COVID-19 has left the financial system of most countries in turmoil and transition at the same time. The resulting financial crisis and its aftermath have wreaked havoc on the worldwide political economy, resulting in a prolonged era of low growth and volatility. Alongside, the financial system is transitioning in part as a result of the upheaval, which has increased the role of developing nations in global banking through policy and regulatory forces. The pandemic was a wake-up call for most countries and industries with respect to the importance of sustainability.
But how can Finance be connected to Sustainability? How can technological advancement in the industry contribute to green and social values? The combination was discussed by United Nations in a report called - Fintech and Sustainability Development: Assessing the Implications. The report compares sustainable development, and new (financial) technology with two 'strains' of DNA. They are both capable of ‘developing new, sustainable business models’ and have the same ‘fundamental potential as change and effect drivers.’ It is aimed at encouraging financial institutions and fintech start-ups to collaborate with a new sense of purpose by including long-term development goals into their new value propositions.
The Role of Fintech in the United Nations Sustainable Development Goals
The SDGs were established by the United Nations member states (193 of the world's 195 countries) in 2015 as a worldwide call to action to eradicate poverty, safeguard the environment, and ensure that the entire population experiences peace and prosperity by 2030. The 17 key goals are defined with a principle of ‘leaving no one behind’ and entails taking concrete steps to alleviate severe poverty, reduce disparities, combat prejudice, and accelerate progress for the most vulnerable.
Let’s understand the role of the fintech industry in achieving these goals.
Invented for the Bitcoin use case, blockchain technology has tremendous potential to help achieve the SDGs - for starters it can be used to deliver food vouchers in refugee camps, in upgrading property and land registries as well as in boost access to national identification. A notable example here is the use of technology by the WFP (World Bank Food Program). WFP used blockchain to send cash to Syrian refugees in Jordan and needy families in Pakistan. The migrants use a biometric scan of their eyes to purchase food from local stores. This allows for the digitization and protection of beneficiaries' data, the elimination of fraud, and the reduction of administrative costs.
e-KYC solution is a major boost for financial inclusion, especially through mobile money solutions. As compared to banks, mobile money solutions require much lesser KYC information thus it makes subscribing to mobile money accounts easier and more accessible. Because of the nature of banking products and their participation in increased transaction volumes, banks require a higher level of KYC, and this explains why the use of mobile money has grown so quickly especially after the pandemic in comparison to the opening of bank accounts. Meanwhile, the advancement in biometric technology and combination of e-KYC and biometrics is further improving the user experience and reliability of digital identities.
Mobile Money Technology
Mobile money is electronic money (e-money) that is sent and received via mobile networks and SIM-enabled devices, typically smartphones. Depending on the local regulation and business model, mobile money can be issued by a Mobile Network Operator (MNO), a financial institution, or another permitted third-party provider. It is a relatively feasible alternative to traditional banking due to low bank penetration and significant mobile uptake. Mobile money solutions are being employed across the globe for utility and bill payments, money transfers, merchant payments, insurance, international remittances, peer-to-peer transfer, salary disbursement, and payments of taxes. This not only boosts financial inclusion, but also enhances social inclusion by providing products that make fundamental services in health, agriculture, and education more accessible.
Holistic Digital Financial Platforms
Fintech companies and start-ups are currently driving innovation in the global financial system by employing modern technology. These advancements in the industry of finance have resulted in massive use of digital financial services to open financial accounts over visiting a bank branch. Through digital financial solutions, users can open an account, access loans, and insurance products, store and transfer value thus facilitating financial inclusion. Further on, agents are being empowered to handle financial operations such as cash-in and cash-out for people in distant areas in countries with low bank penetration. These agents also open bank accounts through their mobile applications, which in turn boosts financial inclusion too.
Moving Towards a Sustainable Economy with Fintech
The world is moving towards more sustainable economic models, that have the potential to generate USD 12 trillion in annual economic potential by 2030. Fintech can assist companies in evaluating and reducing their environmental effect, as well as investors in channeling their activities towards more sustainable assets, using technology such as advanced data analytics, blockchain, and artificial intelligence. However, laws, regulations, standards, and technological and market innovation, will be required to foster the benefits of digital financing while mitigating the potential risks.