Although the emergence of start-ups in the field of financial technology (FinTech) is often seen as a threat by traditional banks, representatives of these two sectors of activity called jointly for a partnership for growth, at the Digital Finance Europe conference in Brussels on Wednesday 26 September.
Amongst other things, this desire for cooperation can be illustrated by the cooperation between the European Banking Federation (EBF) and the platform B-Hive, which brings together several actors in the financial sector with Belgian and international digital start-ups, with the two organisations being behind the event.
Speakers stressed that the European Union needs to lead the way and ensure an appropriate regulatory environment that is conducive to innovation and guarantees financial stability. “I strongly believe we can be in the front turn of a swift to the new digital model. The financial sector will have to organise itself differently, it is certain”, said the Belgian finance minister, Johan Van Overtveldt.
Even so, he warned against being blind to the risks. Links with the shadow banking system must additionally be clarified and various questions resolved. “Are there systemic risks hidden in those financial streams of which we are not aware today?” he asked.
Speaking on behalf of the European Commission, Roberto Viola of the Directorate General for Technology referred to the logic underlying the European FinTech action plan (see EUROPE 11977).
“It was a hard task to fix how much new laws we want to inject in this new world”, he said, adding that the Commission had decided to go no further than setting new rules for crowdfunding only.
“I think we have in FinTech legal, social and economic challenges. No one can muster everything; a lot of things are unknown. We need cooperation. We have not rushed under regulation and we won't”, he concluded.
The FinTech revolution at the service of financial inclusion
“Why have banks left a little less than a third of the world population unbanked?” asked Kosta Peric of the American Bill & Melinda Gates Foundation, which is working, amongst other things, on creating an 'Internet of payments'.
He explained that there are four barriers that can be broken through today by financial technology. Firstly, there is the need to reach for people wherever they are. Nearly 78% of these people live in rural areas, where it is often not financially attractive enough for banks to set up shop there. The solution? Developing digital portfolios through mobile telephones. “And there is no need for smartphones”, Peric added.
Today, 90% of people living in underdeveloped geographical areas have a mobile telephone. In Kenya, the M-Pesa system is used by 28 million people, or 58% of the population, and makes it possible to send money as quickly as a text message.
Daring to take risks may serve this new generation of customers: this is the second barrier. “But doing business is all about risks”, Peric pointed out, referring to successful services such as Paytm Wallet in India, which now has 200 million customers.
The third barrier concerns monopoly situations. It appears that in certain countries, pioneers in these services are reluctant to share their dominant position, he explained.
In Kenya, for instance, to carry out a transaction via M-Pesa, both the issuer and the recipient must use the system. The next challenge, therefore, is interoperability for these countries and Peric can already see several ways of making a contribution to this, such as the open source software 'Mojaloop', developed by his foundation to help financial services businesses to meet this challenge.
As for the fourth barrier, this is psychological, as financial companies still struggle to see impoverished populations as potential customers. (Original version in French by Marion Fontana)