Towards a Citizen-Centric Financial System

To scale up from early signals of digital financing aligned to the SDGs requires citizen-centric finance that empowers people as buyers, savers, investors, borrowers and lenders, as well as tax-payers and the users of public services and infrastructure.

Digitalization’s heartbeat is the valued aggregation of many small parts. Digitalization enables large amounts of data, to be cheaply collected and quickly analysed and used. It enables servicing the hard to reach mass market at lower cost. Massive volume of payments data can enable automated lending. Cheap aggregation of small amounts of money can mobilize smaller-scale crowdfunding as well as larger scale financing, exemplified by Kenya’s M-Akiba retail bonds or UK’s PrimaryBid that allows retail investors to participate in corporate equity fundraising.

citizens can be informed and empowered through digitalization. citizens are the ultimate owners of all financial capital. Yet the opaque complexity of modern finance has, as we have argued above, stripped out their effective agency in most financing decisions. Digitalization is potentially a game changer in reconnecting citizen’s priorities with financing decisions.

Digital finance increases financial inclusion. Digitalization can first and foremost empower citizens by providing basic financial inclusion. While the vast majority of account owners have an account at a bank, a microfinance institution, or another type of regulated financial institution, mobile money accounts are also growing and reaching new customers, particularly in Africa and least developed countries. Digital finance has enabled millions of women, youth, rural residents, people with low incomes, and small business owners to save safely, borrow cheaply, invest securely, and insure easily. There is further potential to reach other groups such as the elderly and forcibly displaced people. The broader development impact of greater financial inclusion has become a topic of some debate, highlighting the need for adequate consumer protection safeguards. However, what is clear is that digitalization has enhanced citizen’s ability to manage their finances and their agency within the formal financial system.

Quate

“Digitalization’s heartbeat is the valued aggregation of many small parts.”

 

 

 

New entrants and traditional financial institutions are diversifying the range of financial services available to currently ‘underbanked’ citizens who lack appropriate and affordable options. They are also devising solutions to help customers improve financial management through automated reminders, alerts, and nudges. For example, research shows that people save more when savings products are supported by two-way SMS, mobile learning platforms, and commitment mechanisms like default contributions and locked savings pots.

citizens care about more than financial returns and, if they are given information can make decisions which steer their money more effectively towards their goals. Digitalization enables citizens to be more informed and engaged in steering the use of funds intermediated by public or private intermediaries on their behalf. Financial intermediaries can and need to play a critical role in connecting financial markets to individual end-users in an efficient way and in mitigating many risks for end-users. However, while intermediaries optimize risk adjusted financial returns within any given investment universe, citizens have broader concerns, most directly including the fear of job loss and the health and safety of their families, through to broader issues such as climate change. Wider disclosure of companies’ environmental and social impact, reliable information on global supply chains and production processes, and open data on public budgets and projects allow citizens to direct their own financial decisions in line with their values. Responding to customer demand, banks such as Dutch Triodos Bank, German UmweltBank AG, Indian YES BANK, BNP Paribas, ING Bank, and Société Générale are increasingly offering sustainable products such as green deposit and savings accounts, funds, lending and mortgages.

By making more and better data available and actionable, digitalization enables citizens to make more informed financing decisions, expressing both their direct financial and non-financial interests. Environmental, social and governance data is increasingly being produced, standardized and used by financial intermediaries. European Union (EU) regulations require pension funds to consult with intended beneficiaries, in shaping their investment strategies and mandates, digital data and technologies offer a means to do this effectively. In 2018, over 50 percent of shareholder resolutions filed in the US focused on environmental and social issues, greater access to data can further inform SDG-related shareholder resolutions. Credit Suisse suggests that ‘responsible consumption’ could amount to US$4.5 trillion annually by 2030. Robo-advisors, including DBS’ digiPortfolio, are playing a role in democratizing investment management services by reducing commissions and lowering capital thresholds.

citizens and their representatives have used open data to hold governments to account for the use of public finance. Open government data standards and portals and information crowdsourced from citizens allows civil society organizations, media and parliamentarians to track public spending on social services or infrastructure projects. For example, in Mexico, citizen groups used the Budget Transparency Project to push for more sustainable transportation, in Argentina, women’s rights groups insisted on adequate budget allocation for action on gender-based violence after identifying budget gaps, and in Colombia information on projects funded with mining royalties published on MapaRegalias platform improved project completion rates and increased the number of irregular cases brought to courtRegistries of company ownership are being made public enabling citizens, regulators, law enforcement and potential business partners to more easily see who they do business with and identify any government connections. The Open Corporates database aggregates information from public registries and to date covers 160 million companies, with 1.2 million users a month.

Digitalization creates new ways for citizens to connect and to act collectively through aggregation of individual financing decisions. Digital platforms and marketplaces connect producers and consumers, capital holders and capital seekers and allow them to make deals together. Integration of sustainability information into online shopping sitesand greater convenience in accessing sustainable products and services have boosted sustainable consumption. Crowdfunding platforms and peer-to-peer lending has opened new avenues for aggregating atomized interests, enabling citizens to overcome trust barriers and free riders to act collectively in financing things they value. Through special-interest platforms, citizens have mobilized and funded each other’s sustainable development projects ranging from renewable energy to legal cases to protect the environment and human rights.

UK-based crowd-sourcing platform, Abundance, for example, is offering small investments in sustainable municipal projects to residents of these city areas. Alipay Ant Forest platform has 550 million users who have collectively reduced carbon emissions by over 12 million tons by May 2020. Digital currencies and assets are being used to tokenize sustainable behaviours and natural capital, allowing citizens or citizen groups to back them. Digital community currencies such as PositiveBlockchain.io are testing ways to unlock citizen choice in consuming and supporting local businesses and economies.

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UN Secretary-General’s High-level Panel on Digital Cooperation:  The Age of Digital Interdependence (2019)
Open Government Partnership

 

To scale up from early signals of digital financing aligned to the SDGs requires citizen-centric finance that empowers people as buyers, savers, investors, borrowers and lenders, as well as tax-payers and the users of public services and infrastructure.

Digitalization’s heartbeat is the valued aggregation of many small parts. Digitalization enables large amounts of data, to be cheaply collected and quickly analysed and used. It enables servicing the hard to reach mass market at lower cost. Massive volume of payments data can enable automated lending. Cheap aggregation of small amounts of money can mobilize smaller-scale crowdfunding as well as larger scale financing, exemplified by Kenya’s M-Akiba retail bonds or UK’s PrimaryBid that allows retail investors to participate in corporate equity fundraising.

citizens can be informed and empowered through digitalization. citizens are the ultimate owners of all financial capital. Yet the opaque complexity of modern finance has, as we have argued above, stripped out their effective agency in most financing decisions. Digitalization is potentially a game changer in reconnecting citizen’s priorities with financing decisions.

Digital finance increases financial inclusion. Digitalization can first and foremost empower citizens by providing basic financial inclusion. While the vast majority of account owners have an account at a bank, a microfinance institution, or another type of regulated financial institution, mobile money accounts are also growing and reaching new customers, particularly in Africa and least developed countries. Digital finance has enabled millions of women, youth, rural residents, people with low incomes, and small business owners to save safely, borrow cheaply, invest securely, and insure easily. There is further potential to reach other groups such as the elderly and forcibly displaced people. The broader development impact of greater financial inclusion has become a topic of some debate, highlighting the need for adequate consumer protection safeguards. However, what is clear is that digitalization has enhanced citizen’s ability to manage their finances and their agency within the formal financial system.

Quate

“Digitalization’s heartbeat is the valued aggregation of many small parts.”

 

 

 

New entrants and traditional financial institutions are diversifying the range of financial services available to currently ‘underbanked’ citizens who lack appropriate and affordable options. They are also devising solutions to help customers improve financial management through automated reminders, alerts, and nudges. For example, research shows that people save more when savings products are supported by two-way SMS, mobile learning platforms, and commitment mechanisms like default contributions and locked savings pots.

citizens care about more than financial returns and, if they are given information can make decisions which steer their money more effectively towards their goals. Digitalization enables citizens to be more informed and engaged in steering the use of funds intermediated by public or private intermediaries on their behalf. Financial intermediaries can and need to play a critical role in connecting financial markets to individual end-users in an efficient way and in mitigating many risks for end-users. However, while intermediaries optimize risk adjusted financial returns within any given investment universe, citizens have broader concerns, most directly including the fear of job loss and the health and safety of their families, through to broader issues such as climate change. Wider disclosure of companies’ environmental and social impact, reliable information on global supply chains and production processes, and open data on public budgets and projects allow citizens to direct their own financial decisions in line with their values. Responding to customer demand, banks such as Dutch Triodos Bank, German UmweltBank AG, Indian YES BANK, BNP Paribas, ING Bank, and Société Générale are increasingly offering sustainable products such as green deposit and savings accounts, funds, lending and mortgages.

By making more and better data available and actionable, digitalization enables citizens to make more informed financing decisions, expressing both their direct financial and non-financial interests. Environmental, social and governance data is increasingly being produced, standardized and used by financial intermediaries. European Union (EU) regulations require pension funds to consult with intended beneficiaries, in shaping their investment strategies and mandates, digital data and technologies offer a means to do this effectively. In 2018, over 50 percent of shareholder resolutions filed in the US focused on environmental and social issues, greater access to data can further inform SDG-related shareholder resolutions. Credit Suisse suggests that ‘responsible consumption’ could amount to US$4.5 trillion annually by 2030. Robo-advisors, including DBS’ digiPortfolio, are playing a role in democratizing investment management services by reducing commissions and lowering capital thresholds.

citizens and their representatives have used open data to hold governments to account for the use of public finance. Open government data standards and portals and information crowdsourced from citizens allows civil society organizations, media and parliamentarians to track public spending on social services or infrastructure projects. For example, in Mexico, citizen groups used the Budget Transparency Project to push for more sustainable transportation, in Argentina, women’s rights groups insisted on adequate budget allocation for action on gender-based violence after identifying budget gaps, and in Colombia information on projects funded with mining royalties published on MapaRegalias platform improved project completion rates and increased the number of irregular cases brought to courtRegistries of company ownership are being made public enabling citizens, regulators, law enforcement and potential business partners to more easily see who they do business with and identify any government connections. The Open Corporates database aggregates information from public registries and to date covers 160 million companies, with 1.2 million users a month.

Digitalization creates new ways for citizens to connect and to act collectively through aggregation of individual financing decisions. Digital platforms and marketplaces connect producers and consumers, capital holders and capital seekers and allow them to make deals together. Integration of sustainability information into online shopping sitesand greater convenience in accessing sustainable products and services have boosted sustainable consumption. Crowdfunding platforms and peer-to-peer lending has opened new avenues for aggregating atomized interests, enabling citizens to overcome trust barriers and free riders to act collectively in financing things they value. Through special-interest platforms, citizens have mobilized and funded each other’s sustainable development projects ranging from renewable energy to legal cases to protect the environment and human rights.

UK-based crowd-sourcing platform, Abundance, for example, is offering small investments in sustainable municipal projects to residents of these city areas. Alipay Ant Forest platform has 550 million users who have collectively reduced carbon emissions by over 12 million tons by May 2020. Digital currencies and assets are being used to tokenize sustainable behaviours and natural capital, allowing citizens or citizen groups to back them. Digital community currencies such as PositiveBlockchain.io are testing ways to unlock citizen choice in consuming and supporting local businesses and economies.

Icon
UN Secretary-General’s High-level Panel on Digital Cooperation:  The Age of Digital Interdependence (2019)
Open Government Partnership