How digital finance can create a fairer world

The Spanish Flu of 1918 did not respect borders nor social class. In response, Russia, followed by Germany, France and the United Kingdom were amongst the first countries to put centralized public healthcare systems in place. Now, just over 100 years later, the COVID-19 pandemic is radically re-shaping our daily lives, including an area that has needs an urgent update for the 21st Century – our financial lives.  

To do this, we must unlock the immense potential of digital finance and the financial technologies (or “fintech”) that underpin it to allow people to take full control of their finances. This is perhaps most clearly visible through the power of mobile money pioneered in Africa. It allows people to receive, store, spend money and even get loans -- simply using a text-based service on their mobile phone. Indeed, the COVID-19 pandemic has propelled a myriad of new openings as economies faltered. For instance, the Ugandan SafeBoda taxi hailing mobile app launched a new e-commerce platform to allow consumers to buy grocery deliveries from market vendors as the country went into lockdown.

And this is the crucial point -- the ready access to payment platforms and services including credit shows potential for alleviating poverty, reduce inequality and propel much-needed development in countries. In Kenya alone, it is estimated that access to mobile money has lifted nearly 200,000 households out of poverty. So, the UN Secretary-General, António Guterres, set-up a Task Force to identify the ways that digital finance can accelerate the Sustainable Development Goals -- the international blueprint to realise that greener, more resilient and more sustainable future.

Our final report’s findings take on a unique relevance as countries seek concrete solutions to tackle the deep socio-economic scars of COVID-19 as old financial systems stutter. Dutch banking giant ING has announced that it is closing one quarter of its physical branches while reports about the physical transmission of the virus on banknotes are accelerating the shift to digital payments. And those digital payments are lifesaving for those living in extreme poverty – from Chile to Thailand to Peru. One of our report’s main findings is that countries need to rapidly digitalize of range of government payments due to the huge potential savings that can be re-directed to much-need funding for development. The IMF estimates that it would save developing countries between US $220-$320 billion annually.

Yet, while the world is awash with literally trillions of dollars – the people’s money – it is still is not aligned with Global Goals, from tackling climate change to ensuring quality education. This is due to gaps, weaknesses and distortions in institutions and markets. People are crying out for their money and savings to go towards sustainable causes including projects which protect our natural world. Yet since the 2008-9 financial crisis, financial services are less trusted ‘to do what is right’ than any other part of the business community.

But new innovations are putting power and new choices at people’s fingertips. Crowdfunding platforms like Oneplanetcrowd allow users to fund finance sustainable projects. Digital finance is making easier to channel investment to green projects – reflected in the massive recent spike in the issuance of green bonds. Or in Bangladesh, which is channelling micro-savings into investments in sustainable infrastructure, reducing cost of capital and returning dividends to poorer Bangladeshi citizens.

It is also helping to set the conditions to create jobs. For instance, the EcoCash payments platform in Zimbabwe has launched a world-first stock exchange that draws on payments data to provide robust due diligence and credit rating for prospective listings. It is opening-up a crucial debt and equity financing window for SMEs operating in difficult economic conditions.

There are hurdles. 750 million people remain without physical access to a mobile or broadband network. Digitalization puts people at risk of privacy violations and data security breaches, fraud and irresponsible lending. And the digitalization of finance creates a possibility that Artificial Intelligence or algorithms will replicate gender and other biases and discrimination. 

In the aftermath of the carnage of the First World War and an indiscriminate pandemic, the world tried to pivot towards a more peaceful, fairer future. Now in 2020, nations must seize upon the renewed global solidarity to harness the power of digital finance to power the COVID-19 recovery in a world already rampant with inequality. As an immediate step, countries must come together and tame the current “wild west” of digital finance. We are calling for strengthened inclusive international governance – including robust policies, regulations, standards, and corporate governance arrangements at the international level – to allow digital finance to flourish.

When citizens can fully leverage the power of digital finance, the people’s money will be used to create that fairer, more sustainable future.

The Task Force’s final report “People’s Money: Harnessing Digitalization to Finance a Sustainable Future” is launched in New York City on 26 August 2020. It outlines five major opportunities to both deliver SDG financing and re-shape the financial system -- covering capital markets, public finance, citizen’s savings and spending, and SMEs. To read more about the UN Secretary-General’s Digital Finance Taskforce, visit: https://digitalfinancingtaskforce.org/about-the-task-force/

The opinions expressed herein are solely those of the authors and do not necessarily reflect the official views of the GGKP or its Partners.