The Task Force highlighted three fundamental features of digital financing: more and better data, reduced transaction and intermediation costs and the emergence of innovative business models.
Digital financing has broadened access to financial services for millions of low-income customers and MSMEs around the world. Banks across Asia, Africa and Latin America have offered services to millions of previously underserved customers. For example, in:
- China, MYbank uses Alipay’s technology to serve millions of SMEs with loans taking less than three minutes to apply, one second to approve and needing zero human intervention. The lending model comes with a steady non-performing loan ratio of about 1 percent.
- India, fintech start-ups such as LenddoEFL and CreditVidya offer collateral-free, credit lines, augmented with social media, psychometric, big data, and geo-location information.
- Kenya, Equity Bank used ATMs, mobile branches and agents to reach a previously unserved customer base. In Indonesia, BTPN has over 250,000 agents.
- Latin America, Mercado Libre provides SME loans, one third of which would have been assessed as ‘high risk’ based solely on traditional credit bureau information.
- Mexico, Banco Azteca has grown its customer base from 0 to 8 million in 5 years by connecting electronic banking to large retail chains.
- The Solomon Islands, National Provident Fund’s “You Save” account enables people to pay money into their retirement savings accounts using a simple three-digit code to transfer airtime credit.
- Major banks are applying machine learning to assess credit risk. While initially this was concentrated on consumer credit and large corporations they are now also beginning to apply this to the SME sector.
Digital agriculture platforms such as HeveaConnect, a digital marketplace for sustainably processed natural rubber, offers trade financing and insurance to rubber producers. Similarly, DigiFarm and AgriBuddy provide finance in addition to agricultural inputs farming information and product markets. This not only offers access to financing but tailored services that enable economic advancement of MSMEs and women and youth education and employment.
Using digital finance can be a key step towards formalization for the two thirds of the global workforce that is engaged in the informal economy. Mobile money accounts can be a first step towards access to finance, social safety nets, and formalization of small savings and microinsurance, which aggregated can provide a source of capital for SDG implementation on a broad scale.
The UN Secretary-General’s Special Advocate for Inclusive Finance for Development (UNSGSA) CEO Partnership for Economic Inclusion has catalysed Mastercard and Rabobank to scale up a digital platform that connects small-scale farmers with buyers, provides mobile payment tools, and builds transactions records to give people a financial track record. The Better Than Cash Alliance, a partnership of governments, companies and international organizations is working to accelerate the transition from cash to digital payments to advance the Sustainable Development Goals. Central Banks are considering issuing their own digital currencies in order to support financial inclusion, operational efficiency, financial stability, monetary policy effectiveness, and financial integrity.
Banks, mobile operators, digital platforms and fintech start-ups are using big data to expand access and lower the cost of credit, reduce application times, and offer existing debt refinancing alternatives. A recent Consumer Financial Protection Bureau study found that digitally enhanced scoring resulted in 27 percent more loan approvals with 16 percent lower interest rates across all customer segments. Research finds that digital finance in developing countries increases savings behaviour.
In developed countries, new fintech-enabled entrants are offering substantially higher interest rates on deposits, often double or triple those offered by traditional banks. Robo-advisors have expanded people’s access to well-diversified asset pools by lowering capital thresholds and cutting out expensive financial advisors.These services charge as low as 0.25 percent of assets managed compared to 0.75-1.5 percent by traditional intermediaries.
Marketplaces and exchanges can link producers and consumers concerned with sustainability, facilitating sales of carbon credits, biodiversity offsets and ethically sourced and labelled products. IHS Market’s Environmental Registry is the world’s largest and allows buyers and sellers to track environmental projects, list, issue, transfer and retire credits for carbon, water and biodiversity. Other digital exchanges such as Puro, AirCarbon or ClimateTrade are supporting the decentralization and scaling of carbon markets. Some online platforms specialise in sign-posting sustainability: a wide range of generalistand specialized ethical and sustainable digital marketplacesare targeting consumers in developed countries and emerging markets such as Indonesia. These platforms have given consumers wider options for aligning their investment and consumption decisions with their values.
Cheap digital money transfers facilitate both private remittances and public assistance disbursements, supporting greater economic security. Remittance providers like WorldRemit, allow people to send money home cheaper and faster than incumbents. Companies like TransferWise are partnering with banks to offer compelling remittance products, while mobile money seems positioned to transform the remittance market. The G20 and Bank of International Settlement’s Committee on Payments and Market Infrastructures cross-border payments initiatives are addressing barriers to cheaper and faster cross border payments including remittances.
Governments and humanitarian agencies use electronic transfers to distribute social payments, improving efficiency and transparency and reducing leakage. Digitalization has saved India’s government an estimated US$22 billion to date, and Mexico saw US$1.3 billion annual savings after digitizing its treasury functions. UNHCR, WFP, UNICEF and UN Women who collectively deliver over half of global humanitarian cash assistance have digitized transfers in contexts where connectivity, payment infrastructure and digital financial services were available and are currently working on scaling up and harmonizing their approaches.
