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The Democratisation of Financial Services (Demo)

MTN Ghana’s recent Initial Public Offering (IPO) did not just make history as the largest ever IPO in the country. It also made history as the first IPO in the world whose shares can be purchased through mobile money, using USSD.

This is not just a technological feat. It goes further to offer a glimpse into the social impact of the digitisation of financial services and the democratisation of financial services

Financial institutions have always been at the fore-front in the adoption of technology to deliver superior customer services, operate more efficiently, and gain competitive advantage. This has led to the development of an ecosystem of digital financial services that have seen the roll out of ATMs, credit cards, PoS terminals, mobile payment, mobile money and e-wallet services amongst others.

Beyond the business case of investing in digitised financial services, often overlooked is its social impact on our society. The social impact is most times encapsulated in Financial Inclusion, which is further analysed from the perspective of different stakeholders in the financial sector.

Taking the Financial Inclusion of Individuals Further
According to the World Bank, financial inclusion means that “individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.”

There has never been a time with more awareness on financial inclusion than now, especially in low to middle-income countries. This is partly due to the positive correlation between financial inclusion and development in the world’s leading economies.

Access to financial services in an affordable and convenient manner is a key premise upon which digital financial services are built. With e-banking, individuals and businesses can now access financial services on a 24/7 basis, irrespective of their geographical location as long as they are connected to the internet. E-banking is also making it possible for members of undeserved communities to access financial services through agent banking powered by today’s e-banking infrastructure.

MTN Ghana’s IPO takes the World Bank definition of financial inclusion even further. It goes on to include access to investments. Though investments are arguably a form of savings, eliminated are the barriers to entry for million for customers who want to own a share of the company.

The Democratisation of Financial Services within Social Circles
Long before the establishment of formal financial institutions, individuals have provided financial services to each other – from loans, savings to contributions. However, the difficulty in managing trust and the emergence of organised financial institutions led to their decline, leaving them operational mostly in the informal sector.

The digitisation of financial services is now making it possible for individuals to act as financial institutions in their own right. Platforms like the US-based LendingClub makes it possible for individuals to be investors in loans by users of the platform. This has led to the emergence of other peer-to-peer(P2P) lending networks. Social media platforms have also implemented P2P money transfer – making sending money to a friend as easy as sending as text.

These innovations have made it easier to manage trust among individuals, providing the infrastructure to make it easier to provide financial services at the individual level within the society

Eliminating Barriers for Startups as Financial Service Providers
Pre-internet era, no one could have imagined a company without a headquarters and a network of physical branches could make nationwide transactions possible. Today, startups popularly referred to as Fintechs are doing so, even going further to power international transactions. All thanks to the digitisation of financial services.

In a more interesting twist of event, traditional financial institutions which most people see as anti-innovation are opening up in structure and through APIs to make collaboration with startups possible. This has opened up a huge ecosystem of products and services. Governments and apex banks are also creating regulatory sandboxes to foster innovation among startups and accelerate the adoption of the solutions they provide. This has led to the emergence of the Fintech industry, spearheaded by a new generation of startups whose businesses are built around the digitised financial services.

At a societal level, individuals now have access to more financial services as financial institutions, startups, and individuals collaborate and compete to serve them.

Government Planning Economic Interventions

The social impact of digitised financial services also extends to Governance and the development sector.

One of the most memorable campaign promises of the current administration is the payment of N5,000 to unemployed Nigerians. Without digitised financial services, this would have been administratively complex. The Bank Verification Number (BVN), an innovation from digitised financial services, makes it possible to uniquely identify a Nigerian citizen with several bank accounts. The implementation of the integrated payroll and personnel system has also seen the Federal Government weed out thousands of ghost workers to save cost.

There are surely far more possibilities of social impact ahead. One of such is the case of economic planning, resource allocation and interventions programs can be planned based on the insights from analysing spending and capital flow.

One menace of digitised financial services that cannot be ignored is the rise of criminal activities at a scale never seen before. The digitisation of financial services has led to the rise of internet fraudsters, hackers and our own local “yahoo yahoo” boys have become more emboldened. However, developments in security solutions and compliance to best practices in security and data management reduces the vulnerability to these threats.

Massive investment in a well-developed e-banking infrastructure is, therefore, more than just a solid business case. It is also justifiable by how positively it has impacted our society and its potential contribution to creating economic prosperity for all.

Sources:
http://aff.mfw4a.org/africa-finance-forum-blog/time/2010/04/30/blogpost/the-case-for-financial-inclusion.html
http://www.worldbank.org/en/topic/financialinclusion/overview

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