encourage digital money, Prieto explained in her opening remarks.
The South American nation has digitised government-to-person payments, working with banks and fintech companies to financial include almost 1.2 million ‘vulnerable’ individuals during 2020 (about 60 per cent of whom subsequently using a digital wallet to make online purchases).
More than 88 per cent of the adults now have a bank account and there is a target to increase e-payment use from 20 per cent to 50 per cent of adults by 2025. But financial education is important to improve people’s personal financial management, Prieto acknowledged.
“Together with new opportunities we also see significant challenges,” she said. “As we shift to a digital world, governments need to assure not only that savings are safe, but also that emerging risks are also being managed.”
“We have big challenges in meeting the fast-changing expectations of citizens,” she continued. “But we are on track to make sure that infrastructure and foundations for fintech rollout are in place so that we can have a more efficient and inclusive financial system for everyone.”
are typically lagging behind, while other obstacles include reaching citizens who cannot afford smart-phones.
But, overall, Venkatramu said the fintech revolution was “very much required” to help financial inclusion.
Sao Paulo (Brazil) focuses on financial education
Patricia Ellen, Secretary of Economic Development, Science and Technology for the State of Sao Paulo in Brazil, said her priorities reflect the fact that the state already has a relatively high ‘banked’ population rate (also, the city of Sao Paulo boasts a vibrant fintech scene).
The state government’s focus is therefore more in fields such as financial health and education, rather than access.
Financial inequalities have, Ellen said, sadly been exacerbated by the pandemic (with women and certain racial groups more negatively affected), while cyber-security is among other priorities.
Her department is also focused on facilitating microcredit opportunities (via low interest rates), as well entrepreneurship programmes, while a prepaid card has been launched in partnership with Mastercard and a fintech company, Acesso.
Emphasising her point about the importance of encouraging financial literacy and autonomy, Ellen said that citizens’ access to schemes such as the state-backed microcredit programme was contingent on them signing up for financial education initiatives.
Mastercard’s financial inclusion commitment
Mastercard announced in April 2020 that it was expanding a worldwide commitment to financial inclusion, pledging to bring a total of one billion people and 50 million micro and small businesses into the digital economy by 2025.
Ware provided examples from South America of how the company was working with governments to help improve the financial inclusion of individuals, as well as the digital inclusion of small and medium-sized businesses.
Mastercard worked in Colombia on its ‘Ingreso Solidario’ programme to help families cope with Covid-19. A fintech company, MOVii, was “critical” to the delivery of government-to-person payments under the programme, Ware said, as was the existence of ‘companion card’ (alongside the mobile solution) because many citizens wanted to have both options (and needed to learn what the services were and how to use them on an ongoing basis).
Ware cited the popularity of a pre-paid card in Argentina through which citizens receive multiple state services, while in Chile a Mastercard-assisted digital rollout of pension payments showed that it was important to offer incentives to encourage take-up. “By giving pensioners, for example, a discount on their lighting bill, they adopted [the solution] more,” he said.
Each country brings different circumstances and challenges, including different regulatory environments, such as anti-money laundering (AML)/know-your-customer (KYC) regimes. “Well-designed regulatory frameworks can help drive inclusion,” Ware pointed out.
In respect of helping businesses, Ware referenced Mastercard’s ‘Digital Doors’ programme (known in Latin America as ‘Digital Allies’) as “a coalition for helping to bring small and medium-sized businesses online”; as well as female entrepreneur-focused programmes in Colombia and Peru, and the signing of a Memorandum of Understanding with the Mexican government to support entrepreneurs and women-led businesses.