April 03, 2021

I’ve spent most of my life trying to advance the twin goals of financial inclusion and fairness. Over those decades, we’ve seen some progress, but not breakthrough success. About eight years ago, I realized that today’s new technologies -- the digitization that’s transforming everything in our lives -- have the potential to get us the rest of the way. I not only think it CAN get us there. I think that the new technology, properly regulated, is the only thing that can. I joined in the huge, expanding, complex global effort to foster markets, products, and regulatory frameworks that can include everyone. And I have watched the progress move fastest and farthest in emerging market countries where financial exclusion has historically been more the norm than the exception and contributes enormously to keeping people in poverty.

My guests today are leaders in the drive to bring the world’s poor into the formal financial system. They are Sharmista Appaya, Financial Sector Specialist at the World Bank Group, and Ivo Jenik, Financial Sector Specialist at CGAP. CGAP stands for the Consultative Group to Assist the Poor and sits within the World Bank as essentially a financial inclusion think tank. I first met Sharmista years ago in London when she headed the Bank of England’s Fintech Accelerator, and I’ve been running into Ivo in interesting places around the world for years, but they are now both based where I am, in Washington DC.

The World Bank has led the way in driving for universal access to the financial system as a core requirement of poverty alleviation. In 2014 it took the catalyzing step of setting a measurable goal: that every adult in the world should have a bank account (or its electronic equivalent) by 2020. Such a plan would of course have been unthinkable a decade or two earlier, but by 2014 it could be envisioned due to one game-changing factor:  the arrival and near-ubiquity of the cell phone. Most parts of the world adopted mobile phones earlier than America did, partly because they had fewer landlines. Nor did most people in most places have a bank. The mobile phone, suddenly, put a bank branch in people’s hands and opened a way to reach them everywhere with a low-cost electronic account that could receive, store and send money. Today’s guests cite a World Bank study finding that digital banks can both acquire customers at a fraction of what it costs a traditional bank, and can then serve them at a tiny fraction of that.

Realizing this inclusive vision, of course, is loaded with challenges, and Sharmista and Ivo explore them in today’s show. The 2020 goal wasn’t fully reached. They describe the remaining gap, as well as the need to build on top of that basic payment account with other financial services that can meet the full scope of people’s financial needs. They talk about what has worked and what hasn’t. They talk about how to get banks to serve this market and the barriers to entry for fintechs. They talk about whether digital banks, so far, are having an impact. They talk about all the key elements in the drive toward inclusion, such as APIs and open banking, credit scoring, use of alternate data in underwriting, embedded finance, and the need for every country to have home-grown innovators and entrepreneurs.

They talk about the CRITICAL role of interoperability in this system, especially between the new digital entrants and incumbent banks, and who is solving for it -- including Mojaloop, with whom we have a show coming up.

And of course, they talk about identity authentication -- the need for everyone to be easily able to prove who they are, just to get in the door to the financial system. They cover global innovations underway in digital and non-digital identity, the related risks of data breaches, the fraud reduction improvement, and the burgeoning use cases, including for refugees.

They also talk about the massive legal and regulatory challenges, from obsolete structures to consumer protection to fraud (which COVID has made worse) to fighting global financial crime. They explore how regulators are responding, including with innovations like regulatory sandboxes -- about 80 countries now have these, to TechSprints.

And, of course, they talk about what has changed due to COVID -- which is, pretty much, everything. One example:  800 new online lenders started up during the pandemic in India alone.

I’m often struck by the disconnect between people in the US versus emerging markets who care about financial inclusion. In the US, we often see skepticism that fintech innovation can bring more good than harm. In countries that have huge numbers of very poor people who are completely disconnected from the formal financial system, it’s the exact opposite: they see technology not as the problem, but as the solution. Of course, they see the risks too and are working on them, but most of their energies go into leveraging new technology. At AIR we work with countries and with many global organizations tackling the challenge: the World Bank and CGAP, the UN, the UN International Telecommunications Union, the Alliance for Financial Inclusion, or AFI (which consists of the financial regulators of the Global South), and the Gates Foundation, Flourish Ventures and the Omidyar Network, which have funded so many of these efforts.  Their financial inclusion strategies are all tech-first. They’ve done years of work in how to reach people, educate them, widen their choices, and protect them. They have so much to teach us all.

More on Sharmista

Sharmista is a Senior Financial Sector specialist in Finance, Competitiveness, and Innovation (FCI) Global Practice at the World Bank Group where she analyzes Fintech and its application to financial inclusion. She works to support governments in emerging economies to identify key regulatory and policy challenges and solutions to enable fintech products, services, and business models.

Prior to joining the World Bank, Sharmista was the Head of the Fintech Accelerator at the Bank of England in London looking at innovative firms and technologies to understand both the applications of these innovations and their implications for Central Banking practices. She currently chairs the Digital ID working group under the Financial Inclusion Global Initiative (FIGI) – a joint initiative of Gates Foundation, UN’s ITU, and the World Bank Group.

More on Ivo

Ivo is a financial sector specialist at CGAP. He has 10 years of experience in finance, primarily in retail financial services regulation. He has led CGAP’s work on regulatory innovation (crowdfunding, regulatory sandboxes) and capacity building for policymakers (regulation and supervision of digital financial services) across continents.

Before joining CGAP, Ivo worked in the Responsible Financial Access team at the World Bank, where he specialized in financial consumer protection and alternative dispute resolution. His professional experience spans both the private and public sectors, including serving as a compliance officer at an investment company and as head of the Collective Investment Department at the Czech Financial Ombudsman.

Ivo has a Master’s degree in Law from Columbia Law School in New York and a Master’s degree in Law from Charles University in Prague.

More for our Listeners

Last week, AIR joined with the UK Financial Conduct Authority in co-hosting the Women’s Economic Empowerment TechSprint & Conference. The events raised awareness of the critical financial issues facing vulnerable women, especially amidst the COVID pandemic, and generated potential solutions. We also explored the careers of women in regulation and in technology. Speakers included FDIC Chairman Jelena McWilliams, Baroness Hale of Richmond, GCAP CEO Greta Bull, Kenya Central Bank Deputy Governor Sheila M’Mbijjewe, Assistant Sub-governor of Fintech & Innovation at Central Bank of Egypt Dr. Rasha Negm, and Counselor to the Deputy Secretary, U.S. Department of the Treasury Elizabeth Rosenberg. In a spirit of women helping women, most of the sprint teams and speakers and all of the judges were female. You can still watch the replay of all the sessions as well as Demo Day here. We are exploring plans for a follow-up sprint with hubs in emerging markets.

There are more exciting shows coming up on the Barefoot Innovation Podcast! You will hear me talk with Paula Hunter and Lesly-Ann Vaughan of Mojaloop, Rob Nichols of the American Bankers Association, Douglas Arner of Hong Kong University, John Ryan of the CSBS, and Sultan Meghji of the FDIC.

Join me on Tuesday, April 7th at the ACAMS International Conference on financial crime, LendIt on April 27th, and Fintech South in June! You can also still watch the replay of my SXSW panel session with Cleve Mesidor of the National Policy Network of Women of Color in Blockchain.

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