Digital technology and bank system – a Democratic Revolution
By Irene Signorelli
Digital technologies have utterly changed our world. From leisure to work, from interpersonal interactions to worldwide communication, from economy to politics, new digital devices and inventions have transformed the way we do things, they have reformed the way we live.
As every dramatic transformation or revolution, also the digital one has brought new opportunities and new benefit for who could get access to them. But, and here it’s the difference, the new digital technologies are available to a wider portion of population living in developing or underdeveloped countries, not only to the lucky people of the already developed one. These new opportunities and benefits are both spreading beyond the first world borders and being claimed by the emarginated living inside rich societies.
The democratic aspect of the digital revolution could be clarified by looking at the main transformations happening inside banking and finance sector. As in every sector the new technologies are relieving human from more and more tasks, both inside working contests (new Robo-advice is starting to taking over banking counsellors) and in the daily life (thanks to home banking or bank’s apps costumers are no more forced to physically go to the bank for completing a transaction). Beside the robotization of the finance and banking system, what is truly remarkable is the capacity of new technologies in making these systems more reachable by a huge stratum of population, who before couldn’t gain the access to them.
Financial inclusion polices are defined as strategies for the removal or the lowering of social, bureaucratic and economic barriers that forbid shares of population to benefit from a bank account or other basic finance services, like being granted of a loan.
Financial exclusion is strictly linked to social one: in order to fully participate to economic and social life of their country, citizens need to have basic financial services available. Poverty and social exclusion block them to gain these kinds of services. Indeed, banks and finance institutes allow the opening of an account only after the fulfilment of strict requirements: minimum credit or income, residence proves (like local taxes and utilities), previous banking documents etc. If these standards are easily reachable by a middle class employed citizen, the situation is completely different for low income citizens, migrants or refugees. The result is a vicious circle where social exclusion brings to financial exclusion, either due to lack of funds, volatile or low income, lack of documents or lack of residence. Furthermore, the latter worsen the former, as without the support of banking services marginalized people could never overcome these obstacles and take part to the economic and social life of their countries.
Nowadays, however, marginalized or unbanked people could count on strong allies: new digital technologies and their application to banking and finance systems.
Thanks to the digital revolution, indeed, banking services have become more accessible to everyone, both rich, middle class and poor ones. Even if the process of digitalization of banking services was aimed just to cut costs and simplify the process, in order to reach a wider range of customers (like young people or modern entrepreneurs), the new technologized services have opened new possibilities also for the ones who had previously been forced outsiders. Digital banking had cut costs for everyone.
Both modern new-born start-ups and solid banking groups are starting to provide different kind of services that require looser identity rules and income minimum, while providing the same finance utilities like on line account and money transfer in different countries and currencies.
To get a concrete idea of how digital revolution is helping the last ones, here some examples of new innovative bank systems already using new technologies for decreasing both costs and general guidelines.
Monese, a London based start-up, created a system of identification that doesn’t need of the physical presence of the customer in the bank or the handing over of concrete paper documents.
Basically, whoever is willing to open an account, just need of a selfie and some pictures of his/her passport or ID. Thanks to this innovative method and its algorithm, Monese can now count on more than 56,000 potential customers. Even if Monese could not be qualified as a bank, as it doesn’t have the licence, it is still working with other European banks, thanks to an e-money licence, that allows to digitally hold client’s money but not invest it or extend credit.
The benefits for Monese account holders are several: beside the possibility to open an account from wherever they are and in 120 seconds, they are granted of a Visa debit card linked to the account, with whom they can cash withdrawal and make online payments for free. Moreover, they can withrdrawl oversee or transfer money abroad for a small fee.
Monese’s services are specifically targeting migrants who have just entered in UK and who are having big problems in opening a normal bank account. Asylum seekers and refugees could even find more obstacles as they cannot provide previous bank certification and documents. However, after 2015 peak of refugee arrivals in Europe, some banks and start-ups have begun to change their rules. In Germany, Ban Fin a banking regulator, lowered its certification and identity rules, and provided limited banking facilities, like cup on the amounts of money allowed being stored on the accounts, or transfer of small sums.
With the same target, the Finnish start up MONI has already started to offer similar services to asylum seekers or refugees. As Monese, the Finnish start up created block-chain accounts that assure high identity certification accuracy without the rigid and outdated bank procedure. At the same time, instant payments and transfer of money permits to refugees to lend moneys to relatives or friends in need. At the same time, relatives can send money without needing of entrust cash to the post.
MONI’s success brought Finnish government to start a pilot-project in collaboration with the start-up, which is assuring accounts and debit cards to hosted refugees granted with monthly allowence permit and temporary identification cards.
This are only few examples of the new possibilities that digital technology is bringing inside economic and finance sector, and mostly, they enlighten the democratization process of such benefits. Are not only modern CEO or entrepreneurs who can now take advantage of the digitalization of economy. Thanks to the new algorithm, devices and systems, even who has been left behind before, now can overpass the several obstacles to its social and financial inclusion.
However, these are the first steps in the right direction, but a lot is still left to do.
In 2016 the World Bank published its “World Development Report on Digital Dividends”, i.e. the development and broader of digital technologies benefits. The main point of the Report is that, digital development is not a sole matter of access to the new technologies. With the aim of spread the advantages of such technologies, three main factors need to be addressed: regulation, skill and institutions. To get the most from the digital revolution, countries need to works on the strengthening of their regulations, in order to ensure fair competition among businesses, on the adapting process of workers’ skills to the demands of the new economy, for avoiding a further gap among worker’s know how and masteries required by modern and developed job placements, and finally, countries need to ensure the accountability of their institutions, hence, check if they behave correctly and in the respect of the rule of law. These three points need to enter inside countries’ agendas because even if digital revolution has started to show its equalitarian side, the concrete application of it requires a strong commitment by states and business. Technology provide us formidable tools to narrowing the gap between rich and poor, still, a lot depend on how we will decide to use them.