Promoting contactless digitisation and bridging the digital divide during the COVID-19 crisis (I)

The writer is a board member of the Financial Inclusion Advocacy Centre (FIAC), Ghana and UK, is author of 14 critically acclaimed books. wide variety of Financial Sector, Financial. He can be contacted at [email protected] and +919962815615 & locally on 0302-908-640. See ‘Digital Dividends’, World Development Report, World Bank Group, — last accessed on June 24, 2020.

Contactless digitisation can play a crucial role during the COVID-19 era and FinTechs can play an enabling role in promoting access to finance in a meaningful and strong manner, especially for low-income people and all kinds of MSMEs. For that to happen, however, the digital divide has to be bridged and the digital ecosystem and infrastructure strengthened.

The World Development Report (WDR, 2016)[1] talks of a global digital divide of almost 60% and recent years have done precious little to improve this. Even today, many people are still left out of the digitisation ambit as demonstrated during the on-going COVID-19 crisis.

The key question here is how to enable these potential users to cross barriers imposed by literacy and language and make better use of digital technology to conduct financial transactions.

But before we get to solutions, let us first look at the obstacles to digital transformation and the transition to a cashless (or less cash) economy in many strategic contexts (read geographies): (1) lack of mobile data and internet connection and financial (process and digital) literacy, especially at the grassroots; (2) while people may have bank accounts, these need to be used regularly and continuously; (3) there are many vested interest groups that do not desire a shift towards a cashless economy and they need to be countered; (4) in emerging and developing economies where small (MSME) retailers tend to dominate, investment credit with regard to electronic payment infrastructure must be available; (5) consumer perception also acts as a barrier and the benefits of cashless transactions are not clear even to those who possess credit cards. Alternatively, cash is generally viewed as a superior and quicker method of transacting. There is also a belief that cash helps a person negotiate better. All of these need to be changed; and (6) lastly, most consumers (including card users) carry the impression that they might be charged more when they use cards (instead of cash). This perception also requires to be altered. Without a doubt, all of these need to be tackled expeditiously by countries that desire to move forward rapidly with digital transformation.

Given the above context, in terms of solutions, if you ask me honestly, I feel the strong need for an artificial intelligence (AI)-based, voice-led FinTech application that will help users negotiate mobile banking systems, undaunted by language, digital and process literacy.

Two issues dominate the design of such a system: a) the fact that sections of the population that remain excluded from digital financial systems are still handicapped by a lack of comprehension of the (financial) processes and their workings; and b) the need for digital and process literacy to these people to be imparted, on the go, before they can effectively use the available solutions.

The key point to note here is that traditional classroom-type training cannot work effectively. Training the users, especially the lower rung of low-income people, at best, has to be a parallel process if the users need to be enabled to get on the digital bandwagon straight away. That is why an AI-based voice-led application—that can handhold the user through the transaction and other processes—is necessary. In this case, users will be guided by a ‘virtual voice’, in the language of their choice, every step of the way, telling them what to do. Technology can thus be an enabler! 

Thus, while FinTech is still nascent, as applications of AI, machine learning and deep learning become commonplace, the ability and potential of FinTech to serve large numbers of low-income people and the poor is huge. Let us make no mistake about that. FinTech must be well supported by central banks through an enabling developmental regulatory framework as it has significant potential to eliminate commonplace frauds, enhance outreach and deepen access. FinTech can do a lot to enhance financial inclusion and lower actual costs of delivery.[2]

In short, FinTech, in its true, full-grown avatar, will disrupt and transform traditional banking and financial inclusion paradigms like never before and let us welcome and usher in a true FinTech revolution with open arms. As noted earlier, there is a lot that needs to happen if FinTech is to help achieve 100% sustained financial inclusion by 2030 as per UNSDG[3] #1.3—a task that has become complicated, especially because of the COVID-19 crisis and the resultant exclusions in the financial sector.

Having said that, let us ask what FinTech can do for financial stability. Decentralization (and diversification) in the financial system can reduce the effects of financial shocks in most situations. Put differently, the failure of a single and specific kind of firm is less likely to close down the entire financial system—of course, when a large set of systemically important institutions go bust and financial markets are globally inter-connected, then, as in the U.S. subprime (of 2008), a lot of devastation can be felt.

That said, the larger point is that decentralization and diversification, to a large extent, can mitigate the impact of financial shocks. And therefore, one could argue that FinTech, which leads to greater decentralization and diversification, can have a positive impact on financial stability. As an example, the application of distributed ledger technology (DLT) could reduce concentration in the settlement process.

The flip side of the argument is also possible as economies of scale and scope could lead to greater concentration in certain situations. This concentration could result in the increase of non-traditional financial service providers (of systemic importance),[4] who, in turn, could have a (negative) impact on the ability of the financial system to recover from shocks, thereby undermining financial stability.

That said, while I am all for regulatory support to FinTech services, monitoring the quality of internal control of such innovative technology becomes critical. While who should do that is one question, we can all debate (in terms of regulation versus self-regulation), what mechanisms must be used to judge the adequacy of internal controls is something that is clear. Given the financial crisis that happened in 2008 in the United States (subprime) and spread globally and recent instances[5] associated with FinTechs, it is imperative that we focus our attention on four basic aspects related to internal control (especially if these technologies are dealing with people’s money):

  1. Does the technology’s control environment embody the principles of strong internal control?
  2. Whether the risk assessment system in the technology allows for responding to existing and emerging (including political) risks.
  3. Has the technology established effective control activities across its entire spectrum of functions?
  4. Whether the accounting, information and communication systems embedded in the technology ensure that risk-taking activities are within established policy norms and whether these systems have been adequately tested and reviewed.

The above four aspects are critical from the perspective of financial stability and safety. Additionally, all of these FinTech institutions must have the minimum governance, risk management, compensation and internal audits standards to be set out by central banks in their respective countries.

In summary, nothing like an idea whose time has come and the need for an AI-based, voice-led FinTech application—that will help users (including low-income people) negotiate mobile banking systems, undaunted by language, digital and process literacy—is huge today. If effectively designed and operationalized at commercial scale, it could help accelerate financial inclusion and ensure that we easily attain the goal of 100% sustained financial inclusion by 2030 as per UNSDG 1.3.

[1] See ‘Digital Dividends’, World Development Report, World Bank Group,  — last accessed on June 24, 2020.

[2] In this context, it needs to be mentioned that the potential of distributed ledger technology (DLT) for facilitating regulatory compliance is also huge and is dealt with in detail in a subsequent article on regulation and supervision.

[3] United Nation’s Sustainable Development Goals

[4] These non-traditional service providers of financial services must have appropriate mechanisms for general governance, governance of compensation, governance of risk management and independent internal audits.

[5] See ‘How German Fintech Darling Wirecard Fell From Grace’, Bloomberg, June 23, 2020, Stefan Nicola and Sarah Syed, — last accessed on July 28, 2020.

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