tag:theconversation.com,2011:/us/topics/fintech-17260/articlesFintech – The Conversation2024-03-11T12:51:48Ztag:theconversation.com,2011:article/2235682024-03-11T12:51:48Z2024-03-11T12:51:48ZFintech is sold as the answer to Africa’s problems, but digital money services have downsides which media often overlook<figure><img src="https://images.theconversation.com/files/577861/original/file-20240226-16-p2toeq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The research assessed newspaper coverage of fintech in Kenya, Uganda and South Africa.</span> <span class="attribution"><span class="source">Tony Karumba/AFP via Getty Images</span></span></figcaption></figure><p>The online financial products and services known as “<a href="https://www.forbes.com/advisor/banking/what-is-fintech/">fintech</a>” have become deeply embedded in the economic and social life of many African countries over the past decade.</p>
<p>Headlines across the continent often extol fintech’s virtues. Technology is “<a href="https://www.youtube.com/watch?v=5S19bJvbYrE">driving financial inclusion</a>” and “<a href="https://observer.ug/businessnews/63783-fintech-revolutionizing-how-we-spend-our-money">making life better for people</a>”. It’s helping “<a href="https://www.standardmedia.co.ke/article/2001452750/how-fintech-tools-can-help-cushion-kenyans-during-inflation">consumers to manage inflation</a>”. Fintech is “<a href="https://www.thisdaylive.com/index.php/2020/09/27/how-nigeria-is-expanding-financial-inclusion-through-fintech">too sweeping to ignore</a>”. And, if it’s not embraced, “<a href="https://www.thisdaylive.com/index.php/2020/10/06/on-boarding-financially-excluded-rural-women">the country and the entire economy will be left behind</a>”. </p>
<p>These headlines depict a popular story about fintech: it is the answer to several of Africa’s economic problems. This story is also appearing in policy documents in countries like Uganda. Fintech is now a <a href="https://www.youtube.com/watch?v=a3dno0vThbc">key component</a> of the country’s <a href="https://bou.or.ug/bouwebsite/bouwebsitecontent/FinancialInclusion/2023/Signed_2023_2028_National-Financial-Inclusion-Strategy_.pdf">National Financial Inclusion Strategy 2023-2028</a>. </p>
<p>However, a counter-narrative is emerging. Political economists, anthropologists and social theorists warn that fintech is an example of an exploitative, <a href="https://www.theelephant.info/ideas/2021/07/09/neocolonial-components-of-algorithmic-capitalism-in-africa-today/">neocolonial</a> and <a href="https://cup.columbia.edu/book/histories-of-racial-capitalism/9780231190756#:%7E:text=Racial%20capitalism%20is%20not%20simply,value%20from%20racial%20classification%20">racialised</a> form of platform capitalism, a system by which a fairly small number of commercial networks profit from user activities and interactions. They caution that it is inherently <a href="https://africasacountry.com/2019/10/kenyas-mobile-money-revolution">anti-development</a>. It is, they say, likely to cause a crisis of <a href="https://nation.africa/kenya/life-and-style/lifestyle/debt-trap-ensnared-by-loans-women-turn-to-suicide-as-escape-4086004">consumer debt</a>, <a href="https://www.bostonreview.net/articles/perpetual-debt-silicon-savannah/">emotional distress</a>, <a href="https://nation.africa/kenya/life-and-style/smart-company/suicide-that-jolted-cbk-inside-plan-to-rein-in-digital-lenders-251530">self-harm</a> and <a href="https://www.theelephant.info/opinion/2019/11/29/data-protection-in-the-age-of-huduma-namba-who-will-benefit/">data piracy</a>. </p>
<p>We wanted to know how the press in Africa reports on fintech. Are its failings and potential pitfalls acknowledged? Is it mostly presented as a “good news” story?</p>
<p>So, in a project we began two years ago with South African political economist <a href="https://bristoluniversitypressdigital.com/monobook/book/9781529221770/9781529221770.xml">Scott Timcke</a>, we <a href="https://www.tandfonline.com/doi/full/10.1080/14747731.2023.2275816">set out to answer these questions</a>. This kind of analysis helps reveal how public attitudes about this new pillar of everyday economic life are formed. It also shows whether the press is serving as the public’s watchdog with regard to economic matters and corporate affairs. </p>
<p>Our analysis, the first to look at how the fintech story is being told in the African press, reveals that the coverage is celebratory and offers limited cautionary and critical reporting to the public and to policymakers. We found that fintech is most often covered with a positive tone and as a business story. </p>
<h2>The fintech context</h2>
<p>International and African <a href="https://www.routledge.com/Africas-Media-Image-in-the-21st-Century-From-the-Heart-of-Darkness-to/Bunce-Franks-Paterson/p/book/9781138962323">media coverage of the continent</a> is often accused of fuelling negative stereotypes, a trend characterised as “afro-pessimism”. But in the past decade, much of the media conversation has focused on business buzz and followed an “afro-optimism” or “Africa rising” script, as the headlines above depict. </p>
<p>The fintech ecology is shaped by dynamics from the late 2000s. These include the rapid uptake in <a href="https://africa.businessinsider.com/local/markets/sub-saharan-africa-embraces-5g-and-smartphone-adoption-soars-gsma-report-reveals/9xnt95l">broadband use</a> and the aftermath of the 2008 financial crash. Proponents claim that fintech will reduce poverty and motivate development (sometimes referred to as “<a href="https://academic.oup.com/wbro/article/33/2/135/5127166?login=false">leapfrogging</a>” or “<a href="https://thefintechtimes.com/here-are-four-cities-in-africa-emerging-as-fintech-hubs/">Silicon Savannah</a>”), uplifting those unserved by formal banking. One 2016 study credited fintech with delivering a remarkable <a href="https://www.science.org/doi/abs/10.1126/science.aah5309">2% poverty reduction</a> in Kenya. </p>
<p>Others call for a more cautious and sceptical approach. Critics dispute claims that fintech produces significant progressive change. They also argue that fintech can be <a href="https://www.tni.org/files/publication-downloads/fintech-digital-futures-paper-tni-web.pdf">exploitative</a> and <a href="https://botpopuli.net/how-fintech-became-the-gateway-to-predatory-lending-in-sub-saharan-africa/">predatory</a>, and that it fuels inequality by further enriching the already wealthy. </p>
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Read more:
<a href="https://theconversation.com/nigerias-mobile-money-system-has-a-dark-side-even-though-its-convenient-new-study-explores-the-risks-207777">Nigeria's mobile money system has a dark side even though it's convenient - new study explores the risks</a>
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<h2>Our analysis</h2>
<p>Previous research into the roll-out of fintech in countries across the continent revealed community-level tactics. “<a href="https://intellectdiscover.com/content/journals/10.1386/jams_00035_1">Change agents</a>” are deployed to recruit new customers for mobile money services. “<a href="https://www.emerald.com/insight/content/doi/10.1108/IMR-05-2019-0130/full/html">Brand ambassadors</a>” are hired to “sit in public transport and talk about” fintech products. </p>
<p>We wondered whether journalists were similarly talking up fintech or were warning of its risks. We analysed news coverage and looked at journalism published between 2016 and 2021 by leading newspapers in Kenya, Uganda and South Africa, as well as through the <a href="https://allafrica.com/">AllAfrica</a> news aggregator. We began with a set of 1,190 news pieces and analysed a sample of 368. </p>
<p>Based on our initial examination of articles, we identified nine themes or frames that appeared frequently in news coverage of fintech. </p>
<p>The dominant frame was one we labelled “announcement”: the proclamation of a new fintech product through the media; a celebration of innovation. “Gender inclusivity” was the least common frame. This is the kind of reporting that focuses on a commonly shared <a href="https://www.imf.org/en/Publications/WP/Issues/2022/06/03/Fintech-Female-Employment-and-Gender-Inequality-518871">rationale</a> for fintech: that it particularly benefits women and gives them new opportunities for equality and participation. </p>
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Read more:
<a href="https://theconversation.com/what-makes-fintech-solutions-succeed-we-built-a-model-based-on-ghanas-experience-169286">What makes FinTech solutions succeed? We built a model based on Ghana's experience</a>
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<p>We paid particular attention to the frame we called “trepidation”. We were surprised that 61% of news stories within that frame had a positive overall tone, despite the frame implying potential danger. This trepidation often appeared as the backdrop for a news item rather than as the main story. </p>
<p>These kinds of stories, we reason, allow government officials to advise the public on safe financial conduct and fintech companies to promote the benefits of their “safe” products. The advice includes guidance on how individuals can enhance their awareness of potential risks, such as fraud, and act with caution. This consumer education approach is typical of <a href="https://theconversation.com/the-fight-against-economic-fraud-how-african-countries-are-tackling-the-challenge-161432">anti-fraud measures</a> across sectors.</p>
<p>Most stories about the hazards of fintech conclude that it is nonetheless a beneficial force and that any “hiccups” are minor. These can be soothed through state action (such as regulation) or individual responsibility (such as consumer education). Overall, this reinforces a narrative that it is safe and logical to embed fintech in society: it is “sanitised” through this style of news coverage. </p>
<p>Overall we concluded that the journalism in the African press we examined was largely sanitised. The tone, content and sourcing of reporting, even in the context of well-founded fears about fintech, point to an uncritical promotion of fintech products, firms and the entire industry.</p>
<h2>More critical journalism needed</h2>
<p>The breadth of fintech’s expansion across Africa and extent of potential harm it carries – even if its critics are only minimally correct – indicates a pressing need for further analysis of what story is being told. News audiences, politicians and civil society need to demand a more critical journalism.</p><img src="https://counter.theconversation.com/content/223568/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Coverage is celebratory and offers limited cautionary and critical reporting to the public and to policymakers.Cathleen LeGrand, Postgraduate researcher, University of LeedsChris Paterson, Professor of Global Communication, University of LeedsJörg Wiegratz, Lecturer in Political Economy of Global Development, University of LeedsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2151962023-10-30T13:33:05Z2023-10-30T13:33:05ZWhat Revolut’s attempt to secure a UK banking licence could mean for its current customers and for the ‘unbanked’<figure><img src="https://images.theconversation.com/files/556090/original/file-20231026-15-8jym8f.jpeg?ixlib=rb-1.1.0&rect=10%2C3%2C1200%2C792&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Revolut CEO Nik Storonsky: all he wanted for Christmas (2022) was a UK banking licence.</span> <span class="attribution"><a class="source" href="https://www.revolut.com/news/">Revolut</a></span></figcaption></figure><p>Last year, the CEO of financial technology (fintech) company Revolut added a UK banking license to his 2022 Christmas wish list, <a href="https://sifted.eu/articles/revolut-storonsky-fundraise-interview">telling startup news outlet Sifted</a>: “I would love to have it as a Christmas present. A present for me personally and for the business.” </p>
<p>But it’s nearly Christmas 2023 and Revolut still hasn’t secured the right to take deposits from the UK customers – the main benefit to the company of getting a UK license. </p>
<p>Revolut has been offering e-money services such as currency exchange and transfers (which do not require a UK banking licence) in the UK since 2015. It generated £196 million in revenue from this <a href="https://www.revolut.com/financial-statements/">in 2021</a>, or nearly one-third of its business – the rest mostly comes from banking activities in 18 EU countries.</p>
<p>Revolut, which says it has <a href="https://www.revolut.com/en-IE/news/revolut_surpasses_30_million_retail_customers_worldwide/">more than 30 million retail customers worldwide</a>, now wants to join other “<a href="https://www.which.co.uk/money/banking/bank-accounts/challenger-and-mobile-banks-aiYuO7u4JjWJ">challenger banks</a>” (those attempting to break the historical dominance of the “big four” UK banks: Barclays, Lloyds, HSBC, NatWest) in becoming a fully licensed bank in the UK. </p>
<p>The main benefit of this would be that it could take deposits <a href="https://www.altfi.com/article/6274_revolut-reportedly-preparing-uk-banking-licence-application">and handle more loan business</a> instead of “outsourcing” these activities to a number of UK-licensed banks. It could also boost financial inclusion by providing people in the UK with more choice and access to products that help manage money – a key concern amid the current cost of living crisis.</p>
<p>Whether deposits are handled directly by Revolut or through a third-party provider is unlikely to make much difference to customers. But for Revolut, outsourcing means additional costs so this could provide the company with cheaper access to finance. So, in theory, Revolut could pass any savings on to its customers.</p>
<p>Getting a UK banking license involves an extensive application process but <a href="https://www.ft.com/content/6d2eef34-d414-49c7-8557-c43a3d9ab803">typically takes about a year</a>. Once a bank gets one, it has to adhere to more stringent reporting and monitoring requirements. </p>
<p>During the nearly two years since Revolut first applied in January 2021, it has experienced IT system issues that have delayed its reporting of annual accounts. Requesting an extension is not an unusual process, but <a href="https://www.uktech.news/fintech/revolut-auditor-revenue-bdo-20230302#:%7E:text=The%20report%20stated%20the%20company,of%20the%20company's%20reported%20revenue.">concerns were also raised by Revolut’s auditor BDO</a> about its 2021 revenue reporting. </p>
<p>In March 2023, a Revolut spokesperson <a href="https://www.reuters.com/business/finance/revoluts-2022-revenues-grew-by-33-despite-crypto-winter-2023-03-01/#:%7E:text=Finance-,Revolut%20auditor%20flags%20concern%20about%20%24576%20mln,in%20long%2Ddelayed%202021%20accounts&text=LONDON%2C%20March%201%20(Reuters),its%20long%2Ddelayed%202021%20accounts.">told Reuters</a> the concerns were “remedied” in 2021. The company’s chief financial officer Mikko Salovaara said: “There is not any doubt over the completeness of the balance sheet, which, in turn, logically means that total revenue is also correct.”</p>
<p>More recently, Revolut has <a href="https://www.reuters.com/business/finance/revolut-strikes-share-deal-with-softbank-remove-barrier-uk-licence-ft-2023-10-03/">simplified its ownership structure</a> – its use of different classes of shares was more common in EU countries – which could help unblock the UK banking license application process for the company.</p>
<p>Whether, after all of this, customers would actually benefit from lower operating costs will depend on various factors, including what the competition is charging and the need for Revolut to maintain its profitability. </p>
<p>Another possible (perceived) benefit for customers could be greater financial security. Deposits of up to £85,000 held with licensed banks are secured through the Financial Services Compensation Scheme (<a href="https://www.fscs.org.uk/">FSCS</a>). However, the outsourcing model already offers the same protection to Revolut users if its third-party provider operates with its own UK banking license anyway.</p>
<h2>Enhancing UK financial inclusion</h2>
<p>More generally, fintech companies offer easier and often cheaper <a href="https://www.bis.org/cpmi/publ/d191.htm">access to financial products</a> than traditional banks, which means they boost financial inclusion according to <a href="https://onlinelibrary.wiley.com/doi/full/10.1002/jid.3524">research-based definitions</a>.</p>
<p>World Bank <a href="https://www.worldbank.org/en/publication/globalfindex">research on financial inclusion</a> suggests the UK scores almost perfectly in this area: 99.76% of respondents to World Bank surveys have personal current accounts and 95.46% with a debit card (although only 88.91% say they use their card). </p>
<p><strong>How people bank in the UK:</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/552996/original/file-20231010-21-kp68ks.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Bar chart showing results of World Bank survey of UK banking customers." src="https://images.theconversation.com/files/552996/original/file-20231010-21-kp68ks.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/552996/original/file-20231010-21-kp68ks.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=392&fit=crop&dpr=1 600w, https://images.theconversation.com/files/552996/original/file-20231010-21-kp68ks.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=392&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/552996/original/file-20231010-21-kp68ks.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=392&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/552996/original/file-20231010-21-kp68ks.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=493&fit=crop&dpr=1 754w, https://images.theconversation.com/files/552996/original/file-20231010-21-kp68ks.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=493&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/552996/original/file-20231010-21-kp68ks.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=493&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.worldbank.org/en/publication/globalfindex">Author provided using data from the World Bank Findex Database, 2021</a></span>
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<p>But the limited sample size for the UK (the World Bank’s survey relies on 128,000 adults in 123 countries) makes it difficult to truly identify the small number of “unbanked” people in the UK and their struggles. The Financial Conduct Authority’s (FCA) more comprehensive <a href="https://www.fca.org.uk/publication/financial-lives/financial-lives-survey-2022-key-findings.pdf">Financial Lives Survey</a> puts the number of unbanked people in the UK at 1.1 million in 2022, down from 1.7 million in 2014 but largely unchanged since 2017. </p>
<p>The UK Treasury’s <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1125329/Financial_Inclusion_Report__002_.pdf">Financial Inclusion Report 2021-22</a> argues that the more basic bank accounts now offered by all banks have improved financial inclusion, but it also stresses the importance of fintechs in increasing choice and launching innovative products like mobile budgeting tools. </p>
<p>On the other hand, fintech’s reliance on mobile and internet banking arguably widens an existing digital divide. According to the World Bank, <a href="https://www.worldbank.org/en/publication/globalfindex">92% of UK respondents</a> had access to the internet and used mobile phones in 2021, leaving some without access to fintech products. </p>
<p>For those that can access them, fintech solutions could help reduce costs and provide tools to manage people’s stretched budgets. This could help mitigate the current <a href="https://theconversation.com/uk/topics/cost-of-living-crisis-115238">cost of living crisis</a> while also enhancing financial inclusion. Studies show better financial inclusion can <a href="https://www.tandfonline.com/doi/full/10.1080/1351847X.2020.1792960">reduce income inequality</a> under certain conditions. </p>
<figure class="align-center ">
<img alt="Woman sitting in a window using a laptop." src="https://images.theconversation.com/files/556095/original/file-20231026-21-hlq509.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/556095/original/file-20231026-21-hlq509.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/556095/original/file-20231026-21-hlq509.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/556095/original/file-20231026-21-hlq509.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/556095/original/file-20231026-21-hlq509.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/556095/original/file-20231026-21-hlq509.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/556095/original/file-20231026-21-hlq509.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Tech companies can provide easier access to financial products.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-pondering-female-person-beautiful-curly-747373468">GaudiLab/Shutterstock</a></span>
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<h2>Becoming a challenger bank</h2>
<p>Revolut has a convincing track record of obtaining banking licences in its short history. After its 2015 UK launch, Revolut obtained its first banking licence in Lithuania in 2018. It has operated as a bank in 18 EU countries since 2021. That same year, Revolut applied to become a deposit-taking institution in Australia. This is a good sign that its UK banking licence should be achievable. </p>
<p>However, the benefits for customers are less clear. Most customers already use e-money accounts together with traditional bank accounts. Looking at <a href="https://www.thebanker.com/What-does-Metro-Bank-s-troubles-mean-for-UK-challenger-banks-1698136247">Metro Bank’s recent problems</a> – investors were <a href="https://otp.tools.investis.com/clients/uk/metro_bank_plc/rns/regulatory-story.aspx?cid=1352&newsid=1720003">concerned</a> that it could not meet regulatory requirements on its capital levels, although it has since <a href="https://news.sky.com/story/metro-bank-seeks-bids-within-weeks-for-3bn-mortgage-book-12984988">secured additional financing</a> and continues to serve customers as normal – it is not evident that one more challenger bank will benefit UK customers. </p>
<p>On the other hand, a more comprehensive range of different types of financial service providers <a href="https://www.tandfonline.com/doi/full/10.1080/02692171.2022.2090522">tends to stabilise the financial system</a>. In this sense, diversity could enhance financial stability.</p><img src="https://counter.theconversation.com/content/215196/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span><a href="mailto:gerhard.kling@abdn.ac.uk">gerhard.kling@abdn.ac.uk</a> receives funding from the ESRC-NSFC (Newton Fund), FP7, FP6, and the Maava Foundation.</span></em></p><p class="fine-print"><em><span>Aravinda Meera Guntupalli receives funding from ESRC, GCRF, World Cancer Research Fund, Canadian government and World Bank. </span></em></p>More diversity in the banking sector can help with stability, but Revolut’s two-year wait for a UK banking licence indicates regulatory caution.Gerhard Kling, Chair in Finance, University of AberdeenAravinda Meera Guntupalli, Senior Lecturer in Global Health, University of AberdeenLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2077772023-06-27T14:47:16Z2023-06-27T14:47:16ZNigeria’s mobile money system has a dark side even though it’s convenient - new study explores the risks<figure><img src="https://images.theconversation.com/files/533690/original/file-20230623-6861-orzj24.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Mobile money operators using point of sale machines are increasingly popular in Nigeria.</span> <span class="attribution"><span class="source">Getty Images </span></span></figcaption></figure><p>Financial services play <a href="https://www.emerald.com/insight/content/doi/10.1108/IJBM-07-2020-0379/full/html">vital roles</a> in supporting economic activities. In Nigeria, though, a significant number of people <a href="https://www.emerald.com/insight/content/doi/10.1108/JSM-07-2020-0280/full/html">don’t have access</a> to essential banking services.</p>
<p>A 2021 World Bank report shows that only <a href="https://www.worldbank.org/en/publication/globalfindex/interactive-executive-summary-visualization">45% of Nigerian adults</a> have bank accounts. Another <a href="https://efina.org.ng/wp-content/uploads/2021/10/A2F-2020-Final-Report.pdf#page=43">2021 study</a> shows that nearly one in two adults don’t use any formal financial services. And more than one in three Nigerian adults are completely financially excluded. To be financially excluded means that such adults do not have or use any financial products or services – whether formal or
informal.</p>
<p>They can’t enjoy all the advantages that come with being part of the formal financial system – like keeping their money safe and using credit. </p>
<p>Some turn to alternative systems such as mobile money to meet their financial needs.</p>
<p>Mobile money can simply be described as a mobile human ATM. This is where an individual operates a point of sales machine on a street or in a shop and people go to them to deposit money or withdraw money. The operators charge customers for this informal banking service. This service will often appeal to those without access to internet banking, those who do not have ATM or bank branches around them. It is not just about having bank accounts, but about accessing the money in the account. While withdrawing from an ATM may be free, mobile money operators may charge N100 (14 US cents) for withdrawing N5000 (US$6.79).</p>
<p>By November 2022, <a href="https://nairametrics.com/2022/12/28/deployed-pos-terminals-across-nigeria-hit-1-6-million-in-november-2022/">1.6 million point of sales machines</a> were in use across Nigeria. There were <a href="https://www.statista.com/statistics/1178109/number-of-pos-terminals-in-nigeria/#:%7E:text=Between%202017%20and%202022%2C%20the,Nigeria%20experienced%20a%20great%20increase.">155,000 in 2017</a>. Mobile money operators also have an <a href="https://ammban.org/">association</a>, the Association of Mobile Money and Bank Agents in Nigeria. <a href="https://nibss-plc.com.ng/mobile-money-transactions-volume-rose-by-70-in-feb/">At the end of February 2023</a>, a total of 113.53 million transactions valued at N883.45 billion (US$1.076 billion) was done via point of sale machines, as against the 96.35 million transactions valued at N807.16 billion (US$984 million) recorded in January this year.</p>
<p>Mobile money has its benefits, but it’s also important to be aware of the potential risks. The point is to make sure that financial transactions are safe and consumers are protected from fraud. </p>
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<strong>
Read more:
<a href="https://theconversation.com/nigeria-and-digital-banking-a-revolution-still-waiting-to-happen-203435">Nigeria and digital banking: a revolution still waiting to happen</a>
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<p>In <a href="https://www.sciencedirect.com/science/article/pii/S0040162522005662">our research</a>, we examined the “dark side” of mobile money in Nigeria. We got valuable insights from customers, agents and financial technology (fintech) developers. We found that the mobile money system presents challenges of fraud, insecurity, high costs and poor infrastructure. </p>
<h2>Mobile money risks and challenges</h2>
<p>Our objective was to uncover any risks and challenges associated with these business operations, as well as the implications for stakeholders. We interviewed 41 financially vulnerable consumers ranging from 20 to 70 years old, 19 point of sale operators aged 20 to 49, and 11 fintech developers. </p>
<p>The study revealed several key issues associated with mobile money operations.</p>
<p><strong>Fraudulent activities</strong></p>
<p>Consumers who use point of sales machines acknowledge they are vulnerable when interacting with operators. They know that their card details may be compromised since they are not engaging with traditional banks. But they weigh this against the benefits and convenience, and they exercise caution.</p>
<p>Developers also acknowledge that individuals might fraudulently try to register as operators. They would submit fake documents, thinking the developers would not do a thorough check. This highlights the need for robust security measures. </p>
<p><strong>Lack of security</strong></p>
<p>Operators are aware of the risks they face because they have less robust security measures than traditional banks. They try to avoid the risks by, for example, operating during daylight hours, working in shops with burglar proofing and installing CCTV systems. </p>
<p><strong>High transaction costs</strong></p>
<p>Developers deduct a fee from each transaction, and operators charge consumers for using their services. Though the Central Bank of Nigeria has <a href="https://www.cbn.gov.ng/cashless/POS_GUIDELINES_August2011_FINAL_FINAL%20(2).pdf#page=11">said</a> that the maximum total fee should be 1.25% of the transaction value, subject to a maximum of N2,000.00 (US$2.44), consumers have reported instances where agents charge more. </p>
<p>For example, during the recent <a href="https://punchng.com/traders-in-agony-as-naira-scarcity-grounds-businesses/">naira scarcity</a>, some operators <a href="https://businessday.ng/business-economy/article/pos-operators-reduce-charges-as-naira-scarcity-eases/">charged 30% fees</a> for transactions. </p>
<p>There is little or no monitoring of the operators, especially in areas where there is little or no competition. </p>
<p><strong>Poor infrastructure</strong></p>
<p>Poor infrastructure remains a major challenge for the financial services system in Nigeria. Internet connections and servers are often inadequate, which can impede the smooth operation of mobile money transactions. It can be difficult to process transactions. In some cases, agents have switched developers due to the lack of a reliable support system, which had a negative impact on their sales and resulted in customer losses.</p>
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<strong>
Read more:
<a href="https://theconversation.com/nigeria-is-making-progress-with-financial-inclusion-heres-how-160947">Nigeria is making progress with financial inclusion: here's how</a>
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<h2>Solutions</h2>
<p>Mobile money has had a positive impact in Nigeria, particularly for individuals and businesses in areas with limited access to traditional banking services. Mobile money systems have effectively replaced cash and traditional bank accounts, enabling financial inclusion and improving the financial well-being of customers. The financial inclusion rate <a href="https://theconversation.com/nigeria-is-making-progress-with-financial-inclusion-heres-how-160947">increased from 56.8% in 2016 to 63.2% in 2018</a>. </p>
<p>But it is important to recognise that these systems are not without challenges.</p>
<p>One aspect that needs attention is security. Customers, especially those who are sceptical about the technology and the agents, prioritise the security of their financial activities. Robust security measures, such as secure encryption, authentication mechanisms and fraud detection systems, are essential to build trust and alleviate concerns. Developers are actively working to implement measures that can detect and prevent fraudulent activities, ensuring a more secure environment for mobile money transactions. </p>
<p>Other steps include increasing transparency, and providing education and awareness programmes to ensure safe and responsible use of mobile money services. </p>
<p>Compliance with regulatory requirements is crucial for maintaining the legality and trustworthiness of these services. Developers must also navigate complex regulatory frameworks to align their operations with <a href="https://www.cbn.gov.ng/cashless/POS_GUIDELINES_August2011_FINAL_FINAL%20(2).pdf">government guidelines and policies</a>. The fintech industry in Nigeria and the increasing point of sale agents, pose challenges in monitoring compliance. Regulators need to catch up with growing trends and provide policies that support and drive financial inclusion. They must also do spotchecks to identify those not complying with the regulations.</p><img src="https://counter.theconversation.com/content/207777/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Emmanuel Mogaji does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>More Nigerians are using mobile money but it is fraught with inherent dangers that must be tackled.Emmanuel Mogaji, Associate Professor in Marketing, Keele UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1994502023-06-07T16:43:40Z2023-06-07T16:43:40ZHow cashless societies can boost financial inclusion – with the right safeguards<figure><img src="https://images.theconversation.com/files/529827/original/file-20230602-27-pq5zrq.jpg?ixlib=rb-1.1.0&rect=60%2C60%2C5702%2C3767&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Accepting digital payments.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/smiling-auto-driver-showing-qr-barcode-2114566886">WESTOCK PRODUCTIONS/Shutterstock</a></span></figcaption></figure><p>Cashless societies, where transactions are entirely digital, are gaining traction in many parts of the world, particularly after <a href="https://www.worldbank.org/en/news/feature/2022/07/21/covid-19-boosted-the-adoption-of-digital-financial-services">a pandemic-era boom in demand for online banking</a>. </p>
<p>Improvements in digital payment infrastructure such as mobile payments, digital currencies and online banking, make it more convenient for people and businesses to buy and sell things without using cash. Even the Bank of England is looking into how a <a href="https://www.bankofengland.co.uk/the-digital-pound">digital pound</a> might work, showing the potential for a significant shift from physical cash to digital payments in the UK.</p>
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<strong>
Read more:
<a href="https://theconversation.com/how-a-digital-pound-could-work-alongside-cryptocurrencies-199462">How a digital pound could work alongside cryptocurrencies</a>
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<p>Fintech companies have accelerated the transition towards cashless payments with innovations including mobile payment apps, digital wallets, cryptocurrencies and online banking services. The COVID pandemic was also <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3794790">a tipping point</a> that created <a href="https://www.worldbank.org/en/news/feature/2022/07/21/covid-19-boosted-the-adoption-of-digital-financial-services">unprecedented appetite for digital transactions</a>. Fintechs emerged as a life line for many during lockdowns, particularly vulnerable populations that needed <a href="https://www.gpfi.org/sites/gpfi/files/sites/default/files/5_WB%20Report_The%20impact%20of%20COVID-19%20on%20digital%20financial%20inclusion.pdf">emergency lines of credit and ways to make and receive payments</a>. </p>
<p>By 2021, <a href="https://www.worldbank.org/en/news/feature/2023/02/02/latest-global-findex-data-chart-10-years-of-progress-in-financial-inclusion">approximately 71% of adults in developing countries had bank accounts</a>. But this leaves nearly 30% of the population still needing access to essential financial products and services. Fintechs can provide more affordable and accessible financial services and products. This helps boost financial inclusion, particularly for the “unbanked”, or those without a bank account. </p>
<p>In the UK, <a href="https://www.money.co.uk/guides/unbanked-what-its-like-not-to-have-a-bank-account">around 1.3 million people</a>, roughly 4% of the population, lack access to banking services. The government and financial institutions have worked together to promote the adoption of digital payments, and the UK’s <a href="https://www.requesttopay.co.uk/">Request to Pay service</a> allows people and businesses to request and make payments using digital channels such as Apple Pay and Google Pay. </p>
<p>But other countries are moving faster towards a cashless society. In Sweden, only about <a href="https://worldpay.globalpaymentsreport.com/en">10% of all payments were made in cash in 2020</a>. This move towards cashless payments in the country has been facilitated by mobile payment solutions like <a href="https://www.swish.nu/about-swish">Swish</a>, which people can use to send and receive money via mobile phone. </p>
<h2>Boosting financial inclusion</h2>
<p>India has gone <a href="https://www.economist.com/special-report/2023/05/15/a-digital-payments-revolution-in-india">even further</a>. In less than a decade, the country has become <a href="https://www.forbes.com/sites/tomgroenfeldt/2022/10/23/india-is-a-digital-finance-leader-and-poised-for-explosive-growth/?sh=246baed41d0d">a digital finance leader</a>. It has also made significant progress in promoting <a href="https://bfsi.economictimes.indiatimes.com/news/policy/jan-dhan-3-0-digital-banking-micro-insurance-among-top-focus-areas/87885159">digital financial inclusion</a>, mainly through the government’s flagship programme, the Pradhan Mantri Jan Dhan Yojana (<a href="https://www.pmjdy.gov.in/scheme">PMJDY</a>). </p>
<p>India’s banks also participate in mobile payment solutions like Unified Payments Interface (<a href="http://cashlessindia.gov.in/upi.html">UPI</a>), which can connect multiple accounts via one app. India’s digital infrastructure, known as <a href="https://www.imf.org/en/Publications/WP/Issues/2021/02/26/Indias-Approach-to-Open-Banking-Some-Implications-for-Financial-Inclusion-50049">the India Stack</a> also aims to expand financial inclusion by encouraging companies to develop fintech solutions.</p>
<p>Many developing economies are <a href="https://blogs.worldbank.org/voices/expanding-digital-financial-services-can-help-developing-economies-cope-crisis-now-and-boost-growth-later">using digitalisation to boost financial inclusion</a> in this way. Kenya introduced its <a href="https://www.vodafone.com/about-vodafone/what-we-do/consumer-products-and-services/m-pesa">M-Pesa mobile money service</a> in 2007. While microfinance institutions that provide small loans to low-income individuals and small businesses were first introduced in Bangladesh in the 1970s via the <a href="https://grameenbank.org/">Grameen Bank</a> project. </p>
<p>Digital lending <a href="https://www.statista.com/statistics/1202533/india-digital-lending-volume/">has also grown in India</a> in recent years. Its fintechs use algorithms and data analytics to assess creditworthiness and provide loans quickly and at a lower cost than traditional banks. </p>
<p>These innovative platforms have helped to bridge the gap between the formal financial system and underserved populations – those with low or no income – providing fast access to financial services. By removing barriers such as high transaction costs, lack of physical branches and some credit history requirements, fintech companies can reach a wider range of customers and provide financial services that are tailored to their needs. </p>
<p>It’s the tech behind these systems that helps fintechs connect with their customers. The increased use of digital payment methods generates a wealth of data to gain insights into consumer behaviour, spending patterns and other relevant information that can be used to further support a cashless society. </p>
<h2>Helping the UK’s unbanked</h2>
<p>Countries like the UK could also promote digital financial inclusion to help unbanked people. But this would require a combination of government support, innovation and the widespread adoption of mobile payment solutions. </p>
<p>There are some significant challenges to overcome to create a true – and truly fair – cashless economy. For example, a cashless system could exclude people who do not have access to digital payment methods, such as the elderly or low-income populations. According to a recent study by Age UK, <a href="https://uk.sports.yahoo.com/news/two-five-over-65s-bank-230100907.html">75% of over 65s with a bank account</a> said they wanted to conduct at least one banking task in person at a bank branch, building society or post office. </p>
<p>Providing more cashless options could also increase the risk of cybercrime, digital fraud such as phishing scams and data breaches – particularly among people that aren’t as financially literate. </p>
<p>There is a dark side to fintech: algorithm biases and predatory lending practices negatively affect <a href="https://www.elibrary.imf.org/view/journals/001/2022/080/article-A001-en.xml?rskey=fjtbht&result=16">vulnerable and minority groups as well as women</a>. Even major financial firms such as Equifax, Visa and Mastercard <a href="https://www.businessinsider.com/visa-and-mastercard-alert-consumers-about-equifax-data-breach-2017-9?r=US&IR=T">can get compromised</a> by data breaches, creating valid concerns about data security for many people. </p>
<p>Cross-border transfer of personal data by fintech companies also concerns regulators, but there is still a lack of internationally recognised data protection standards. This <a href="https://link.springer.com/chapter/10.1007/978-3-031-11954-5_3">should be addressed</a> as the trend towards cashless societies continues.</p>
<figure class="align-center ">
<img alt="Two hands hold a fan of GBP banknotes: £5, £10, £20, £50." src="https://images.theconversation.com/files/529828/original/file-20230602-27-zmqc5a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/529828/original/file-20230602-27-zmqc5a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/529828/original/file-20230602-27-zmqc5a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/529828/original/file-20230602-27-zmqc5a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/529828/original/file-20230602-27-zmqc5a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/529828/original/file-20230602-27-zmqc5a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/529828/original/file-20230602-27-zmqc5a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Paying with cash.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/pounds-banknotes-held-by-mans-hands-1958384521">Nieves Mares/Shutterstock</a></span>
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<h2>Building guardrails</h2>
<p>Regulations affect how fintech companies can provide financial services but ensure they operate within the law. Since fintech companies generally aim to disrupt markets, however, this can create a complex relationship with regulators. </p>
<p>Collaboration between regulators and fintech companies will boost understanding of these innovative business models and help shape future regulatory frameworks. Countries like India have shown the way in this respect. An <a href="https://www.fca.org.uk/firms/innovation">innovation hub run by UK regulator the Financial Conduct Authority</a> is a good start. It supports product and service launches and offers access to synthetic data sets for testing and development. </p>
<p>Fintech can help finance become more inclusive. But it needs policies and regulations that support innovation, promote competition, ensure financial stability and – most importantly – to help protect the citizens of these new cashless societies.</p><img src="https://counter.theconversation.com/content/199450/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thankom Arun does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The UK could learn a lot from developing economies about using digital payments to boost financial inclusion.Thankom Arun, Professor of Global Development and Accountability, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2034352023-05-02T14:06:01Z2023-05-02T14:06:01ZNigeria and digital banking: a revolution still waiting to happen<figure><img src="https://images.theconversation.com/files/520775/original/file-20230413-26-hhkl4x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Cash is still king in Nigeria. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/this-picture-taken-on-january-28-2016-in-lagos-shows-naira-news-photo/507489912?adppopup=true">Pius Utomi Ekpei/AFP via Getty Images </a></span></figcaption></figure><p><em>At the end of 2022 the Central Bank of Nigeria <a href="https://punchng.com/just-in-buhari-unveils-new-naira-notes-at-aso-rock/">launched</a> new banknotes. At the same time it also <a href="https://www.pensionnigeria.com/blog/cbn-imposes-new-cash-withdrawal-limits-on-nigeria-bank-accounts-full-circular-to-banks/">capped</a> withdrawal of the new banknotes. The rollout of the currency change was <a href="https://www.premiumtimesng.com/news/top-news/585737-timeline-naira-redesign-policy-from-inception-to-supreme-court-judgement.html">shambolic</a>. But it also led people to turn to digital financial services such as the use of <a href="https://nibss-plc.com.ng/news/4xapzv7015vgjryewfn8e2wd50">point of sale (PoS) machines for payments</a> in their transactions. <a href="https://pubdocs.worldbank.org/en/230281588169110691/Digital-Financial-Services.pdf#page=12">Digital financial services</a> are financial services which rely on digital technologies for their delivery and use by consumers. The Conversation Africa’s Wale Fatade asks Iwa Salami, an expert in financial technology regulation and financial regulation in emerging economies, to explain the increase and its implications.</em></p>
<p><strong>How did the botched currency changeover affect the way Nigerians used the banking system?</strong></p>
<p>The Central Bank <a href="https://www.cbn.gov.ng/Out/2022/CCD/Naira_Redesign.pdf">set a deadline of 31 January 2023</a> for all old notes to be deposited in banks in exchange for new. The country was <a href="https://www.premiumtimesng.com/news/top-news/585737-timeline-naira-redesign-policy-from-inception-to-supreme-court-judgement.html">plunged into a currency crisis</a> when all old notes were out of circulation and the new notes were hardly circulating. The ensuing scarcity of cash made life unbearably hard for Nigerians.</p>
<p>One outcome was that Nigerians sought alternative ways to pay for goods and services using digital alternatives, such as point of sale machines. Between 2017 and 2022, the number of point of sale terminals in Nigeria grew significantly. </p>
<p><a href="https://www.statista.com/statistics/1178109/number-of-pos-terminals-in-nigeria/">In 2017, there were around 155,000 terminals</a>, and this number has increased to roughly 1.1 million as of April 2022. Merchants and PoS operators handle the machines. Their operations are <a href="https://www.cbn.gov.ng/cashless/POS_GUIDELINES_August2011_FINAL_FINAL%20(2).pdf">regulated by the Central Bank</a>. </p>
<p>It also resulted in a <a href="https://www.nibss-plc.com.ng/news/4xapzv7015vgjryewfn8e2wd50">surge </a>in point of sales transactions in Nigeria. There was a 40.69% year-on-year increase from the N573.72 billion (US$1.24 billion) transactions that was done in January 2022 to N807.16 billion (US$1.75 billion) in January 2023. Total cashless transactions also rose by 45.41% year-on-year to N39.58 trillion (US$85.96 billion) in January 2023.</p>
<h2>What are the most developed forms of electronic transacting in Nigeria?</h2>
<p><strong>Point of Sale (PoS):</strong> These devices are installed both by traditional banks as well as by payment service banks. They are now ubiquitous throughout Nigeria - in supermarkets, large retail outlets as well as in small-scale businesses set up for this purpose only. </p>
<p><strong>Payment service banks:</strong> These <a href="https://www.mondaq.com/nigeria/financial-services/1188262/payment-service-banks-psb-in-nigeria">are technology driven companies</a> licensed by the Central Bank to engage in banking activities. Examples are Hope and MoneyMaster.</p>
<p><strong>Fintechs:</strong> This <a href="https://plaid.com/resources/fintech/what-is-fintech/">includes</a> any app, software, or technology that allows people or businesses to digitally access, manage, or gain insights into their finances or make financial transactions. A number of companies offer these services in Nigeria. They include Flutterwave, Piggyvest, OPay, Interswitch, Kuda and Remita. </p>
<p><strong>Online banking offered by traditional banks:</strong> All Nigerian banks offer online services. However, the services aren’t always reliable. During the currency crisis, for example, platforms collapsed and customers were unable to transact. Digital platforms didn’t have the ability to cope with the deluge of online transactions.</p>
<p><strong>Mobile money:</strong> <a href="https://datahelp.imf.org/knowledgebase/articles/1906552-fas-what-is-mobile-money-how-is-it-different-fro#:%7E:text=It%20is%20a%20financial%20service,is%20a%20basic%20mobile%20phone.">Financial service offered by a mobile network operator</a> and can be independent of the traditional banking network. A bank account is not required to use mobile money services – the only pre-requisite is a basic mobile phone.</p>
<p>Those offering this service include MTN and Airtel Africa. As with most other countries on the continent, mobile money uptake in Nigeria has been slow. The exception has been <a href="https://thedocs.worldbank.org/en/doc/4fff8526d366d112cd9fd96eaf4adbb1-0050062022/original/FindexNote1-062419.pdf">Kenya,</a> where the <a href="https://www.vodafone.com/about-vodafone/what-we-do/consumer-products-and-services/m-pesa">launch of MPesa in 2007 </a> led to a massive uptake in mobile financial services. </p>
<p>In 2022, the Central Bank of Nigeria issued MTN the first license to operate mobile money services. It started <a href="https://www.mtn.ng/wp-content/uploads/2022/05/MoMo-Payment-Service-Bank-commences-Commercial-Operations.pdf?_ga=2.69147735.751641338.1681378566-391186901.1681378566">operations in May</a>. MTN is the largest mobile network operator in Nigeria.</p>
<h2>Can you paint a picture of the banking landscape?</h2>
<p><a href="https://www.statista.com/statistics/1182094/number-of-bank-customers-in-nigeria/">In 2021 Nigeria had 122.3 million active bank customers</a>. According to February 2022 data only <a href="https://www.statista.com/statistics/1139751/popularity-of-financial-products-or-services-in-nigeria/">39% of Nigerians</a> use the formal banking system.</p>
<p>As has been shown elsewhere, <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/03/SOTIR_2014.pdf#page=14">mobile money offerings</a>, as well as other digital services, can extend banking to the unbanked. </p>
<p>In 2022 the volume of transactions performed electronically in Nigeria surged to the highest in five years. The total volume of the Inter Bank Settlement Scheme Instant Payment Platform transactions<a href="https://www.nibss-plc.com.ng/news/4cy2cqt4g9bkj44n75n4ete3x9#:%7E:text=A%20latest%20Mastercard%20survey%20said,websites%20to%20make%20financial%20transactions.">rose by 613.1% to 5.2 billion in 2022 from 729.2 million in 2018</a>. <a href="https://www.nibss-plc.com.ng/news/4cy2cqt4g9bkj44n75n4ete3x9#:%7E:text=A%20latest%20Mastercard%20survey%20said,websites%20to%20make%20financial%20transactions.">Its value also increased</a> by 381.5% from N80.4 trillion (US$174.6 billion) as at 2018 to N387.1 trillion (US$840.67billion) in 2022. </p>
<p>In my view, the spike in the value of transactions carried out at point-of-sale devices in Nigeria in January 2023 – they went up by <a href="https://nibss-plc.com.ng/news/4xapzv7015vgjryewfn8e2wd50">40.7% higher compared to the same month in 2022</a> – shows a wider adoption of digital payments. It is also an indication of the huge opportunities that mobile money operators and other forms of digital payments have in Nigeria. </p>
<h2>How does Nigeria’s digital currency eNaira fit into the picture?</h2>
<p>eNaira was <a href="https://www.cbn.gov.ng/out/2021/ccd/enaira%20launch%20press%20release%20%20231021.pdf">launched by the Central Bank in October 2021</a>. However, <a href="https://www.bloomberg.com/news/articles/2022-10-25/shunned-digital-currency-looks-for-street-credibility-in-nigeria?leadSource=uverify%20wall">less than 0.5% of Nigerians</a> were recorded as using it a year after its launch. </p>
<p>The Central Bank didn’t have an adoption strategy for the eNaira planned ahead of the currency change over. This was clearly a missed opportunity. </p>
<p>Although the aim of the currency was to <a href="https://enaira.gov.ng/assets/download/eNaira_Design_Paper.pdf#page=4">facilitate financial inclusion</a> and shrink the size of the informal market, it’s fallen short of the mark. It is currently only accessible to those with bank accounts. So, despite a <a href="https://www.bloomberg.com/news/articles/2023-03-21/nigeria-digital-currency-transactions-jump-63-on-cash-shortages?leadSource=uverify%20wall&sref=3REHEaVI">reported increase in the number of e-Naira wallets</a> to 13 million since October 2022, and an increase in the value of transactions in 2023, a lot still needs to be done to drive widespread adoption by the financially excluded. </p>
<p>Rethinking its architecture and policies to drive its adoption could include: </p>
<ul>
<li><p>making it accessible to all with a mobile phone; </p></li>
<li><p>incentivising people to use it such as granting significant discounts when used to pay taxes and for other public services; and </p></li>
<li><p>embedding mobile network or payments apps into Central Bank Digital Currency wallets for the wallets to be inter-operable with mobile network operators’ infrastructure. </p></li>
</ul>
<p>A lesson of the currency crisis is that fintech offers a solution to the limitations of legacy financial institutions, and at the same time, they can help address the financial exclusion challenge in Nigeria.</p>
<p>Had Nigeria appreciated the value of digital finance and particularly the key role to be played by mobile money operators, the impact of the crisis would not have been as painful.</p><img src="https://counter.theconversation.com/content/203435/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Iwa Salami does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Nigeria’s Central Bank didn’t have an adoption strategy for its digital currency. It was a missed opportunity.Iwa Salami, Reader (Associate Professor) in Law, University of East LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1954572022-12-20T09:33:59Z2022-12-20T09:33:59ZSmall loans: microcredit means more people can borrow money – but more scrutiny is also needed<figure><img src="https://images.theconversation.com/files/501098/original/file-20221214-6709-q6m04r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Farmers in India are among communities around the world hit hard by unscrupulous microlending.</span> <span class="attribution"><span class="source">Narinder Nanu/AFP via Getty Images</span></span></figcaption></figure><p>Undoubtedly, financial technology (fintech) is driving <a href="https://www.forbes.com/sites/esade/2022/11/02/how-fintech-can-foster-financial-inclusion-and-literacy/?sh=28ada56b6415">greater financial inclusion</a>. Innovations are giving people more access to financial services through mobile and computing services, the internet, and payment cards. One of these services is microcredit: small loans for individuals and informal businesses. </p>
<p>But a closer look at the microcredit channel of inclusion shows an emerging form of dispossession of the poor. Examples include the catastrophic collapse of microfinance in <a href="https://www.nytimes.com/2010/11/18/world/asia/18micro.html">Andhra Pradesh, India, in 2010</a>. Microfinance institutions were involved in reckless lending in the chase for abnormal profits. Over-indebted clients could no longer service their debt. Some even took their own lives due to debt recovery-related harassment and the shame of being unable to service debt in group-lending situations.</p>
<p>In an attempt to restore confidence, global development agencies quietly rebranded microfinance. But the microcredit element of financial inclusion still presents problems. It’s even worse now that there is a shift in the funding patterns of microfinance institutions from donors to private capital driven by profit maximisation objectives. </p>
<p>Economists Milford Bateman and Fernando Teixeira
<a href="https://www.tni.org/en/publication/the-promises-and-perils-of-investor-driven-fintech">suggest</a> that the fintech drive in the name of financial inclusion mirrors colonial-style extractivism to maximise profits. </p>
<p>Under this scenario, fintechs brutally extract profits from the financial transactions of the poor. The authors warn against secondary exploitation.</p>
<p>In 2004, Indian-American entrepreneur and author Coimbatore Prahalad published a <a href="https://www.amazon.com/Fortune-Bottom-Pyramid-Eradicating-Poverty/dp/8177587765">book</a> that proposed that the poor hold a “fortune at the bottom of the pyramid”. The book was published amid growing efforts to tap into this so-called fortune for profit in various sectors. Financial services was one of them.</p>
<p>Financial technology firms began to emerge with innovations intended to reduce information asymmetries and transaction costs in providing financial services. This included credit. But there’s <a href="https://www.theguardian.com/global-development-professionals-network/2013/nov/19/microcredit-south-africa-loans-disaster">growing evidence</a> that when left unchecked, market-led financial innovations are more likely to be dominated by profit maximisation objectives at the expense of the very vulnerable. </p>
<h2>Examples of bad practice</h2>
<p>Safaricom and Cash Paymaster Services (CPS) are examples of market-oriented initiatives. </p>
<p>In <a href="https://digitalcommons.law.uw.edu/wjlta/vol8/iss3/11/">Kenya, Safaricom’s M-Pesa</a> innovation, launched in partnership with the UK’s Department for International Development, improved financial inclusion. It also delivered substantial profits for its private investors and significant indebtedness for its target market. </p>
<p>CPS, a subsidiary whose parent company, Net1 Technologies (Net1), <a href="https://pressroom.ifc.org/all/pages/PressDetail.aspx?ID=18785">received an equity investment</a> from the World Bank’s IFC for broader expansion into Africa, was contracted to disburse social grants in South Africa. The <a href="https://www.sciencedirect.com/science/article/abs/pii/S0305750X19303596">company abused</a> its monopoly position over the personal data of beneficiaries. </p>
<p>The Net1 group <a href="https://www.tandfonline.com/doi/full/10.1080/03057070.2022.2004772">made more money</a> from cross-selling financial products, such as microcredit by sister companies, than the CPS contract. </p>
<p>Grant beneficiaries ended up no longer able to meet their households’ immediate needs on a reduced grant and were forced to seek additional debt, likely from unscrupulous lenders, to cover shortages. </p>
<p>The consequences were deepened levels of poverty and the perpetual over-indebtedness of those supposedly getting relief through government grants. </p>
<p>Similarly, in India, the <a href="https://www.chandlerinstitute.org/governancematters/indias-aadhaar-system-bringing-e-government-to-life">Aadhaar system</a> gathers detailed profiles of beneficiaries. These are monetised, and through the process huge profits are made. </p>
<p>Private companies have access to the personal data of government grant recipients. This is used to sell financial products to the grant recipients. Grants get used as collateral for credit, with investors bearing no risk for their commercial enterprise because loan repayments are deducted before grant payments are made to beneficiaries.</p>
<p>There are <a href="https://www.tni.org/en/publication/the-promises-and-perils-of-investor-driven-fintech">alternatives</a>. In Brazil, a state-led fintech approach is followed. This works through Banco Mumbuca, a community bank. A community-restricted currency that is pegged at 1:1 to the official currency is created and used to disburse social security payments. </p>
<p>In addition to taxes, the bank is sustained by revenue earned on every business transaction and from the conversion of community currency to official currency. Consequently, microloans made to the community for social development programmes and entrepreneurship are at zero or very low-interest rates. This is much lower than in the market-led approaches.</p>
<h2>Takeaways</h2>
<p>Fintechs are an essential way to address market failures of traditional banking. But market-led innovations exploit the poor. These practices are made possible when governments fail to develop the capacity to deliver social services and outsource them to private entities. </p>
<p>Data is now seen as “the new oil”. It thus makes sense for the state to guard it jealously. Developing countries should protect the interests of the poor by carefully scrutinising market-led financial inclusion efforts. They should develop internal capacity to safeguard citizens’ data, and explore the viability of fintech models.</p><img src="https://counter.theconversation.com/content/195457/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lungile Ntsalaze does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Market-led microcredit innovations dominated by profit maximisation can harm the very vulnerable.Lungile Ntsalaze, Executive Dean: College of Business & Economics, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1857412022-10-14T15:01:01Z2022-10-14T15:01:01ZHow financial technology can discriminate against people speaking minority dialects – new evidence from China<figure><img src="https://images.theconversation.com/files/486575/original/file-20220926-19-h9ub5t.jpg?ixlib=rb-1.1.0&rect=275%2C128%2C5858%2C3099&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/asia-startup-sme-woman-people-happy-2134331077">Chaay_Tee / Shutterstock</a></span></figcaption></figure><p>In the UK, studies have repeatedly found evidence of <a href="https://theconversation.com/working-class-and-ethnic-minority-accents-in-south-east-england-judged-as-less-intelligent-new-research-162886">accentism</a>. Prejudice based on someone’s way of speaking can affect people in the classroom, the <a href="https://theconversation.com/british-people-still-think-some-accents-are-smarter-than-others-what-that-means-in-the-workplace-126964">office</a> and beyond. </p>
<p><a href="https://www.tandfonline.com/doi/full/10.1080/1351847X.2021.2007496">Our research</a> of dialects and peer-to-peer lending in China found that this kind of linguistic discrimination can also influence someone’s access to finance. Specifically, that accent bias, communication barriers or dialect discrimination may lead to borrowers who speak minority dialects receiving smaller loans and having higher default rates.</p>
<p><a href="https://www.bankofengland.co.uk/research/fintech">Financial technology</a> (fintech for short) is the technology and innovation that aims to compete with traditional financial institutions. The emerging industry is an alternative to banks and personal loans, allowing people to lend or borrow money from one another directly. Based online, these companies have <a href="https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2016.2531">lower transaction costs</a> and complement the shortcomings of traditional banking for <a href="https://academic.oup.com/rfs/article/32/5/1900/5427773">small loans</a>.</p>
<p>Discrimination is well documented in traditional financial <a href="https://theconversation.com/how-ethnic-minorities-face-higher-levels-of-financial-exclusion-71960#:%7E:text=Our%20analysis%20found%20that%20ethnic,lower%20compared%20with%20white%20households.">services</a> and there have been ongoing discussions about <a href="https://technation.io/about-us/fintech-delivery-panel/ethnic-diversity-in-uk-fintech/#introduction">diversity</a> in the sector. However, these have focused on more obvious forms of prejudice, such as ethnic or racial bias, while our study shows that this could be broader and more subtle, in the form of dialect discrimination. </p>
<p>People using different dialects often have <a href="https://www.jstor.org/stable/4168582?seq=1">distinct cultural habits</a>, sometimes almost as if they are from different countries. So, if there are multiple dialects in an area, this can lead to communication barriers and, ultimately affect borrowers with different dialects.</p>
<p>China is one of the largest fintech credit markets, with around <a href="https://www.oecd.org/competition/digital-disruption-in-banking-and-its-impact-on-competition-2020.pdf">2,500 platforms</a> supporting peer-to-peer lending. There are 17 major dialects and 105 sub-dialects spoken in the 300 cities in <a href="https://www.taylorfrancis.com/books/mono/10.4324/9780429309588/chinese-mosaic-peoples-provinces-china-leo-moser">China</a>. The pronunciation and grammar in different provinces has developed to an extent that variations of spoken language are often mutually incomprehensible. </p>
<p>My colleagues Zhongfei Chen, Ming Jin, Youwei Li and I <a href="https://www.tandfonline.com/doi/full/10.1080/1351847X.2021.2007496">examined 210,841 historical loan records</a> from one of China’s first online lending platforms, covering the period from 2013-2018. We used this data to explore the links between dialect diversity (the number of dialects spoken in a city) and borrower behaviour.</p>
<p>We found that borrowers from areas where more minority dialects are used received smaller loans when using the fintech platform we studied. They also had higher default rates, compared with borrowers from cities with less dialect diversity. This was the case when comparing people with similar income levels and other characteristics like gender, age, education and credit rating.</p>
<h2>Financial literacy – lost in translation?</h2>
<p>In the platform we examined, borrowers apply for a loan and the company reviews the application before deciding the final loan amount and interest rate. The lending platform plays the role of a third party and does not want borrowers to default. As a result, they treat loan applicants with caution. </p>
<p>With some transactions between users, the approval process all takes place online. But borrowers of certain types of loans (such as those where the platform acts as guarantor) must also pass an in-person review. Reviewers collect data on gender, marital status, work, education, age and income. It is in these reviews, we believe, that accent bias and cultural discrimination can work against borrowers who speak minority dialects.</p>
<figure class="align-center ">
<img alt="A sheet of Chinese yuan cash being printed" src="https://images.theconversation.com/files/486577/original/file-20220926-12-gcijga.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/486577/original/file-20220926-12-gcijga.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=356&fit=crop&dpr=1 600w, https://images.theconversation.com/files/486577/original/file-20220926-12-gcijga.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=356&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/486577/original/file-20220926-12-gcijga.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=356&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/486577/original/file-20220926-12-gcijga.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=448&fit=crop&dpr=1 754w, https://images.theconversation.com/files/486577/original/file-20220926-12-gcijga.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=448&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/486577/original/file-20220926-12-gcijga.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=448&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">In examining data from a Chinese peer to peer lending company, researchers found evidence of dialect discrimination.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/concept-image-showing-sheet-new-chinese-1771815803">Inked Pixels / Shutterstock</a></span>
</figcaption>
</figure>
<p>The link between access to finance and dialect diversity might be due to different levels of <a href="https://gflec.org/wp-content/uploads/2015/11/3313-Finlit_Report_FINAL-5.11.16.pdf">financial literacy</a> and consequently, communication barriers among different dialect users. There is indeed <a href="https://www.sciencedirect.com/science/article/pii/S0167268118300763">evidence</a> linking language to financial literacy. Low levels of financial literacy in China (about 28% of adults, compared to the UK’s 67%), could make communication about loans and finances more difficult among different language users. </p>
<p>The results of our research aren’t entirely surprising. Language and dialect <a href="https://www.thoughtco.com/dialect-prejudice-term-4052385">discrimination</a> are longstanding problems in <a href="https://www.cambridge.org/core/journals/language-in-society/article/linguistic-capital-in-taiwan-the-kmts-mandarin-language-policy-and-its-perceived-impact-on-language-practices-of-bilingual-mandarin-and-taigi-speakers/6F5F262FB1D3F8F3E6F7CCF3BD6F9C07">China</a>. And previous studies have shown that ethnic minorities often experience economic <a href="https://link.springer.com/article/10.1023/B:REAL.0000027199.22889.65">disadvantages</a> compared to other groups.</p>
<p>But our findings show how fintech platforms create a mechanism through which discrimination against minority dialects can arise. This is especially important in a country with such vast income inequality as China. Linguistic differences may be getting in the way of loans flowing to those who need them most.</p><img src="https://counter.theconversation.com/content/185741/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Athanasios Andrikopoulos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Research into Chinese peer to peer lending data shows that borrowers from regions with more minority dialects receive smaller loans.Athanasios Andrikopoulos, Senior Lecturer (Associate Professor) in Finance, University of HullLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1884142022-08-12T15:21:56Z2022-08-12T15:21:56ZExpanded access to solar power in Africa can stimulate economic development – but there are risks<figure><img src="https://images.theconversation.com/files/478250/original/file-20220809-26-nhjwpm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The African Energy Commission says expanded access to new, people-centred renewable energy systems will "lift hundreds of millions of people" out of poverty.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/solar-energy-madagascar-1266559546">KRISS75/Shutterstock</a></span></figcaption></figure><p><a href="https://sdgs.un.org/goals">UN Sustainable Development Goal 7</a> aspires to ensure access to affordable, reliable, sustainable and modern energy for all by 2030. But in Africa, <a href="https://www.iea.org/reports/sdg7-data-and-projections/access-to-electricity">around 600 million people</a> continue to live without access to electricity. Seeking to reach as many of these people as quickly as possible, African governments are signing agreements with foreign firms to deliver off-grid solar products to millions of households.</p>
<p>British firm Bboxx, for example, has an <a href="https://www.bboxx.com/news/bboxx-partners-drc-government/">agreement</a> with the government of the Democratic Republic of the Congo to deliver solar home systems (SHSs) to 10 million citizens by 2024. SHSs consist of one or more panels, usually installed on household roofs, capable of providing up to <a href="https://static1.squarespace.com/static/609a53264723031eccc12e99/t/60ed5fe04616123fc5fa6287/1626169341119/White+Paper+%E2%80%93+Beyond+the+energy+approach+for+sustainable+development+in+Africa.pdf">300 watts of power</a>. This is sufficient to power laptops, televisions, LED lights, and – in certain models – refrigerators and cooking.</p>
<p>Underpinning this process is the belief that expanded access to off-grid solar can drive economic development by strengthening household income. According to the African Energy Commission, the process will <a href="https://au-afrec.org/sites/default/files/2022-02/4%20AFREC%20Designing%20the%20African%20Energy%20Transition.pdf">“lift hundreds of millions of people”</a> out of poverty. </p>
<p>Do these claims stand up to interrogation?</p>
<h2>Increased income, increased risk</h2>
<p>In a <a href="https://www.sciencedirect.com/science/article/pii/S2214629622001773">recent study</a>, Patrick Lehmann-Grube, an independent researcher, and I reviewed 56 papers that focused on how access to off-grid solar energy impacts household income in Africa. Initially, the available evidence appears to provide strong support, with almost all the papers finding a positive effect.</p>
<p>This was largely based on the finding that SHSs enabled local stalls and kiosks to stay open longer by operating beyond nightfall. The <a href="https://documents1.worldbank.org/curated/en/657061523044450044/pdf/125039-REPL.pdf">testimony</a> of a Kenyan fruit and vegetable seller is typical. After the addition of a SHS, she reported being able to add “two more hours of trading each day”. Across the studies, additional work hours allowed household income to increase by around US$20–£40 (£17-£33) per month.</p>
<h2>Workers’ greater capacity for self-exploitation</h2>
<p>Existing studies generally cite working longer hours as a marker of economic progress. Yet this finding is ambiguous since increased income here is achieved through a greater capacity for self-exploitation. Given the physical limits to the length of a working day, these observed increases can only lead to a limited economic gain.</p>
<p>For economic development to be strengthened and sustained, it must be incorporated into a process of increased productivity. This should be achieved by an increasing output per unit of labour time – not simply via people working longer hours or more people working – and supported by an accumulation of capital.</p>
<p>Existing studies tend not to focus on these dimensions, leaving the true economically transformative nature of off-grid solar products unclear. The low energy capacity of SHSs should, nonetheless, caution against any great enthusiasm that they can generate such transformative economic progress.</p>
<h2>Short-term gains, long-term losses?</h2>
<p>The shift of energy provision via SHSs away from centralised public governance and towards a privatised model has in many instances also shifted the financial burden of maintenance onto local communities. Several studies noted that the maintenance costs for off-grid solar products often surpass what rural households and communities can afford.</p>
<p>Yet most studies focus on the short-term impact, usually within a couple of years of a household or firm gaining access to off-grid solar. Short-term income gains will prove fruitless in the future, however, should communities be unable to assure maintenance of the equipment.</p>
<p>Several studies also documented the recent introduction of a pay-as-you-go model. The model aims to extend low-wattage solar products to income-poor rural African households, who are often unable to afford the full upfront cost. Already, pay-as-you-go solar firms are beginning to push a <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2020/05/Mobile-for-Development-Utilities-The-Value-of-Pay-as-you-go-Solar-for-Mobile-Operators.pdf">range of other products</a> to their clients, such as irrigation pumps and appliance leasing.</p>
<p>This strikes a further note of concern, as <a href="https://www.tandfonline.com/doi/abs/10.1080/03056244.2019.1614552?journalCode=crea20">studies</a> on financial technology (or fin-tech) services have demonstrated their frequent association with rising indebtedness. Indebtedness constrains rather than liberates households, a process hardly conducive to economic development.</p>
<figure class="align-center ">
<img alt="A ground-mounted solar power plant in a small community with a forest in the background." src="https://images.theconversation.com/files/478267/original/file-20220809-24-o4j68c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/478267/original/file-20220809-24-o4j68c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/478267/original/file-20220809-24-o4j68c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/478267/original/file-20220809-24-o4j68c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/478267/original/file-20220809-24-o4j68c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/478267/original/file-20220809-24-o4j68c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/478267/original/file-20220809-24-o4j68c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Mini solar grids are capable of powering entire rural communities or urban suburbs.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/ground-mounted-solar-power-plants-africa-785800000">Sebastian Noethlichs/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Can off-grid solar still drive economic development?</h2>
<p>One solution to the limited economic impact of increased access to SHSs would be to focus on the provision of mini grids. Capable of powering entire rural communities or urban suburbs, <a href="https://www.sciencedirect.com/science/article/abs/pii/S0305750X08003288">research</a> demonstrates that they support a far larger range of activities, extending into productive and industrial use.</p>
<p>Another avenue will be through developing domestic capacity in the design and manufacture of off-grid solar power. This carries the potential to generate productive employment and help <a href="https://oecd-development-matters.org/2021/01/04/europe-and-africa-need-to-see-eye-to-eye-on-climate-change/">stimulate a shift</a> towards industrial development.</p>
<p>Here, <a href="https://www.sciencedirect.com/science/article/abs/pii/S030142151300013X">Kenya</a> has been a frontrunner through the selective use of strategic industrial policy. Many other countries, such as <a href="https://www.ace-taf.org/wp-content/uploads/2021/04/Assessment-of-Local-Manufacturing-of-Off-Grid-Solar-in-Sub-Saharan-Africa-Policy-Brief.pdf">Nigeria, Ethiopia, Tanzania and Rwanda</a>, are looking to follow suit.</p>
<p>Existing studies have proved adept at identifying households who appear to have financially benefited from access to off-grid solar through increased income. But they have been less well attuned to the downsides. </p>
<p>Alongside rising indebtedness, these include the more general processes of polarisation, marginalisation and exclusion that <a href="https://global.oup.com/academic/product/african-economic-development-9780198832331?cc=ie&lang=en&">inevitably accompany</a> any process of capitalist economic development.</p>
<p>If, as Brazilian economist Celso Furtado <a href="https://archive.org/details/accumulationdeve0000furt">once wrote</a>, capitalist development is “a process of reshaping social relations founded on accumulation”, future research would do well to focus on how social relations are being reshaped by off-grid solar expansion – and with what consequences.</p><img src="https://counter.theconversation.com/content/188414/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ben Radley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Are studies right that expanded access to off-grid solar products has driven economic development in Africa?Ben Radley, Lecturer in International Development, University of BathLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1864462022-07-24T12:29:02Z2022-07-24T12:29:02ZInvesting in crypto-assets: How to limit the risk of being exposed to fraud<figure><img src="https://images.theconversation.com/files/472877/original/file-20220706-16-xsnd5q.jpg?ixlib=rb-1.1.0&rect=23%2C0%2C5185%2C3467&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Peter Thiel, co-founder of PayPal and Palantir, delivers a keynote speech at the Bitcoin Conference in April in Miami Beach, Fla.</span> <span class="attribution"><span class="source">(AP Photo/Rebecca Blackwell)</span></span></figcaption></figure><p>In 2017, thousands of investors in over 175 countries found themselves with empty pockets after having invested nearly US$4 billion in a cryptocurrency called “OneCoin”. The mastermind behind the project, <a href="https://www.bbc.com/news/stories-50435014">Ruja Ignatova</a>, vanished with what is believed to be the entire amount missing.</p>
<p>This news item struck a nerve in the cryptocurrency world. The BBC even <a href="https://www.bbc.co.uk/programmes/p07nkd84/episodes/downloads">devoted a podcast</a> to it. And while this case was one of large-scale fraud, the fact remains that fraudulent schemes are frequent in the world of crypto-assets, which includes cryptocurrencies (such as Bitcoin) and non-fungible tokens (NFTs). Possession of these tokens grants investors rights that can take different forms (either access to a good — like a work of art — a service or something similar to owning a stock).</p>
<p>I have been interested in the study of fraud for many years, first in my professional practice as an auditor and forensic accountant, then as a researcher. I am primarily interested in the factors that lead to fraud, as well as the indicators and impacts of fraud. More recently, my interest has focused on fraud related to crypto-assets, since these new technologies carry new risks and limitations that both users/investors and regulators face.</p>
<h2>An alarming amount of fraud</h2>
<p>A 2018 report from a crypto-asset firm estimates that nearly 80 per cent of all initial coin offerings (ICOs) launched in 2017 — such as the issuance of new cryptocurrencies — <a href="https://research.bloomberg.com/pub/res/d28giW28tf6G7T_Wr77aU0gDgFQ">were fraudulent</a>. Of course, it is not possible to accurately measure the number of frauds that occur each year, not least of all because most are not reported to the relevant authorities. However, this alarming figure should still raise questions for potential investors about how to manage the risks they are taking.</p>
<p>It should be noted that crypto-assets are subject to little or no regulation around the world. Regulatory bodies such as Québec’s <a href="https://lautorite.qc.ca/en/professionals/fintech-financial-technology/how-the-amf-supports-innovative-firms/legislative-guidance">Autorité des marchés financiers</a> and the <a href="https://www.sec.gov/">Security and Exchange Commission</a> in the United States, have been working on the subject for some time now, but regulation in certain areas is lagging. One reason for this is the <a href="https://www.newyorker.com/business/currency/the-challenges-of-regulating-cryptocurrency">decentralized and borderless nature of these investments</a>, which makes the development and enforcement of laws and regulations particularly difficult.</p>
<h2>Traditional indicators of fraud</h2>
<p>Investing in crypto-assets falls under the purview of finance technology, commonly referred to as <a href="https://bootcamp.cvn.columbia.edu/blog/what-is-fintech">FinTech</a>. The tools for investing in FinTech diverge significantly from those of traditional finance. Investors in FinTech are often driven by the search for quick gains, bordering on speculation.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/469572/original/file-20220617-16-h26kyk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="woman outside OneCoin office" src="https://images.theconversation.com/files/469572/original/file-20220617-16-h26kyk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/469572/original/file-20220617-16-h26kyk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/469572/original/file-20220617-16-h26kyk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/469572/original/file-20220617-16-h26kyk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/469572/original/file-20220617-16-h26kyk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/469572/original/file-20220617-16-h26kyk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/469572/original/file-20220617-16-h26kyk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A woman walks past the office of cryptocurrency OneCoin, founded by Ruja Ignatova, which defrauded investors of billions of dollars.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>The fact remains that signals of fraud — which have existed for a very long time in traditional finance, such as stock market investments — are also present in FinTech. One only has to think of promises of incredible returns, far beyond what regulated markets are generating. Or the pressure some financial product promoters place on investors to act quickly, which pushes investors to place their money without taking time to think through their decision.</p>
<p>This urgency is felt particularly by investors when a promoter plays on their fears of missing an incredible investment opportunity, thereby inciting them to put their money down quickly in order to beat others to the chase. A parallel could be drawn with promotions for products in stores that sell at cut-rate prices, while claiming that quantities are limited. However, in the case of investing, this often turns out to be a fraudulent scheme rather than an attractive opportunity.</p>
<h2>Explanatory documents, not regulatory documents</h2>
<p>The technological aspect of crypto-assets means that new indicators of fraud have emerged in its wake. Since these differ from what investors are used to hearing from those responsible for informing them about risks — including investment advisors — it is very important that investors pay close attention to the projects in which they are considering investing. </p>
<p>Indeed, the absence (or near absence) of regulation means that, for the time being, investors are solely responsible for protecting themselves against the fraudulent schemes that are rife in the industry. Some investment funds offer <a href="https://www.investopedia.com/investing/understanding-cryptocurrency-etfs/">cryptocurrency exchange-traded funds</a>. But the fact remains that these investments carry a <a href="https://www.forbes.com/sites/nicolelapin/2021/12/23/explaining-cryptos-volatility/?sh=fa2e1247b543">risk of volatility</a>.</p>
<p>As in the case of a traditional investment, the teams behind the ICO publish what is called a <a href="https://coinmarketcap.com/alexandria/glossary/whitepaper">“white paper”</a>. Similar to a prospectus for a public offering — when a company raises additional funds through a stock offering, for example — this document provides the potential investor with a wealth of information about the proposed project. Among other things, it explains how the project works and who the team is behind it.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/469573/original/file-20220617-19-sgjb45.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Close-up photo of gold bitcoin, ethereum and litecoin coins lying on U.S. currency paper and white keyboard" src="https://images.theconversation.com/files/469573/original/file-20220617-19-sgjb45.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/469573/original/file-20220617-19-sgjb45.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/469573/original/file-20220617-19-sgjb45.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/469573/original/file-20220617-19-sgjb45.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/469573/original/file-20220617-19-sgjb45.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/469573/original/file-20220617-19-sgjb45.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/469573/original/file-20220617-19-sgjb45.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The ease of investing, coupled with sweeping advertising (especially on social media such as Facebook), means that people are often enticed to invest in crypto-assets.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>However, the similarities with prospectuses end there because, unlike the latter, white papers are not regulated. An issuer can therefore show what it wants, and conversely, omit information that could prove useful to a potential investor. </p>
<p>It is important to note that for most projects, anyone can issue a white paper. But regulators strongly recommend that the entity in question be registered, not only to build confidence with potential investors, but more importantly, to ensure that the rules in place are being followed.</p>
<h2>New signals of fraud</h2>
<p>There are new signals of fraud that are unique to crypto-assets. We have seen white papers containing elements that contradict each other, incongruities or even errors in the name of a company behind a project. Some white papers are copied from other projects and quickly revised, leaving behind typos. It should be noted that as a general rule, an ICO is a unique project and a copy usually signals a fraudulent project.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/17JEm8lVL_s?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">An advertisement from the Autorité des marchés financiers, which aims to raise awareness of the risks associated with crypto-assets.</span></figcaption>
</figure>
<p>Another indicator of potential fraud is a white paper in which certain passages are too complex to be easily read. This should prompt the potential investor to question the seriousness of the project. The primary purpose of a white paper is to inform an investor, so abstruse language should never be used for projects being presented as coherent.</p>
<p>What’s more, because of the technological complexity of the work involved, the team behind the project is especially essential to its success. So if the project documentation does not include a description of the team, whether in the white paper or on its web site, this absence should raise questions in an investor’s mind. </p>
<p>For that matter, it is usually quite easy to get in touch with the team behind an ICO in order to ask questions or obtain additional information about the project, which is not the case in traditional finance. If a potential investor cannot get in touch with the team, again, there is reason to question the seriousness of the project.</p>
<p>Encountering any of the signals of fraud discussed above does not necessarily mean that a project is fraudulent. However, recognizing these signals will make an investor better equipped to manage the fraud-related investment risks that are particularly prevalent in the crypto-asset ecosystem.</p><img src="https://counter.theconversation.com/content/186446/count.gif" alt="La Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Annie Lecompte has received funding from the Quebec CPA Foundation.</span></em></p>The craze for crypto-currencies continues to grow. However, the environment is risky for investors, not only in terms of volatility, but also because of fraud.Annie Lecompte, Professeure - Certification, Université du Québec à Montréal (UQAM)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1747632022-02-04T13:08:06Z2022-02-04T13:08:06ZCryptocurrency-funded groups called DAOs are becoming charities – here are some issues to watch<figure><img src="https://images.theconversation.com/files/443913/original/file-20220201-13-1rhm2ib.jpg?ixlib=rb-1.1.0&rect=426%2C74%2C5756%2C3290&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Kimbal Musk, Elon's brother, has launched one of these new kinds of nonprofits.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/kimbal-musk-attends-the-los-angeles-premiere-of-the-game-news-photo/1172393340">Michael Kovac/Getty Images for 'The Game Changers'</a></span></figcaption></figure><p><a href="https://www.politico.com/news/2022/01/31/crypto-wyoming-arizona-tax-payments-00003910">Cryptocurrency</a> is becoming a <a href="https://techcrunch.com/2022/01/07/regulating-crypto-could-create-american-super-apps/">more familiar way to pay for things</a>.</p>
<p>One option is as part of a crowd, through a <a href="https://www.investopedia.com/tech/what-dao/">decentralized autonomous organization</a>. In this relatively new kind of group, also called a DAO, decisions and choices are governed by holders of one kind of cryptocurrency token, such as ethereum or bitcoin. DAOs also use “<a href="https://www.coindesk.com/learn/what-is-a-dao/">smart contracts</a>” that make decisions through online votes by all participants who wish to weigh in and other forms of automation.</p>
<p>DAOs are essentially clubs that harness both crowdfunding and cryptocurrency to operate in arenas from <a href="https://decrypt.co/88894/11-most-interesting-daos-of-2021">art to sports</a>. They are also cropping up in <a href="https://medium.com/@chriswjnr/a-charity-dao-structure-226e7dc9aaf6">philanthropy</a>.</p>
<p>One good example is the <a href="https://dao.biggreen.org/">Big Green DAO</a>. Launched in late 2021, it’s tied to a <a href="https://projects.propublica.org/nonprofits/organizations/275083595">decade-old</a> food justice charity that had revenue in excess of US$9 million in 2019.</p>
<p>Big Green’s founder is <a href="https://www.coindesk.com/tech/2021/11/30/kimbal-musks-big-green-dao-is-a-big-step-for-web-3/">Kimbal Musk</a>, who is Elon Musk’s brother and a member of Tesla’s board. The DAO version of his nonprofit promises to “<a href="https://dao.biggreen.org/">disrupt philanthropic hierarchies</a>” by reducing <a href="https://theconversation.com/nonprofits-that-scrimp-on-overhead-arent-necessarily-better-than-those-spending-more-111700">overhead spending</a> and shaving other expenses.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1488661092779708417"}"></div></p>
<h2>New terrain</h2>
<p>Based on my <a href="https://scholar.google.com/citations?hl=en&user=UsFwZekAAAAJ">research regarding crypto-assets</a>, I believe that there are <a href="https://medium.com/@chriswjnr/a-charity-dao-structure-226e7dc9aaf6">several considerations</a> that donors and charities should keep in mind as these arrangements emerge.</p>
<p>First, DAOs have little if any formal infrastructure. Some states simply require one individual to be designated as the agent of record. <a href="https://www.wyoleg.gov/2021/Introduced/SF0038.pdf">Wyoming passed a law in 2021</a> – the first of its kind in the United States – that legally recognizes DAOs as legal entities. It still requires the DAO to be organized as a Wyoming-based <a href="https://www.investopedia.com/terms/l/llc.asp">limited liability company</a>, with an individual identified as the registered agent. </p>
<p><a href="https://www.coindesk.com/tech/2021/11/30/kimbal-musks-big-green-dao-is-a-big-step-for-web-3/">In theory</a>, at least, when combined with the quick nature of how DAO decisions are made, this means that nonprofits can achieve more and respond more quickly to changing circumstances, while spending less on administrative staff and other kinds of overhead.</p>
<h2>Legal questions</h2>
<p>Until now, most <a href="https://www.charitynavigator.org/index.cfm?bay=content.view&cpid=6540">cryptocurrency donations to charities</a> simply <a href="https://www.cnbc.com/2021/12/24/what-to-know-about-making-cryptocurrency-donations-to-charity.html">provided capital to eligible organizations</a> that operate like any other standard nonprofit.</p>
<p>For tax purposes, <a href="https://thegivingblock.com/resources/faq/?">donating cryptocurrency</a> is like giving away stocks, bonds or other property, rather than donating money. This means, typically, that cryptocurrency donations actually provide donors with a <a href="https://theconversation.com/how-elon-musk-can-save-big-on-taxes-by-giving-away-a-ton-of-his-tesla-stock-172036">larger tax benefit</a> versus cash donations. If a donor were to instead liquidate their cryptocurrency prior to making a gift, they would first have to pay <a href="https://taxbit.com/blog/understanding-the-cryptocurrency-tax-rate">capital gains taxes</a>, and they would have less money to give away. </p>
<p>However, <a href="https://www.zenledger.io/blog/what-is-a-dao">it’s unclear</a> <a href="https://nonprofitlawblog.com/dao-what-is-it-what-does-it-mean-for-nonprofits/">whether funds can legally</a> flow to, through and out of a charitable decentralized autonomous organization.</p>
<p>Nonprofits are subject to regulatory enforcement and need to be chartered in a particular state. So far, it’s unclear how regulators, such as the <a href="https://www.irs.gov/charities-and-nonprofits">Internal Revenue Service</a> or <a href="https://www.irs.gov/charities-non-profits/state-links">state charity offices</a>, will be able to monitor or audit these groups.</p>
<p>It’s also unclear whether the very nature of DAOs is compatible with charitable donations.</p>
<p>In most, if not all, instances of for-profit DAOs – or even DAOs organized for a specific one-time purpose, such as <a href="https://www.constitutiondao.com/">attempting to purchase an original copy of the U.S. Constitution</a> – cash or appreciated property that is contributed to the organization is exchanged for <a href="https://www.coindesk.com/learn/what-is-a-governance-token/">governance tokens</a>. The tokens essentially represent a fractional form of collective ownership.</p>
<p>This could be problematic. When donors make charitable contributions, they relinquish the money or asset they just gave to the charity. A <a href="https://www.pgdc.com/pgdc/story/rev-rul-86-63">basic condition</a> for having a donation be eligible for favorable tax treatment by the authorities is that the <a href="https://www.charitynavigator.org/index.cfm?bay=content.view&cpid=31">donor gets nothing of value in return</a>. </p>
<p>The authorities may eventually determine that the distribution of virtual tokens to donors, even if those tokens aren’t used for anything outside the scope of the nonprofit, violates this precondition.</p>
<h2>Wild rides</h2>
<p>The clearest risk with those gifts is probably their volatility. </p>
<p>Overall, the cryptocurrency’s total market value sank to <a href="https://www.tradingview.com/markets/cryptocurrencies/global-charts/">$1.6 trillion on Feb. 3, 2022</a>, down from $2.85 trillion three months earlier.</p>
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<p>Charities either need to convert these donations into U.S. dollars right away, <a href="https://www.cfoselections.com/perspective/accounting-and-reporting-for-stock-gift-donations-to-nonprofits">as they do with donated stocks</a>, or gamble regarding their future value.</p>
<p>Despite all the operational, financial and legal obstacles nonprofit DAOs face, I’m excited about the opportunities with these crowd-managed charities funded by cryptocurrency donations because of their potential for a high degree of transparency paired with low overhead.</p>
<p>[<em>Get the best of The Conversation, every weekend.</em> <a href="https://memberservices.theconversation.com/newsletters/?nl=weekly&source=inline-weeklybest">Sign up for our weekly newsletter</a>.]</p><img src="https://counter.theconversation.com/content/174763/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>I own positions in several cryptocurrencies, and am on the Advisory Board of Gilded, a crypto-accounting and crypto-payment organization </span></em></p>As decentralized autonomous organizations with philanthropic aims begin to form, it’s unclear whether they can operate without breaking IRS rules.Sean Stein Smith, Assistant Professor of Economics and Business, Lehman College, CUNYLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1745412022-01-17T14:56:24Z2022-01-17T14:56:24ZHow Africa’s entrepreneurs are handling the continent’s challenges: new book<figure><img src="https://images.theconversation.com/files/440825/original/file-20220114-17-1nbhkgc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">African tech entrepreneurs are performing well despite extreme challenges. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/february-2020-kenya-nairobi-it-specialists-sit-at-computers-news-photo/1204909172?adppopup=true">Bernd von Jutrczenka/picture alliance via Getty Images</a></span></figcaption></figure><p>I carried out a little exercise on Google. I searched “Africa”, and then “African countries”. Top among the 3.4 billion results in the first search and 272 million in the second were stories about the Omicron variant of SARS-CoV-2 and bans on African countries. Then about wars and conflicts, and some sporting stories. </p>
<p>For a long time, the dominant narrative about the African continent has been one long tale of gloom and doom. The world’s epicentre of poverty and disease, a stain on the conscience of the world. A continent desperately in need of aid, and to which the rich and powerful countries must urgently stretch a helping hand of benevolence. </p>
<p>But Africans are not throwing a pity party. Of course, challenges and difficulties remain, but they are not peculiar to African countries. A new generation of African entrepreneurs are rising to the challenge. They’re setting a new tone for how the continent engages with the rest of the world. </p>
<p>Away from <a href="https://www.tandfonline.com/doi/abs/10.1080/17441690903369469?journalCode=rgph20">dependency-inducing aid models</a>, African entrepreneurs are charting a new course for inclusive growth on the continent. In a <a href="https://link.springer.com/book/10.1007/978-3-030-75894-3?page=2#toc">new handbook</a> on African entrepreneurship, we brought together 46 scholars to explore issues ranging from institutions and ecosystems to technology entrepreneurship, entrepreneurship in conflict zones and gender and diversity issues. </p>
<p>The book is a reference for researchers and practitioners with interests in international business, entrepreneurship and emerging economies. It is also a resource for students, course coordinators and programme leaders facilitating modules in entrepreneurship and business management. It is intended to guide policy makers across Africa and beyond. The book provides insights into how African entrepreneurs are navigating often turbulent institutional environments and volatile markets. It also sheds light on innovative networking and resourcing strategies business owners are using. </p>
<h2>Challenging environment for business</h2>
<p>This handbook offers a view of the often simplified but quite complex, multi-layered world of African entrepreneurship. It unpacks problems and prospects, cultures and contexts, and the features and future of African entrepreneurship. The contributions draw on empirical field work and practitioner reflections. </p>
<p>The <a href="https://link.springer.com/book/10.1007/978-3-030-75894-3?page=2#toc">Palgrave Handbook of African Entrepreneurship</a> features country-level cases and insights from Western, Eastern, Southern and North Africa. It looks at key emerging themes such as technology entrepreneurship, gender and diversity issues, and entrepreneurship in conflict zones. </p>
<p>African entrepreneurship shares similar characteristics with any other type of entrepreneurship. Perhaps one defining element is the heightened, albeit not exclusive, sense of community. </p>
<p>This partly explains why the African technology entrepreneurship landscape is particularly exciting. Hubs of tech-savvy, typically young, entrepreneurs are springing up all over the continent. They are thriving on the ideals of knowledge sharing and co-creation. As we reported in <a href="https://www.sciencedirect.com/science/article/abs/pii/S0040162520311331">another study</a>, these tech hubs have rapidly expanded on the African continent over the past decade. In 2015, the World Bank <a href="https://openknowledge.worldbank.org/handle/10986/23645">reported</a> the existence of 117 in Africa. By October 2019 this number had <a href="https://www.techgistafrica.com/africa/643-tech-hubs-play-massive-role-in-african-tech-ecosystem/">risen</a> to 643. That represents growth of 450%. </p>
<p>These hubs have been <a href="https://guardian.ng/business-services/hundreds-of-jobs-created-as-technology-hubs-hit-77/">hugely successful</a> in creating new jobs, stimulating the entrepreneurial ecosystem and improving the quality of life through technology. They are also challenging traditional universities as sites of knowledge production. This has been achieved by adopting a flat structure where hub members exercise creative autonomy. They have also adopted a transdisciplinary approach to bring together academia, industry and government sectors to find solutions to societal problems.</p>
<p>African tech entrepreneurs have achieved this in often extremely challenging institutional conditions and turbulent business environments. They have to grapple with derelict and inadequate infrastructure and higher risks arising from weak and poorly enforced laws, among others. There are also challenges of limited economic integration among African countries, but these are now being prioritised by regional bodies. <a href="https://journals.co.za/doi/abs/10.31920/2516-5305/2019/v16n1a1">One important challenge</a> that has attracted limited attention but is hugely significant is the hostile protectionist measures imposed by western governments. They are often on products and in areas where African countries are competitive. </p>
<p>One chapter in our handbook <a href="https://link.springer.com/chapter/10.1007/978-3-030-75894-3_14">explores</a> how African tech entrepreneurs survive this proverbial valley of death. Another contribution <a href="https://link.springer.com/chapter/10.1007/978-3-030-75894-3_12">wonders</a> how much progress could be made if African countries gave more open, universal access to their own citizens to enterprise and innovation across the continent. This is an especially timely and pertinent consideration, in the light of often hostile attitudes of African governments to technology entrepreneurship. </p>
<p>For example, in June 2021, the Nigerian government <a href="https://edition.cnn.com/2021/06/04/africa/nigeria-suspends-twitter-operations-intl/index.html">banned</a> Twitter indefinitely, leaving many businesses scrambling for survival in Africa’s most populous country. One source <a href="https://www.reuters.com/technology/nigerias-twitter-ban-leaves-some-businesses-lurch-2021-06-14/">reports</a> that 20% of 39.6 million Nigerians use Twitter to advertise their businesses.</p>
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<strong>
Read more:
<a href="https://theconversation.com/twitter-ban-will-harm-nigeria-as-a-technology-investment-destination-162238">Twitter ban will harm Nigeria as a technology investment destination</a>
</strong>
</em>
</p>
<hr>
<p>Across the continent, entrepreneurs are trying to forge ahead in conflict zones, in camps for the forcibly displaced, and in refugee settlements. The handbook highlights examples of resilient and innovative entrepreneurship from places such as <a href="https://link.springer.com/chapter/10.1007/978-3-030-75894-3_16">Northeast Nigeria</a>, where the Boko Haram insurgency has <a href="https://www.unhcr.org/nigeria-emergency.html">displaced</a> nearly 2.4 million people; <a href="https://link.springer.com/chapter/10.1007/978-3-030-75894-3_18">Libya</a>, where businesses are reeling from the impact of an ongoing civil war; and <a href="https://link.springer.com/chapter/10.1007/978-3-030-75894-3_17">Kenya</a>, where refugee entrepreneurs are drawing on social networks to overcome constraints of an encampment policy that restricts their movements and economic opportunities.</p>
<p>These are not just rosy stories of great successes and triumphs. Many of these businesses fail or struggle to grow. The majority of African entrepreneurs are still informal micro-enterprises. However, the true picture of the continent is not of helplessness. African entrepreneurs, with all their challenges and difficulties, are giving it a good go. </p>
<h2>Is the world ready?</h2>
<p>If they are truly ready to do business with Africa, the rich and powerful countries need to shed the paternalism that has defined and driven interaction with African countries for decades. This dependency-inducing model is damaging and not fit for purpose. The “developed” countries need to give more attention to issues such as liberal trade policies and removal of tariffs and other non-tariff barriers to African products and African businesses. It is not enough for rich countries to pay lip service to the ideals of free trade and do the opposite in practice.</p>
<p>African entrepreneurs are ready and able to hold their own at the international stage. Just give them the chance.</p><img src="https://counter.theconversation.com/content/174541/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Seun Kolade does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A new handbook shows that African entrepreneurs are able to hold their own globally if given the chance.Seun Kolade, Associate professor, De Montfort UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1692862021-10-19T13:56:21Z2021-10-19T13:56:21ZWhat makes FinTech solutions succeed? We built a model based on Ghana’s experience<figure><img src="https://images.theconversation.com/files/425739/original/file-20211011-25-16te0r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A woman places her mobile phone over credit card reader at grocery store checkout counter.</span> <span class="attribution"><span class="source">Luis Alvarez via Gettyimages</span></span></figcaption></figure><p>Nearly a quarter of adults in the world do not have access to a basic <a href="https://elibrary.worldbank.org/doi/abs/10.1596/978-1-4648-1259-0">bank account</a>. Financial technology (FinTech) innovations, such as mobile money, are one way to bridge this gap. Examples include M-Pesa in Kenya, Oi Paggo in Brazil and TCASH in Indonesia. All provide individuals with cheaper, easier, faster and more efficient ways of storing and transferring value. These efforts contribute to bridging the financial exclusion gap.</p>
<p>We used the World Bank’s <a href="https://www.worldbank.org/en/topic/financialinclusion">definition</a> of financial inclusion, which is where:</p>
<blockquote>
<p>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.</p>
</blockquote>
<p>Few FinTech firms in the global south have been able to replicate the success of FinTech innovations to reduce financial exclusion. The question is: why? We explore this question in our <a href="https://www.tandfonline.com/doi/full/10.1080/0960085X.2021.1978342">research paper</a> and provide some answers.</p>
<h2>The Ghanaian FinTech ecosystem</h2>
<figure class="align-right ">
<img alt="Holding a feature mobile phone" src="https://images.theconversation.com/files/425735/original/file-20211011-26-pj95hh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/425735/original/file-20211011-26-pj95hh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/425735/original/file-20211011-26-pj95hh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/425735/original/file-20211011-26-pj95hh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/425735/original/file-20211011-26-pj95hh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/425735/original/file-20211011-26-pj95hh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/425735/original/file-20211011-26-pj95hh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Mobile money application.</span>
<span class="attribution"><span class="source">Rachel Strohm</span></span>
</figcaption>
</figure>
<p>As is true in other countries, Ghana’s FinTech ecosystem is a complex and dynamic environment with interdependencies between various actors. </p>
<p>Regulators such as the Bank of Ghana provide policy and regulatory direction for the financial sector.</p>
<p>Traditional financial institutions such as commercial banks offer financial services through digital and physical branches. They are also the custodians of electronic funds transacted on FinTech innovations. </p>
<p>Telecommunications companies (telcos) also play a critical role. They use their mobile network platforms to offer digital financial services, popularly referred to as mobile money. </p>
<p>For their part, FinTech firms develop digital financial services. In Ghana, there are over 30 unique FinTech services. They include Qwikloan, Zeepay, G-money, Slydepay, and eTranzact. </p>
<p>Then there are the agents – small enterprises, acting as “shadow bank branches” or “cash-in, cash-out” points – providing support for digital financial services. </p>
<p>And, of course, the users that use FinTech innovations for financial transactions such as money transfer, securing micro-loans and paying bills. </p>
<h2>Success factors</h2>
<p>There is limited research about how new financial technology entrants and incumbents work together to shape financial inclusion. In our paper we try and bridge that gap. </p>
<p>We study the FinTech ecosystem in Ghana to learn how all the various actors work together to shape financial inclusion. </p>
<p>We did a case study with a range of organisations in Ghana. We identified three practices that are key to a well-functioning ecosystem for FinTech driven financial inclusion:</p>
<ul>
<li><p>innovative and collaborative practices</p></li>
<li><p>protectionist and equitable practices, and </p></li>
<li><p>legitimising and sustaining practices. </p></li>
</ul>
<p><strong>Innovative and collaborative practices:</strong> This involved substituting and refining established financial services and adopting new collaborative models to develop financial services. </p>
<p>We found that by refining and substituting established financial services through mobile money, many unbanked people were able to access financial services. This was because they didn’t need to visit bank branches, or provide strict documentation. </p>
<p>We also found that development and offering of FinTech innovations required unique collaborations. This was done through combination of technological capabilities, resources and relationships. </p>
<p>For instance, to offer microloan mobile money services, FinTech firms developed the mobile money applications, telcos offered the service through the mobile money platform while commercial banks acted as custodian of electronic funds. </p>
<p>This unique collaboration is new to the Ghanaian financial environment. It has led to many unbanked people being able to access financial services. </p>
<p><strong>Protectionist and equitable practices:</strong> We found that the entrance of new actors triggered rivalry and new competition. Initially this stifled the growth of FinTech innovations in Ghana. </p>
<p>To address this impasse, the Bank of Ghana intervened with different policies such as the “E-money issuers” guidelines. </p>
<p>We find these policies to be both protectionist and equitable. They protected the interest of incumbents, like the banks. But they also ensured equity by recognising telcos and FinTech as ‘semi-autonomous’ financial institutions. </p>
<p>The introduction of the policies liberated the financial space and enabled rapid growth. </p>
<p><strong>Legitimising and sustaining practices:</strong> These practices are symbolised by top-down revision of institutional arrangement and bottom-up trust building to create trust and sustain FinTech innovations. </p>
<p>We found that there was reorganisation at various levels. For instance, previously, FinTech firms were not legally recognised within the financial environment. But the Bank of Ghana introduced the <a href="https://www.bog.gov.gh/wp-content/uploads/2019/08/Payment-Systems-and-Services-Act-2019-Act-987-.pdf">Payment Systems and Services law</a> (Act 987 of 2019) to legitimise their operations. </p>
<p>Similarly, we also found that the inclusion of mobile money agents enabled bottom up trust building and financial inclusion success. </p>
<p>Agents, as mediators between users and telcos, played a critical bridging role by offering direct access to services and support. Because agents live in communities they were able to build trust, and drive adoption.</p>
<p>We went on to explain how these practices shape financial inclusion. From this we propose theoretical propositions of how financial inclusion in developing countries is being scaled and shaped in terms of actors, relationships, and practices.</p>
<h2>Big take-aways</h2>
<p>Our study sheds light on the critical ingredients, but also suggests that more can be done to reduce financial exclusion further.</p>
<p>The big take-aways are that the development of FinTech services for financial inclusion requires pulling together capabilities between independent yet complementary competitors from three different traditional sectors. These are: information technology (for FinTech firms), telecommunication infrastructure and reach (for telcos) and banking (for banks). </p>
<p>We also lay out how regulations need to strike a balance between three competing interests: <a href="https://doi.org/10.1111/isj.12333">incumbents, new actors and citizens</a>. Our findings suggest regulations that are both protectionist and equitable to incumbent and new actors can help balance the regulation of FinTech ecosystems.</p>
<p>Lastly, we set out how accounting for – and enabling – localised trust building can normalise practices to shape financial inclusion. We established the role of bottom-up trust building in the form of legitimising local mobile money agents and merchants to operate in the FinTech ecosystem. </p>
<p>This insight also explains why some FinTech initiatives from incumbents like branchless and mobile banking have not eliminated <a href="https://doi.org/10.1016/j.elerap.2018.05.009">financial exclusion</a>. Bottom-up trust building and building users’ trust is key to the successful use of FinTech services for financial inclusion. </p>
<p>From our work, it is evident that Ghana’s FinTech ecosystem practices are so far successful at reducing financial exclusion. But more can be done in terms of financial infrastructure expansion, literacy, elimination of transaction charges and developing solutions specifically for unbanked people.</p>
<figure class="align-center ">
<img alt="Fintech written on a phone" src="https://images.theconversation.com/files/425736/original/file-20211011-27-1qg9t2e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/425736/original/file-20211011-27-1qg9t2e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/425736/original/file-20211011-27-1qg9t2e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/425736/original/file-20211011-27-1qg9t2e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/425736/original/file-20211011-27-1qg9t2e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/425736/original/file-20211011-27-1qg9t2e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/425736/original/file-20211011-27-1qg9t2e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">FinTech.</span>
<span class="attribution"><span class="source">Investment Zen</span></span>
</figcaption>
</figure><img src="https://counter.theconversation.com/content/169286/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The FinTech ecosystem in Ghana provided the basis for understanding how various actors work together to shape financial inclusion.PK Senyo, Associate Professor in FinTech & Information Systems, University of SouthamptonStan Karanasios, Associate professor, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1663572021-08-26T14:00:11Z2021-08-26T14:00:11ZIn conversation with South Africa’s central bank governor Lesetja Kganyago<figure><img src="https://images.theconversation.com/files/417768/original/file-20210825-19-1hgzepp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South African Reserve Bank Governor Lesetja Kganyago</span> <span class="attribution"><span class="source">Andrew Caballero-Reynolds/AFP via Getty Images</span></span></figcaption></figure><p><em>The <a href="https://www.resbank.co.za/">South African Reserve Bank</a> is critical in formulating and implementing monetary policy and ensuring financial stability in the country. In this Wits Business School Leadership Dialogue, Professor Mills Soko <a href="https://www.wbs.ac.za/news/wbs-leadership-dialogues---from-village-boy-to-central-bank-governor-of-south-africa-.php">talks to</a> Reserve Bank Governor Lesetja Kganyago about the central bank and the issues that it grapples with on a day-to-day basis.</em></p>
<p><strong>Mills Soko: When you were appointed as governor one of the first things you did was to go to your village and you went on a shopping spree. What was the significance of this gesture?</strong></p>
<p><strong>Lesetja Kganyago</strong>: I felt it was an opportunity to teach people about the value of money. And I went back to the same shop, where every morning I would go and buy bread before going to school. There was an important inflation lesson because at the time – 1972 – a loaf of bread cost 10 cents. And I was saying to the villagers, today you cannot get a loaf of bread for 10 cents. You cannot even get it for R10 but the size of the bread is still the same. I said to them, therein lies the lesson of inflation, and that’s the reason why we have to keep inflation in check. I think the message got through to them.</p>
<p><strong>Mills Soko: Are there any differences between the mandate of the South African Reserve Bank and other central banks in the world?</strong></p>
<p><strong>Lesetja Kganyago</strong>: Central banks are creatures of their society. Society creates institutions and gives them a particular responsibility. The one thing common across central banks is that they have a responsibility for price stability.</p>
<p>The authors of our constitution were of the view that price stability is not an end in itself. It is a prerequisite for balanced and sustainable growth. South Africa’s constitution goes even further. It says the central bank can also do such other things, ordinarily done by other central banks, provided they are spelled out in national legislation.</p>
<p>The bank is also responsible for <a href="https://www.resbank.co.za/en/home/what-we-do/financial-stability">financial stability</a>, outlined in the Financial Sector Regulation Act, and the country’s <a href="https://www.resbank.co.za/en/home/what-we-do/payments-and-settlements">payments system</a>, enabled by the National Payment Systems Act.</p>
<p><strong>Mills Soko: Why is the focus limited to price stability? Why not focus on unemployment?</strong></p>
<p><strong>Lesetja Kganyago</strong>: We need balanced and sustainable growth. Price stability is a necessary condition for that growth. But it is by no way a sufficient condition.</p>
<p>It is important to distinguish between two important aspects. Monetary policy can only affect what is called cyclical growth. It will not affect structural growth. The monetary policy horizon is 12 to 18 months. So, monetary policy can only affect short run growth.</p>
<p>Job creation is an outcome of sustained economic growth. For that to happen, all players in the economy have to work together to achieve that.</p>
<p>I have a friend who explains this using the metaphor of the speed limit on the road. If you drive faster than the speed limit, the chances are that you could even lose your life or very soon have an appointment with the courts because you have broken the speed limit. If you drive below the speed limit, the chances are that you will reach your destination later than you would have otherwise.</p>
<p>Central banks are better able to influence cyclical or short-run growth.</p>
<p>The central bank is not going to create that higher growth rate that we require on its own. There is nothing monetary policy can do to produce the engineers that the country needs in order for its economy to grow. This is but one example.</p>
<p><strong>Mills Soko: How does the Monetary Policy Committee of the Bank function?</strong></p>
<p><strong>Lesetja Kganyago</strong>: It comprises the governor and the three deputy governors. They then add a staff member or two. Currently we have the chief economist, and they make up the <a href="https://www.resbank.co.za/en/home/what-we-do/monetary-policy/monetary-policy-committee">Monetary Policy Committee</a>.</p>
<p>The model that we use for forecasting, like all economics models, does have assumptions. And so the process starts with the Monetary Policy Committee members meeting with the Economic Research Department to agree on what the assumptions for the forecast are going to be. The two most important assumptions have to do with the price of oil and the exchange rate. They are important because they influence what is going to happen to inflation and what happens to economic growth.</p>
<p>Once we have signed off on the assumptions, the Bank’s modelling team puts together a forecast of what they think economic growth is going to be, what inflation is going to be.</p>
<p>The Monetary Policy Committee will then meet with a number of officials over three days. On the first day we assess the state of the economy, starting with the global economic outlook, moving to the domestic economy, and then we look at global and domestic financial markets respectively. On the second day, a smaller group debates the forecast.</p>
<p>On the third day, the chief economist will outline the options and gives the reasons why we should keep interest rates the same, why we should hike or cut them.</p>
<p>Each committee member will then say what their preference is.</p>
<p>If there is disagreement, we will debate and debate and debate some more. If we can’t convince each other, we go with the preferences of the majority of the committee. Once that is done, the chief economist drafts the <a href="https://www.resbank.co.za/en/home/publications/statements/mpc-statements">statement</a>, which is sent to all members. The committee then debates every single word, and where every comma should be. And by that time you realise that your English is more important than your economics.</p>
<p><strong>Mills Soko: Your thoughts on a cryptocurrency?</strong></p>
<p><strong>Lesetja Kganyago</strong>: It is a crypto asset. A currency must meet the following three criteria. One, it must be a generally acceptable medium of exchange. Secondly, it must be accepted as a store of value. And thirdly, it must be a unit of a account. A cryptocurrency is a store of value. It is a medium of exchange, but is not generally accepted. It’s only accepted by those who are participating in it.</p>
<p><a href="https://www.resbank.co.za/en/home/publications/publication-detail-pages/media-releases/2021/IFWG-CAR-Working-Group-position-paper-on-crypto-assets">Our approach</a> is that we are going to have to regulate this because people go and invest in cryptos and when they lose money, they ask what government has done about it.</p>
<p>Many of these crypto assets have got a technology called blockchain that underlies them. It can be useful in many other respects. And so, like many other central banks, we are experimenting with the blockchain technology.</p>
<p><strong>Mills Soko: Are there any plans to regulate financial technology (fintech) firms in the same way as banks are regulated?</strong></p>
<p><strong>Lesetja Kganyago:</strong> We don’t intend to regulate <a href="https://www.resbank.co.za/en/home/quick-links/fintech">fintech firms</a> like banks. But if it walks and quacks like a duck, then it is a duck. So, if you are a fintech firm, and you take deposits, we will regulate you like a deposit taker. If you are a fintech firm, and you do money transmission, we will regulate you like a payments provider. If you are a fintech firm, and you sell insurance policies, we will regulate you like an insurer.</p>
<p>Our regulatory mandate is to regulate activity.</p>
<p>It’s important that we understand the value that the fintech firms bring to the financial sector. We have created an innovation hub at the Reserve Bank in response to the growth in this area.</p>
<p><strong>Mills Soko: Central bank governors have been criticised for being a bunch of unelected bureaucrats who make decisions without being held accountable. What is your response?</strong></p>
<p><strong>Lesetja Kganyago</strong>: Central bankers are unelected. Yes, we are technocrats. Yes, we have got a lot of power. One <a href="https://ces.fas.harvard.edu/people/001970-paul-tucker">author</a> called it <a href="https://press.princeton.edu/books/paperback/9780691196305/unelected-power">unelected power</a>.</p>
<p>I don’t think that we should have elected central bankers. I think it will defeat the purpose because instead of focusing on the task at hand, they will focus on the next election.</p>
<p>Central banking was given to technocrats whose job is to make the difficult decisions. But across the globe the power of the technocrats is constrained. There are parameters. And within these, central bankers must act independently, without fear or favour. In our case, this is prescribed in the South African constitution.</p>
<p>The other side of preserving independence is accountability. We have got to be accountable for the decisions we make, and the way in which we make those decisions.</p>
<p>We <a href="https://www.resbank.co.za/en/home/publications/publication-detail-pages/presentations-to-parliament/presentations-to-parliament/2021/SARB-and-PA-2020-21-Annual-Report-Presentation-to-Parliament">account to parliament</a>. We also account to the public through our own public forums. The decisions we make are transparent and in the public domain, and thus open to public scrutiny.</p>
<p><em>This is an excerpt of the Wits Business School Leadership Dialogue. The full interview is available <a href="https://www.wbs.ac.za/news/wbs-leadership-dialogues---from-village-boy-to-central-bank-governor-of-south-africa-.php">here</a>.</em></p><img src="https://counter.theconversation.com/content/166357/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mills Soko does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Central banking was given to technocrats whose job is to make the difficult decisions. But there are parameters. And within these, central bankers must act independently, without fear or favour.Mills Soko, Professor: International Business & Strategy, Wits Business School, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1623822021-06-09T13:53:24Z2021-06-09T13:53:24ZBitcoin: El Salvador’s grand experiment<figure><img src="https://images.theconversation.com/files/405364/original/file-20210609-14804-rstzx1.jpg?ixlib=rb-1.1.0&rect=69%2C217%2C5067%2C2894&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">El Salvador is likely to become the first country to adopt bitcoin as legal tender. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/golden-coins-bitcoin-symbol-on-mainboard-1698227716">Momentum Fotograh/Shutterstock</a></span></figcaption></figure><p>Around the world, bitcoin has a mixed reputation. Owning and using the cryptocurrency is legal in a majority of nations, tolerated in many others, and outlawed by a relatively small number. </p>
<p>El Salvador has just become the first nation to <a href="https://www.cnbc.com/2021/06/09/el-salvador-proposes-law-to-make-bitcoin-legal-tender.html?">formally adopt</a> the cryptocurrency as legal tender, and a handful of other Latin American leaders have indicated that they would <a href="https://www.thestreet.com/crypto/bitcoin/politicians-from-these-countries-have-called-for-bitcoin-adoption">follow suit</a>. This marks a sharp change in bitcoin’s reputation on the global stage.</p>
<p>Backed by a public ledger called “<a href="https://www.euromoney.com/learning/blockchain-explained/what-is-blockchain">the blockchain</a>”, holders of bitcoin enjoy a fast and secure way to make payments or receive funds. And El Salvador clearly has a need to receive funds fast. Like many other nations, El Salvador’s economy is heavily dependent upon “remittances”, or funds sent home by citizens working abroad. Remittances totalled <a href="https://data.worldbank.org/indicator/BX.TRF.PWKR.DT.GD.ZS?locations=SV">over 20% of GDP in 2019</a>.</p>
<p>Currently, remittances are delivered by Western Union or other money transfer services which are necessarily centralised and highly regulated. Sending funds can be complicated, involving an in-person visit to an agent’s office and proof of identity for both the sender and receiver. Although there are over 500 Western Union offices across El Salvador, those living in rural areas of the nation are particularly inconvenienced.</p>
<p>By contrast, cryptocurrencies like bitcoin allow anyone with a mobile phone to send or receive funds, regardless of location. A software app known as a “wallet” manages the cryptocurrency as needed. Such wallets are safeguarded on phones and protected by passwords or biometric mechanisms like fingerprints.</p>
<p>Recipients of bitcoin realise their funds by connecting to the internet. Once bitcoin has been received, there are multiple ways to exchange cryptocurrency for cash.</p>
<figure class="align-center ">
<img alt="An illustration of several hands holding up smartphones, with images of bitcoins being transferred between them." src="https://images.theconversation.com/files/405199/original/file-20210608-21-aiy2s5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/405199/original/file-20210608-21-aiy2s5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=360&fit=crop&dpr=1 600w, https://images.theconversation.com/files/405199/original/file-20210608-21-aiy2s5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=360&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/405199/original/file-20210608-21-aiy2s5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=360&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/405199/original/file-20210608-21-aiy2s5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=452&fit=crop&dpr=1 754w, https://images.theconversation.com/files/405199/original/file-20210608-21-aiy2s5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=452&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/405199/original/file-20210608-21-aiy2s5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=452&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">El Salvador could be the first country to adopt bitcoin as legal tender.</span>
<span class="attribution"><span class="source">David Coker</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>Embracing cryptocurrency as legal tender</h2>
<p>Now, El Salvador is taking the relatively easy and rapid transfer of bitcoin a step further, by accepting it as legal tender. The cryptocurrency could be spent directly on goods and services, just as the US dollar is in El Salvador. Other Latin American politicians have since <a href="https://www.thestreet.com/crypto/bitcoin/politicians-from-these-countries-have-called-for-bitcoin-adoption">called for</a> the adoption of bitcoin as legal tender. </p>
<p>In El Salvador, <a href="https://www.acuant.com/blog/the-worlds-unbanked-population/">some 70% of citizens</a> are unbanked, meaning they lack access to a basic bank account. We know the unbanked face tremendous challenges in both <a href="https://www.nerdwallet.com/blog/banking/unbanked-consumer-study/">saving and accumulating wealth</a>.</p>
<p>Those without a bank account are discouraged from saving for at least two reasons. First, holding cash is risky. A bitcoin wallet, however, protects savings by means of a password or PIN, naturally facilitating the regular saving of small amounts over time. Second, savers are rewarded by receiving interest on their money. Without this incentive there is little upside to saving. But there are <a href="https://defirate.com/btc/">firms</a> which allow bitcoin holders to receive interest on their cryptocurrency (albeit your funds are not protected if they cease trading). So holders of bitcoin can enjoy the services of a bank, without the need to open a bank account. A desire to help the unbanked is likely mirrored across Latin America, but the ability of bitcoin to rapidly send and receive payments is likely also a draw.</p>
<h2>The downsides</h2>
<p>Adopting bitcoin as legal tender is not without its downsides. The cryptocurrency is notoriously volatile; indeed, at the time of this writing it has declined <a href="https://www.marketwatch.com/story/bitcoin-prices-tumble-50-from-peak-and-mark-cuban-calls-the-crypto-crash-the-great-unwind-11621790964">roughly 50%</a> from the April 2021 high of <a href="https://www.cnbc.com/quotes/BTC.CM=">nearly US$65,000</a>. I hold bitcoin, and view this drop in price as part of the asset class’s risk (hopefully there will be an attendant reward). But I don’t have all of my savings in bitcoin either. If I did, my reaction would be very different.</p>
<p>Also concerning is the prevalence of what are called “whales”, or those controlling wallets with large amounts of bitcoin. There are roughly <a href="https://www.coindesk.com/wallets-with-over-1000-bitcoin-have-hit-record-number-chainalysis">2,000 wallets</a> containing more than 1,000 bitcoins each. It’s not known who controls these wallets, but if several whales decided to sell their bitcoin, there could be tremendous drops in price.</p>
<p>Another issue El Salvadorians and other adopters will face is the inherent deflationary design of bitcoin. The supply of traditional currencies such as the US dollar can be changed as economic conditions warrant. America’s central bankers manage the supply of money to stimulate, or slow, the economy as needed. And historically the supply of US dollars has increased to reflect population growth.</p>
<p>By contrast, the total supply of bitcoin is <a href="https://www.investopedia.com/tech/what-happens-bitcoin-after-21-million-mined/">fixed at 21 million coins</a>. At the time of this writing only some 2.2 million bitcoins are left to be mined. Prices, as expressed in bitcoin, will inevitably fall over time.</p>
<p>Also, many analysts suggest the price of bitcoin will rise over time, as both acceptance and demand increase amid decreasing supply. If the more bullish price forecasts for bitcoin are true, those Salvadorians lucky enough to acquire and hold bitcoin early may become wealthy, perhaps fabulously wealthy. This has already happened with those lucky enough to have <a href="https://www.investopedia.com/articles/forex/121815/bitcoins-price-history.asp">purchased bitcoin before 2010</a>, when it cost less than one dollar. </p>
<p>Finally, there are mounting concerns about bitcoin’s <a href="https://www.ft.com/content/1aecb2db-8f61-427c-a413-3b929291c8ac">environmental impact</a> to consider. While its not clear how this issue will be resolved, it should be evaluated as part of the decision to render bitcoin legal tender.</p>
<p>Considering these risks, one can only wonder why El Salvador hasn’t considered the adoption of what is called <a href="https://www.investopedia.com/terms/s/stablecoin.asp">a “stablecoin”</a>. By design, stablecoins such as <a href="https://tether.to/">Tether</a> are fixed at the price of one US dollar. Stablecoins offer the security and rapid transmission speed of bitcoin, but without the volatility, or lottery-like payoff to early adopters.</p><img src="https://counter.theconversation.com/content/162382/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span><a href="mailto:d.coker@westminster.ac.uk">d.coker@westminster.ac.uk</a>
is a long term holder of Bitcoin, who has no plans to sell</span></em></p>El Salvador has become the first country to adopt bitcoin as legal tender. This is a noble idea, but unworkable in the long term.David Coker, Senior Lecturer - Finance and Fintech, University of WestminsterLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1622382021-06-07T15:12:28Z2021-06-07T15:12:28ZTwitter ban will harm Nigeria as a technology investment destination<figure><img src="https://images.theconversation.com/files/404674/original/file-20210606-28202-1m4mhaq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">In happier days. Nigerian President Muhammadu Buhari (centre) and Vice President Yemi Osinbajo (left) pose as Facebook founder Mark Zuckerberg takes a selfie during his visit to the country in 2016. </span> <span class="attribution"><span class="source">Sunday Aghaeze/AFP via Getty Images</span></span></figcaption></figure><p>In recent years Lagos, Nigeria’s biggest city, has become Africa’s <a href="https://restofworld.org/2021/why-lagos-has-become-africas-most-attractive-tech-hub-for-investors/">most attractive</a> tech hub for <a href="https://techcrunch.com/2021/02/11/how-african-startups-raised-investments-in-2020/">investors</a>. But that could be imperilled by the government’s decision to <a href="https://edition.cnn.com/2021/06/04/africa/nigeria-suspends-twitter-operations-intl/index.html">suspend Twitter’s operations</a> in the country.</p>
<p>Although no direct connection has been drawn, the ban came two days after Twitter <a href="https://www.theguardian.com/world/2021/jun/02/twitter-deletes-nigerian-presidents-abusive-biafra-tweet">took down</a> a tweet by President Muhammadu Buhari. Twitter claimed the message had been deleted because it violated its rules against “abusive behaviour”. The ban could be in retaliation. </p>
<p>A new chill entered into the relationship between Nigeria and Twitter in mid-April when the social media platform <a href="https://africa.businessinsider.com/local/markets/twitter-is-establishing-a-presence-in-africa-with-its-headquarters-in-ghana/fm9sj2v">chose Ghana</a> for its regional headquarters. Nigeria’s market is bigger than Ghana’s, with more Twitter users than Ghana has <a href="https://www.thetimes.co.uk/article/twitter-war-stirs-old-rivalries-between-nigeria-and-ghana-cxm9zn6wc">citizens</a>. <a href="https://africa.businessinsider.com/local/markets/twitter-is-establishing-a-presence-in-africa-with-its-headquarters-in-ghana/fm9sj2v">Ghana</a> won because its government has created an attractive environment for <a href="https://www.bbc.co.uk/news/world-africa-56860658">external investors</a> by <a href="https://www.pwc.com/gh/en/about-us/doing-business-in-ghana.html">improving</a> the country’s electricity output, and investing in good roads and a paperless port project.</p>
<p>Nevertheless, Nigeria’s fledgling technology sector had been seen as an <a href="https://www.cgdev.org/reader/new-economy-africa-opportunities-nigerias-emerging-technology-sector?page=0">attractive proposition</a> to investors because of the pool of talent in Nigeria, increasing <a href="https://www.statista.com/statistics/467187/forecast-of-smartphone-users-in-nigeria/">smartphone penetration</a> and access to the Nigerian market of <a href="https://data.worldbank.org/indicator/SP.POP.TOTL?locations=NG">200 million people</a>.</p>
<p>The Nigerian <a href="https://edition.cnn.com/2021/01/08/africa/nigeria-techpreneurs-african-startups-spc-intl/index.html">technology scene</a>, concentrated in <a href="https://www.ft.com/content/c757e400-f994-4fc4-87fa-e2647de138a3">Lagos</a>, is a recent and <a href="https://qz.com/africa/1777241/the-biggest-trends-in-african-tech-startups-and-innovation-2019/">rare success</a> story. One particular area of growth has been the financial technology (fintech) sector.</p>
<p>But the ban makes it difficult for the government to argue that it is friendly to <a href="https://www.cgdev.org/sites/default/files/new-economy-africa-opportunities-nigerias-emerging-technology-sector.pdf">technology enterprises</a>. The Nigerian government has often <a href="https://www.africanvibes.com/nigerian-government-calls-for-support-of-the-technology-ecosystem-in-nigeria-from-foreign-investors/">called on foreign investors</a> to invest in Nigerian technology start-ups and support Nigeria’s technology ecosystem. </p>
<p>For example, in 2016 Buhari hosted Mark Zuckerberg on the Facebook CEO’s first visit to sub-Saharan Africa. Facebook is set to <a href="https://edition.cnn.com/2020/12/04/africa/marketplace-africa-facebook-nunu-ntshingila-spc-intl/index.html">open an office</a> in the second quarter of 2021 in Lagos.</p>
<p>The indefinite Twitter suspension could prove to be a setback by spooking investors. </p>
<h2>Tech start ups</h2>
<p>Nigeria’s financial technology (fintech) start-ups have begun to engage innovatively with segments of the population that can’t access traditional financial services. About 56% of Nigerian adults are <a href="https://techpoint.africa/2020/10/01/fintechs-financial-inclusion-nigeria/">unbanked</a>. </p>
<p>Homegrown businesses <a href="https://techcrunch.com/2021/03/09/african-payments-company-flutterwave-raises-170m-now-valued-at-over-1b/">Flutterwave</a> and <a href="https://techcrunch.com/2018/08/28/paystack-with-ambitions-to-become-the-stripe-of-africa-raises-8m-from-visa-tencent-and-stripe-itself/">Paystack</a> are two examples of <a href="https://www.mckinsey.com/featured-insights/middle-east-and-africa/harnessing-nigerias-fintech-potential">fintech start-ups</a> that have been able to secure investments recently. </p>
<p>Flutterwave provides payment solutions for businesses. It recently attracted investment of US$170 million from a consortium of <a href="https://techcabal.com/2021/03/10/african-fintech-company-flutterwave-raises-170m-now-valued-at-over-1b/">foreign investors</a>. Paystack, which also provides payment solutions and customer analytics, attracted US$200 million from US payments giant <a href="https://techcrunch.com/2020/10/15/stripe-acquires-nigerias-paystack-for-200m-to-expand-into-the-african-continent/">Stripe</a>. </p>
<p>The two start-ups recently earned the <a href="https://businesselitesafrica.com/2021/03/15/african-unicorn-startups/">coveted unicorn</a> status. This is a reference to privately held technology start-up businesses valued at more than US$1 billion. This means that Flutterwave and Paystack are already, on paper, <a href="https://restofworld.org/2021/why-lagos-has-become-africas-most-attractive-tech-hub-for-investors/">more valuable</a> than most of Nigeria’s biggest banks. </p>
<p>The suspension could make it harder for technology entrepreneurs like this to get investment. Technology entrepreneurs will now need to convince investors about regulatory risks. This will be especially so if their business models require an active social media presence.</p>
<p>The Twitter ban will also reduce the exposure of Nigerian technology entrepreneurs to the world, reducing their ability to attract funding and grow their markets.</p>
<p>Finally, it sits at odds with the government’s goal of economic growth and openness by sending a signal that Nigeria is not entirely open for technology business. </p>
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Read more:
<a href="https://theconversation.com/nigerias-twitter-ban-could-backfire-hurting-the-economy-and-democracy-162233">Nigeria’s Twitter ban could backfire, hurting the economy and democracy</a>
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<h2>Why social media matters to business</h2>
<p>Many small and medium enterprises in Nigeria use social media, <a href="https://techpoint.africa/2021/02/17/twitter-african-gig-economy/">including Twitter</a>, for marketing, pitching, attracting investors and reaching customers. </p>
<p>An example of these are start-up technology firms like <a href="https://cowrywise.com/">Cowrywise</a>, a savings and investment company, and <a href="https://www.piggyvest.com/">Piggyvest</a>, an online savings platform. </p>
<p>Not too long ago, Cowrywise <a href="https://techpoint.africa/2021/01/28/cowrywise-3m-quona-capital/">announced</a> it was raising US$3 million in <a href="https://quona.com/">investment</a> funding. One of the participating investors, Sahil Lavingia, tweeted that his investment conversation started via a Twitter direct message or “DM”. Lavingia is the founder of <a href="https://gumroad.com/">Gumroad</a>, a San Francisco based online platform that facilitates the sale of products by creators directly to consumers. </p>
<p>Lavingia invested in the Nigerian company and posted on Twitter: “Excited to invest in another African startup! The power of Twitter”.</p>
<p></p><blockquote><p>Excited to invest in another African startup! The power of Twitter 😍 <a href="https://t.co/obcDI1MWfE">https://t.co/obcDI1MWfE</a> <a href="https://t.co/rBBsn3gK5Z">pic.twitter.com/rBBsn3gK5Z</a></p>— Sahil (@shl) <a href="https://twitter.com/shl/status/1354870654164561923?ref_src=twsrc%5Etfw">January 28, 2021</a></blockquote> <p></p>
<p>Nigerian companies have also used social media to raise awareness of their brands. Some do this through “<a href="https://www.brandcrunch.com.ng/2021/05/05/what-brands-need-to-know-about-working-with-nigerian-influencers/">influencers</a>” like the lifestyle and entertainment bloggers <a href="https://www.bbc.co.uk/news/av/world-africa-19722763">Linda Ikeji</a> and <a href="https://www.bellanaija.com/">Uche Eze Pedro</a>, as well as the music blogger Demola Ogundele of <a href="https://notjustok.com/">Notjustok</a>.</p>
<h2>Reconcile and de-escalate</h2>
<p>Nigeria’s information minister, Lai Mohammed, criticised Twitter for “<a href="https://www.business-standard.com/article/international/nigerian-govt-accuses-twitter-of-double-standards-supporting-secessionists-121060300481_1.html">double standards</a>” because the social media company did not, <a href="https://www.vanguardngr.com/2021/06/breaking-twitter-deletes-nnamdi-kanus-tweets/">until recently</a>, delete or flag inflammatory tweets by Mazi Nnamdi Kanu, the <a href="https://www.bbc.co.uk/news/topics/cr5pe6kx2p9t/biafran-separatists">separatist</a> group leader. </p>
<p>But, in my view, the Twitter ban seems to support the notion that the Nigerian government does not like to be held accountable for its actions and scrutinised when it falls short. It reeks of censorship and is reminiscent of non-democratic institutions. The president did not have to use the platform to air his views and should have been advised that using Twitter means being subject to its rules.</p>
<p>If the spat between the Nigerian government and Twitter is not de-escalated, the country’s thriving technology sector will suffer. This at a time when Nigeria needs to tap into technology to address its <a href="https://www.worldbank.org/en/country/nigeria/overview">socio-economic challenges</a>. Chief among these is the urgent need to reduce its dependency on oil and improve its infrastructure. Technology can help with that.</p><img src="https://counter.theconversation.com/content/162238/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tolu Olarewaju does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Nigeria risks losing its recent status as Africa’s most attractive tech hub following its decision to suspend Twitter’s operations.Tolu Olarewaju, Lecturer in Management, Keele UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1587702021-04-18T07:37:26Z2021-04-18T07:37:26ZGhana’s new mobile money rule could derail financial inclusion. But there are answers<figure><img src="https://images.theconversation.com/files/394749/original/file-20210413-17-12i8okq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ghana is in the throes of a mobile money boom</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Mobile_Money_Kiosk.jpg">Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>Mobile money — a technology that enables financial transactions through <a href="https://www.emerald.com/insight/content/doi/10.1108/ITP-06-2020-0418/full/html">mobile phones</a> without a bank account — is driving <a href="https://linkinghub.elsevier.com/retrieve/pii/S0166497220300365">financial inclusion</a>, especially in developing countries. It gives more people a chance to use financial products and services.</p>
<p>In Ghana, there is a policy to encourage the use of mobile money and reduce the flow of cash. And mobile money has proved popular because of its <a href="https://www.semanticscholar.org/paper/The-Advantages-and-Disadvantages-of-Mobile-Money-on-Opare/d00e990fcc86220642fc51b96dd96181e19378a1">advantages</a>.
People can transfer money or make payments wherever they are, in a simple, fast, convenient and affordable way. Mobile money has improved the efficiency of transactions and initiated some changes in traditional banking in the country. By 2017, Ghana had over <a href="https://www.cgap.org/blog/how-ghana-became-one-africas-top-mobile-money-markets">11 million active mobile money accounts</a>.</p>
<p>But in recent times, incidents of mobile money fraud have increased. <a href="https://telecomschamber.com/news-media/industry-news/mobile-money-fraudsters-now-target-bank-accounts-linked-to-momo-accounts#:%7E:text=Mobile%20money%2C%20which%20has%20become,to%20a%20mobile%20phone%20number.&text=Gustav%20Herbert%20Yankson%20indicateS%20that,as%20against%20278%20in%202015.">Statistics</a> from the cybercrime unit of the Ghana Police Service showed over 300 reported cases in 2019. </p>
<p>As a result, MTN, the <a href="https://newsghana.com.gh/zeepay-poised-to-be-2nd-largest-momo-operator-next-year/#:%7E:text=Currently%2C%20MTN%20Ghana%20is%20the,January%20and%20September%202020%20alone.">biggest mobile money operator</a> in Ghana, has introduced a <a href="https://thebftonline.com/16/03/2021/mtn-momo-customers-to-present-id-cards-for-all-momo-cash-out-transactions/">new policy </a>. It requires proof of identity (ID) before a customer can withdraw cash. Valid forms of proof are a driver’s licence, voter’s ID, passport, Social Security and National Insurance Trust ID, National Health Insurance card or Ghana card (national ID). All mobile money agents will have to select the ID type and enter the ID card number presented by the customer before completing the transaction. </p>
<p>There are two problems with this: it excludes people from financial services and it encourages the use of cash. There are better ways to address fraud.</p>
<h2>The ID problem</h2>
<p>According to Ghana’s National Identification Authority, only about <a href="https://citinewsroom.com/2021/03/tins-ssnit-numbers-to-be-phased-out-gradually-for-ghana-card-nia-boss/">15.5 million</a> out of the population of 30 million have been registered with formal ID. The new policy potentially excludes these individuals from using mobile money. </p>
<p><a href="https://onlinelibrary.wiley.com/doi/full/10.1111/joes.12372">Research</a> shows that people without formal ID tend to be the poor, living in remote villages, where mobile money is their only access to financial services. They rely on mobile money agents for remittances. </p>
<p>In Ghana, mobile money is becoming the <a href="https://qz.com/africa/1662059/ghana-is-africas-fastest-growing-mobile-money-market/">favourite channel</a> for financial transactions and this new policy means that people need to carry IDs every time. It is difficult to <a href="https://citinewsroom.com/2019/10/nia-faces-challenges-on-first-day-of-ghana-card-registration-in-n-r/">obtain and replace IDs</a> in Ghana because of bureaucratic processes. So this policy could create inconvenience, which could discourage customers from using mobile money. </p>
<p>I’ve done <a href="https://linkinghub.elsevier.com/retrieve/pii/S0166497220300365">research</a> on what influences behaviour related to financial technologies. One of my findings is that people are more open to using mobile money when they expect the effort of doing so to be small. On this basis, I believe they will not use mobile money if there are hindrances like constantly providing ID. Faced with this effort, they may revert to the use of cash — thereby derailing Ghana’s financial inclusion progress. This new rule about presenting an ID has good intentions but might produce unwanted effects. </p>
<p>The new policy also encourages the conversion of mobile money to cash, which works against the government’s agenda of discouraging cash. The government encourages electronic payment to widen the tax net and to fight corruption and robbery. Mobile money policies should support this agenda instead of undermining it. </p>
<h2>Alternative solutions</h2>
<p>Providing ID before withdrawals will not solve mobile money fraud. Fraudsters can easily use fake IDs for transactions because of the <a href="https://citinewsroom.com/2020/11/bawumia-implores-media-to-highlight-ghana-card-nhis-card-integration/">limited integration</a> of all national databases. Also, IDs in Ghana are not properly linked to residential addresses, so it will be difficult to trace perpetrators even when mobile money fraud is detected. </p>
<p>Rather, focus should be on the use of emerging technologies like <a href="https://www.altexsoft.com/media/2017/11/Fraud-Detection-How-Machine-Learning-Systems-Help-Reveal-Scams-in-Fintech-Healthcare-and-eCommerce.pdf">artificial intelligence and machine learning</a> to develop algorithms that can automatically detect, flag, and temporarily block potential fraudulent transactions for further investigation. </p>
<p>Similarly, there’s the option of two-factor authentication. This allows people to use authentication apps or text messages to validate transactions before they are authorised. It gives people another level of security in addition to personal identification numbers to fight fraud. </p>
<p>Another solution available to fight fraud is to eliminate fees for inter-mobile money transfers. This will encourage e-funds to remain in circulation, which makes it easier to trace fraudulent funds and uncover fraud networks. Fraudulent funds that are not withdrawn can be easily traced.</p>
<p>Ghana also has a <a href="https://www.fintechfutures.com/2020/05/ghana-becomes-first-african-country-to-introduce-universal-qr-code/">universal QR code</a> payment technology to encourage cashless transactions. MTN needs to work with the <a href="https://ghipss.net/index.php">Ghana Interbank Payment and Settlement Systems</a>, merchants, petty traders, drivers and others to roll out the technology throughout the country. This would enable more people to use mobile money to pay for daily activities.</p>
<p>Lastly, more could be done to improve people’s awareness of how mobile money fraud works and can be prevented. And perpetrators should be prosecuted.</p>
<p>Using this policy of “no ID, no cashout” will only derail the financial inclusion gains and Ghana’s cashless agenda. Mobile money operators should use advanced technologies to proactively foil fraudulent transactions instead of relying on manual interventions.</p><img src="https://counter.theconversation.com/content/158770/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>PK Senyo receives funding from Innovate UK, ESRC, and UKRI. </span></em></p>An attempt to prevent fraud in Ghana’s burgeoning mobile money sector could be a setback for access to financial services.PK Senyo, Senior Lecturer in Information Systems, University of SouthamptonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1546242021-02-08T13:27:55Z2021-02-08T13:27:55ZFinancial services: how London can take advantage of Brexit to become more successful<figure><img src="https://images.theconversation.com/files/382571/original/file-20210204-14-7ln8gq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">City limits?</span> <span class="attribution"><a class="source" href="https://unsplash.com/photos/gujCA6GquHs">Jack Gibson</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>In the weeks since the Brexit free-trade deal <a href="https://www.bbc.com/news/uk-politics-55435930">was announced</a> on December 24, people in the UK have been coming to terms with the fact that “free” <a href="https://www.bbc.co.uk/news/business-55752541">does not mean</a> completely free. But while much of the focus has been on the Northern Irish border and the row over vaccines, the financial services sector, centred around the City of London, is also going through substantial upheaval.</p>
<p>The sector contributed <a href="https://commonslibrary.parliament.uk/research-briefings/sn06193/">£132 billion</a> or 7% of the UK economy in 2019 and <a href="https://www.statista.com/statistics/298370/uk-financial-sector-total-financial-services-employment/">employs over 1 million</a> people, half of them in banking. It came out of the talks with what is essentially a “no deal”, since services were not covered at all. </p>
<p>During the announcement, the UK prime minister, Boris Johnson, said that the deal “perhaps does not go as far as we would like” for financial services. This was primarily a reference to “equivalence”, which is the way that EU regulators grant market access to firms from a country outside the bloc, on the basis of deciding that the financial rules are similar to their own (and will remain so). </p>
<p>There was no such commitment to equivalence in the deal – only a memorandum of understanding that talks would stay open and there would be an agreement on financial services regulation by March 31 that would hopefully include equivalence. The City of London <a href="https://www.cityam.com/city-of-london-lobby-urges-eu-to-grant-uk-financial-services-firms-widespread-access-to-its-markets/">has been calling on</a> Brussels to grant equivalence in these negotiations, but there is not much optimism that it will happen either in that timeframe or in any comprehensive way. </p>
<p>One major consequence is that UK financial institutions must trade euro-denominated shares and bonds from within the euro-bloc. Some temporary measures are in place to keep trades moving, such as the UK’s Financial Conduct Authority <a href="https://www.fca.org.uk/news/statements/temporary-transitional-power-derivatives-trading-obligation">allowing UK companies</a> to trade EU derivatives until June, but this business will also probably be lost after that. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/382575/original/file-20210204-22-1mix9ls.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Shot of City of London from a distance" src="https://images.theconversation.com/files/382575/original/file-20210204-22-1mix9ls.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/382575/original/file-20210204-22-1mix9ls.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/382575/original/file-20210204-22-1mix9ls.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/382575/original/file-20210204-22-1mix9ls.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/382575/original/file-20210204-22-1mix9ls.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/382575/original/file-20210204-22-1mix9ls.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/382575/original/file-20210204-22-1mix9ls.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Jobs are going, but there are no signs of an exodus.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/m90xK4akjyo">Lauris Rozentals</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>One estimate from October 2020 <a href="https://www.ey.com/en_uk/news/2020/09/ey-financial-services-brexit-tracker-fs-firms-continue-moving-staff-ahead-of-brexit-deadline">suggested that</a> even back then, £1.2 trillion in assets and 7,500 jobs had been moved in anticipation of what was to come. On <a href="https://www.ft.com/content/a434b756-afe0-454d-9d70-ef2d42ea8d55">the first day</a> that trading shifted back to continental bourses on January 1, the volume amounted to nearly €6 billion (£5.3 billion). </p>
<p>There are still no signs of a mass exodus, however. For example, Deutsche Bank <a href="https://www.ft.com/content/3eaac146-e140-490b-9c97-73e026b7dc13">initially suggested</a> that it may move up to 4,000 jobs to Frankfurt, but now that number looks more likely to be in the low hundreds. This could reflect a “wait-and-see” approach from financial institutions, or perhaps the benefits of being part of a cluster with a large support network of lawyers, accountants, risk specialists and so on, whose practices have evolved over decades to become world class. </p>
<p>Nonetheless, jobs relocated due to lack of equivalence are unlikely to come back if it is granted for particular market segments later, because routines and practices become settled. This could combine with the prospect of the “all-in-one-place” benefits of locating in London being diminished by the pandemic – if Zoom meetings are <a href="https://theconversation.com/five-charts-that-reveal-how-remote-working-could-change-the-uk-154418">increasingly the norm</a>, is being part of a cluster of connected businesses in one area still as important? </p>
<h2>Professional strengths</h2>
<p>But it’s not all bad news. One major City segment unaffected by Brexit is currency trading. While shares and bonds usually trade in the market where they are issued, currency trading takes place globally – mostly involving US dollar pairs, followed by pairs involving the euro and yen. </p>
<p>The UK <a href="https://www.bis.org/statistics/rpfx19.htm">has 43%</a> of the global forex market, and this has increased by six percentage points in three years. The next highest is the US, with 16.5% and declining, while the Asian centres of Japan, Hong Kong and Singapore have predominantly been static. </p>
<p>In forex, London has several important advantages. The location and timezone are a midpoint between the US and Asia. It has scale in having <a href="https://colresearch.typepad.com/colresearch/2018/06/banks-in-the-city-and-across-the-uk.html">such a significant number</a> of international banks in one city, plus the network of supporting services. By comparison, EU expertise is scattered among centres such as Amsterdam, Frankfurt and Dublin. London also has the <a href="https://www.ft.com/content/f0a2dc6e-0263-11e7-ace0-1ce02ef0def9">infrastructure required</a> for state-of-the-art high-frequency trading, not least the transatlantic cabling landing stations and data centres.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/382582/original/file-20210204-16-56se4k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Two professionals working behind laptops" src="https://images.theconversation.com/files/382582/original/file-20210204-16-56se4k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/382582/original/file-20210204-16-56se4k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/382582/original/file-20210204-16-56se4k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/382582/original/file-20210204-16-56se4k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/382582/original/file-20210204-16-56se4k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/382582/original/file-20210204-16-56se4k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/382582/original/file-20210204-16-56se4k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">London’s finance cluster remains hard to beat.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/5fNmWej4tAA">Scott Graham</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>So London will probably continue to dominate this market, and is well placed to benefit from a likely rise in the trade in emerging markets currencies. Their total trade <a href="https://www.bis.org/statistics/rpfx19.htm">now exceeds the yen</a>, with the Chinese remnimbi the largest. Outside Hong Kong, more remnimbi are traded in London than anywhere else – more than £300 billion worth in 2019. London has also seen an increase in the issuance of remnimbi-denominated bonds issued outside of China (known as “dim sum bonds”). </p>
<p>In important areas like these, London will be competing much more with Asia than with Europe. London is also likely to continue to be a world leader in providing a place where disputes can be resolved and best practices can be monitored and maintained. </p>
<h2>The right approach to the future</h2>
<p>The pre-eminence in finance that London enjoys because of its cluster of specialists points to a vital issue as the UK emerges from Brexit: the key to the future is to maintain and enhance standards and regulatory oversight so that major firms continue to have confidence in London as a place to do business, resolve disputes and so on. Get this right and they will continue to invest.</p>
<p>No longer having to coordinate and agree with 27 EU countries should enable the UK to be more nimble in this regard, which could be a big advantage in attempting to corner emerging areas such as green investment and fintech. This could include developing and regulating new financial products that allow investors to positively engage with climate-change finance and cryptocurrencies. This would be a more beneficial approach to taking the financial sector forward than to focus on deregulation in a “<a href="https://www.thisismoney.co.uk/money/markets/article-9144307/Big-Bang-2-0-Radical-shake-planned-breathe-life-City-London.html">big bang 2.0</a>”. </p>
<p>The unavoidable reality is that financial services business and jobs will continue to be lost as a result of Brexit. But with a thoughtful, future-focused approach to managing the sector, there is also plenty of scope for it to rebound.</p><img src="https://counter.theconversation.com/content/154624/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David McMillan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The question now is, how to turn a crisis into an opportunity.David McMillan, Professor in Finance, University of StirlingLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1485282020-11-05T02:30:42Z2020-11-05T02:30:42ZHow fintech can help Indonesia’s small and medium enterprises survive the COVID-19 pandemic<p>In Indonesia — Southeast Asia’s largest economy — small and medium enterprises (SMEs) contribute to <a href="https://www.thejakartapost.com/academia/2020/07/17/smes-safeguard-economy.html#:%7E:text=SMEs%2C%20which%20account%20for%2060,and%20communities%20across%20the%20country.">around 60% percent of the nation’s economy and absorb 97% of its domestic workforce</a>. However, while there are <a href="https://www.thejakartapost.com/academia/2020/07/17/smes-bailout-not-enough-demand-is-key.html">more than 60 million SMEs in Indonesia, only 12% can get financing or bank loans</a>.</p>
<p>The COVID-19 pandemic has made the situation worse for these SMEs, as almost 50% (around 30 million SMEs) have been forced to <a href="https://money.kompas.com/read/2020/07/28/170100126/kadin--sekitar-30-juta-umkm-tutup-karena-pandemi-covid-19#:%7E:text=Mereka%20mengatakan%20bahwa%20hampir%2050,%3A%20Kami%20Akan%20Lacak...">close temporarily, as demand plumetted due to the pandemic</a>.</p>
<p>That’s where <a href="https://www.bloomberg.com/quicktake/financial-technology-companies-disrupt-comfy-banks-quicktake">fintechs</a> can help. This term refers to a combination of financial services and technology that aim to make it easier for people to save, borrow and invest online.</p>
<p>Lending services offered by fintech companies like <a href="https://www.investree.id/">Investree</a> and <a href="https://www.tunaikita.com/">Tunaikita</a> could help these small firms to get loans at a lower cost with <a href="https://theconversation.com/traditional-banks-are-struggling-to-stave-off-the-fintech-revolution-124201">digital-friendly services</a> that outstrip conventional banks. </p>
<h2>Peer to peer lending</h2>
<p>Data from Indonesia’s Financial Services Authority showed almost <a href="https://www.thejakartapost.com/news/2020/09/24/fintechs-role-in-financial-inclusion-rises-but-infrastructure-literacy-challenges-loom.html">25%</a> of the country’s population doesn’t have access to banks. </p>
<p>SME entrepreneurs suffer greatly from limited access to banks, which makes it difficult for to obtain loans and fund business expansion.</p>
<p>Currently, there are about 157 fintech lending firms in Indonesia, with a total asset of almost Rp 3.2 trillion, according to the country’s <a href="https://www.ojk.go.id/id/kanal/iknb/data-dan-statistik/fintech/Pages/-Statistik-Fintech-Lending-Periode-Agustus-2020.aspx">Financial Services Authority’s Report in August 2020</a>. </p>
<p>One lending services offered by fintech firms is called peer to peer (P2P) lending. Under this loan mechanism, an individual or a company can lend money to others in return for an interest. </p>
<p>At least 54% of 12.8 million P2P borrowers are SMEs. The lending accounted for 55% from Rp 54.71 trillion of loans that the fintech sector <a href="https://event.tempo.co/read/1399891/kemenparekraf-gelar-finback-2020">disbursed last year</a>.</p>
<p>A <a href="https://www.thejakartapost.com/news/2020/07/03/p2p-lending-helps-smes-earn-more-scale-up-business-research.html">study</a> by Universitas Indonesia shows P2P lending helps SMEs scale up their business, eventually helping them qualify for bigger bank loans.</p>
<p>Online sellers that borrowed from the P2P lending platform were able to increase their income from the initial average of <a href="https://www.thejakartapost.com/news/2020/07/03/p2p-lending-helps-smes-earn-more-scale-up-business-research.html">Rp 807 million (US$57,046) to Rp 3.5 billion</a>.</p>
<h2>How the government can boost fintech expansion</h2>
<p>The government needs to support the expansion of fintech so they can help more SMEs access loans and scale up their business. Supporting SMEs is important for the Indonesian economy, given their massive contribution. </p>
<p>Indonesia’s Financial Services Authority (OJK) also recently launched its <a href="https://www.ojk.go.id/id/berita-dan-kegiatan/publikasi/Pages/Publikasi-Materi-Digital-Finance-Innovation-Road-Map-dan-Action-Plan-2020-2024-serta-Digital-Financial-Literacy.aspx">“Digital Finance Innovation Road Map and Action Plan 2020-2024”</a>. </p>
<p>This road map complements a “<a href="https://jakartaglobe.id/context/fintech-startups-vs-conventional-banks-will-win">regulatory sandbox</a>” operated by OJK, in which fintech startups can conduct live experiments to trial new products or business models in a controlled environment.</p>
<p>It also allows OJK to receive immediate feedback and test upcoming regulations. With a more diverse range of loan products, SMEs stand to benefit by finding products best suited to their business.</p>
<p>However, the government still needs to support this with the appropriate infrastructure, such as high-speed, affordable, and reliable internet connection.</p>
<p>The government must also ensure all SMEs are well informed about financial service options available for them, including those offered by fintech companies.</p>
<p>What’s needed is collaboration between all parties — including fintech firms, the banking industry and government — to support Indonesia’s SMEs during the pandemic.</p><img src="https://counter.theconversation.com/content/148528/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Para penulis tidak bekerja, menjadi konsultan, memiliki saham atau menerima dana dari perusahaan atau organisasi mana pun yang akan mengambil untung dari artikel ini, dan telah mengungkapkan bahwa ia tidak memiliki afiliasi di luar afiliasi akademis yang telah disebut di atas.</span></em></p>Fintech can help small and medium enterprises in Southeast Asia’s largest economy access funding and expand their businesses.Nurhastuty K. Wardhani, Tutorial Fellow, The University of QueenslandMarc Bohmann, Consultant and Casual Lecturer, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1494752020-11-04T13:30:22Z2020-11-04T13:30:22ZAnt Group: Jack Ma’s biggest market debut suspended amid fears over regulation<figure><img src="https://images.theconversation.com/files/367456/original/file-20201104-21-zr0zqj.png?ixlib=rb-1.1.0&rect=2%2C7%2C932%2C615&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Back to the start?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/paris-france-may-16-2019-chinese-1404202478">Frederic Legrand - COMEO /Shutterstock</a></span></figcaption></figure><p>In a surprise <a href="https://www.bbc.co.uk/news/business-54798278">last minute decision</a>, the flagship stock exchange listing of Ant Group was suspended by regulators <a href="http://www.sse.com.cn/disclosure/announcement/general/c/c_20201103_5253315.shtml">in China</a> and <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1103/2020110302285.pdf">Hong Kong</a>. The Chinese tech giant, backed by Alibaba billionaire Jack Ma, <a href="https://theconversation.com/ant-group-is-holding-the-biggest-ipo-of-all-time-heres-what-it-is-147403">was to be the biggest</a> initial public offering (IPO) in history. </p>
<p>The suspension puts in doubt the future of the US$34.4 billion share sale, part of the US$313 billion dual listing of this giant financial technology (fintech) payments company. The move followed <a href="https://www.bloombergquint.com/markets/jack-ma-summoned-by-china-financial-regulators-on-eve-of-ant-ipo">a regulatory interview</a> between the Chinese Financial Stability and Development Committee and Ma, the company’s ultimate controller. The committee’s chair, Vice Premier Liu He, was of the opinion that fintech companies needed to be better regulated amid an ongoing global debate about whether fintechs should be regulated as <a href="https://www.aljazeera.com/economy/2020/11/3/ahead-of-giant-ipo-chinas-ant-faces-key-question-what-is-it">financial companies or technology companies</a>.</p>
<p>Liu made a valid point, albeit with unfortunate timing. Similar debates are being conducted in the US where <a href="https://www.frbsf.org/banking/fintech/regulators/">fintech companies face multiple regulators</a> with overlapping authorities. The issue goes to the heart of the fintech revolution and the future of banking: what constitutes financial intermediation?</p>
<h2>Traditional banking vs fintech</h2>
<p>A bank <a href="https://www.jstor.org/stable/2976705?casa_token=vBJFK1blhQIAAAAA%3AMpzOxyOKSPPHbvBbcoX-JRjnrLsfqVuKWqCPSVfBHK20NcaIxnAX-1c-7AQ9VaxmKdrLlB9yRhHiH8Ewv4Ut5-3KcmmxvZ5E9t2X03FUduEDu4UZ686o&seq=1#metadata_info_tab_contents">is an intermediary</a>. It has a customer relationship and borrows funds by way of deposits (liabilities). It uses these to lend or invest (assets). In facilitating this mediation banks provide a service by providing a store of money and a mechanism to transmit that money. With improvements in fintech, however, money can be stored electronically, lenders and investors can source funds directly over the internet, and money transfer can be done digitally.</p>
<p>As a result, fintech companies such as Ant Group have the potential to disintermediate banking. To put it in simple terms, financial technology can cut out the middle man and enjoy a regulatory advantage. This increases the reach of financial services, but it raises the question of whether we need to fundamentally change the way we conduct financial transactions. The solution in China is to simply extend the regulatory net.</p>
<p>Many fintech companies, such as the Ant Group, are essentially brokers. They are not asset transformers. They do not have banking licenses, and as such don’t have access to deposits or insurance protection. Banks, however, are dependent on capital availability and borrowers’ credit. During the process of intermediation between loans and deposits, there is a mismatch between long-term assets and short-term deposits. This results in the risk of bankruptcy for traditional banks, unless it’s well managed. As a result, the banking sector is one of the most regulated sectors in the world. And a bank’s capital liquidity is intrinsically linked to its ability to function. Fintech companies do not face the same regulatory scrutiny.</p>
<figure class="align-center ">
<img alt="Ground view of Ant Financial hedquarters" src="https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Ant Group HQ.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hangzhou-chinamarch-10-2018ant-financial-services-1662877429">wcarrot_007/Shutterstock</a></span>
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<p><a href="https://www1.hkexnews.hk/app/sehk/2020/102484/documents/sehk20082500535.pdf">As of June 30, 2020</a>, about 98% of Ant Group’s credit balance originated through its platform was underwritten by its partner financial institutions or securitized. <strong>page 137</strong> As a credit broker, it does not shoulder much default risk. Potential <a href="https://www.nasdaq.com/articles/china-issues-draft-rules-to-regulate-online-micro-lending-business-2020-11-03">new rules</a> in China on micro-lending suggest this might change by setting a requirement for small online lenders to provide at least 30% risk sharing for any loan they fund jointly with banks. The Chinese Financial Stability and Development Committee are rightly concerned that <a href="https://www.aljazeera.com/economy/2020/11/3/ahead-of-giant-ipo-chinas-ant-faces-key-question-what-is-it">such a major change in business model</a> imposed by the regulator on Ant Group needs to be fairly disclosed to investors, hence the suspension of the listing. The IPO had marketed Ant Group as more of a technology company than a financial one. The regulator took a slightly different view, so a lot of face has been lost.</p>
<p>The regulation of fintech is not just a Chinese issue, and it would be unfair to criticise their regulatory intervention. In October 2020, the Federal District Court in New York <a href="https://www.businessinsider.com/office-of-comptroller-of-currency-fintech-charter-takes-hit-2019-10?r=US&IR=">reached a ruling</a> that also put the nature of fintech regulation in the US spotlight. </p>
<p>It decided the US Office of the Comptroller of the Currency could not grant charters to fintech companies, something it had previously planned to do for non-deposit taking fintech companies. This suggests such companies will be forced to use the traditional route to regulation, a banking license. This is a heavy regulatory burden and may hold back US innovation in fintech.</p>
<h2>Designing new regulations</h2>
<p>Europe is <a href="https://www.ebf.eu/priorities/cybersecurity-innovation/eu-framework-for-experimentation/">a more innovation-friendly environment</a> for fintechs. </p>
<p>The European Supervisory Authorities, part of the EU’s financial supervision system, have been asked <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52018DC0109&from=EN#footnote15">to systematically consider fintech</a> in all their activities and consider ways in which the regulatory environment can be adapted. This treats fintechs more like technology companies and as such is a more flexible approach than taken in China or the US. </p>
<p>In the UK, the government’s strategy has been to make the UK the best place to start and grow a fintech business, including a desire <a href="https://www2.deloitte.com/uk/en/pages/financial-services/articles/regulating-fintech.html">to co-create regulation</a> with fintechs in mind. The Financial Conduct Authority’s Project Innovate, Fintech sandbox and the Bank of England’s FinTech accelerator are examples of <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/801277/UK-fintech-state-of-the-nation.pdf">this approach</a>. This approach may well prove more adaptable and help shape the debate on the future of regulation of fintech companies globally. No doubt Ant Group wishes it was operating in such an accommodating regulatory environment.</p><img src="https://counter.theconversation.com/content/149475/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Daniel Broby is affiliated with Centre for Financial Regulation and Innovation.</span></em></p>Last minute decision suspends world’s biggest IPO. But it exposes debates still ongoing about how to regulate fintech companies.Daniel Broby, Director, Centre for Financial Regulation and Innovation, University of Strathclyde Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1451792020-09-09T20:06:59Z2020-09-09T20:06:59ZCashless payment is booming, thanks to coronavirus. So is financial surveillance<p>A banknote has been sitting in my wallet for six months now. As time ticks on, it burns an ever greater hole in my pocket.</p>
<p>At first I felt uneasy spending it, following COVID-19 warnings to pay more attention to hand hygiene and the surfaces we all touch on a daily basis.</p>
<p>Now I have less and less opportunity to do so. While the World Health Organisation has <a href="https://www.marketwatch.com/story/who-we-did-not-say-that-cash-was-transmitting-coronavirus-2020-03-06">never advised</a> against using cash, <a href="https://www.abc.net.au/news/2020-03-20/will-coronavirus-kill-off-cash-in-australia/12065860">more and more businesses</a> are displaying signs that read “We Only Accept Contactless Payment” next to their registers.</p>
<p>A recent <a href="https://newsroom.mastercard.com/asia-pacific/press-releases/mastercard-study-shows-consumers-moving-to-contactless-payments-for-everyday-purchases-as-they-seek-cleaner-touch-free-options/">global poll</a> conducted by MasterCard – a company with reason to favour card-based payments – found 82% of its users see contactless payments as cleaner than cash. </p>
<p>Online shopping is booming too. Amazon’s value alone has <a href="https://www.forbes.com/sites/sergeiklebnikov/2020/07/23/5-big-numbers-that-show-amazons-explosive-growth-during-the-coronavirus-pandemic/#5e58ab4a4137">risen by 570 billion US dollars</a> this year. </p>
<p>But while electronic payment may reduce our exposure to germs, it also shows banks, vendors and payment platforms what we do with our money. Social media is awash with <a href="https://twitter.com/LeProfMoriarty/status/1301043738475720704">posts</a> condemning the forced use of contactless payment for fear of overseers eyeballing spending. Some people are even <a href="https://www.facebook.com/groups/732178480871805/">boycotting stores</a> that won’t accept cash.</p>
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<p>The growth of digital transactions exposes yet another aspect of our personal life to, what the social psychologist Shoshana Zuboff has called, “<a href="https://www.theguardian.com/technology/2019/jan/20/shoshana-zuboff-age-of-surveillance-capitalism-google-facebook">surveillance capitalism</a>”. Financial data is now a valuable raw material that can be bought, sold and refined in the name of profit.</p>
<h2>The decline of cash</h2>
<p>When the pandemic began, cash had already been on the decline for years. In Australia, <a href="https://www.theguardian.com/business/2020/jun/24/virtually-no-demand-for-coins-in-covid-19-era-as-australias-shift-from-cash-to-digital-hastens">demand for coins</a> fell by more than 50% between 2013 and 2019.</p>
<p>For many people, increasing digitisation is synonymous with progress. It can be seen as a way of leaving the cumbersome, historical artefacts of coins and banknotes behind.</p>
<p>COVID-19 has accelerated this move away from cash. Wariness of <a href="https://www.insider.com/does-money-carry-germs">microbe-ridden banknotes</a> has seen contactless payment become a spontaneous public health standard. </p>
<p>Because cash is a social material, it moves between us, connecting us both financially and physically. The US Federal Reserve even decided to <a href="https://www.reuters.com/article/us-health-coronavirus-fed-dollars/fed-quarantines-us-dollars-repatriated-from-asia-on-coronavirus-caution-idUSKBN20T1YT">quarantine dollars</a> returning from Asia earlier this year in an attempt to stop the coronavirus crossing its borders.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/depending-on-who-you-are-the-benefits-of-a-cashless-society-are-overrated-113268">Depending on who you are, the benefits of a cashless society are overrated</a>
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<h2>Dropping digital breadcrumbs</h2>
<p>One perk of paper money is that it does not leave paper trails. Digital money, however, leaves traces in the databases of banks, vendors and platform owners, while governments look keenly over their shoulders.</p>
<p>Financial journalist Brett Scott calls this a “<a href="https://networkcultures.org/wp-content/uploads/2018/01/14-brettscott.pdf">prison of watchable payments</a>”. </p>
<p>Tax officials love digital transactions because they make it easier to monitor the nation’s economy. Banks and payment platforms are pleased as well: not only do they collect fees and gain the ability to allow or obstruct transactions, they can also profit from the troves of personal data piling up on their servers. </p>
<p>Internally, banks use this data to offer you <a href="https://www.abc.net.au/life/banks-keep-lots-of-information-about-you-this-is-how-it-is-used/10912378#:%7E:text=What%20do%20banks%20use%20the%20personal%20data%20for%3F&text=The%20first%20type%20is%20personalised,whether%20to%20lend%20us%20money.">other bespoke services</a> such as loans and insurance. But information is also aggregated to better understand wider economic trends, and then <a href="https://thenewdaily.com.au/finance/finance-news/2018/04/06/big-banks-sell-data-customer-spending-habits/">sold on to third parties</a>. </p>
<p>At the moment, these data metrics are anonymised but that doesn’t guard against retailers using <a href="https://thenewdaily.com.au/finance/finance-news/2018/04/06/big-banks-sell-data-customer-spending-habits/">de-anonymising techniques</a> to attach transactions back to your identity.</p>
<p><a href="https://www.fastcompany.com/90310803/here-are-the-data-brokers-quietly-buying-and-selling-your-personal-information">Data brokers</a> exist for this very reason: building digital profiles and creating a marketplace for them. This allows retailers to target you with tailored advertisements based on your spending. The devices at everyone’s fingertips become a feedback loop of information in which companies analyse what people have bought and then urge them to buy more.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/explainer-what-is-surveillance-capitalism-and-how-does-it-shape-our-economy-119158">Explainer: what is surveillance capitalism and how does it shape our economy?</a>
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</em>
</p>
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<h2>Can surveillance work on your behalf?</h2>
<p>Having records of every transaction can also be useful for individuals. Companies such as <a href="https://www.revolut.com/en-AU">Revolut</a> and <a href="https://monzo.com">Monzo</a> offer “spending analytics” services to help customers manage their money by tracking where it goes each month.</p>
<p>But information about a user’s own behaviour never truly belongs to them. And, as the digital economist Nick Srnicek explains, “<a href="https://www.google.com.au/books/edition/Platform_Capitalism/2HdNDwAAQBAJ?hl=en&gbpv=0#spf=1599549352476">suppression of privacy is at the heart of the business model</a>”.</p>
<h2>Digital payment with (some) privacy</h2>
<p>While filling virtual baskets or paying by tapping a card does open up transactions for inspection, there are still ways you can protect your health and your data at the same time.</p>
<p>“Virtual cards” like those provided by <a href="https://privacy.com/">privacy.com</a> are one useful tool. These services let users create multiple card numbers for different online purchases that conceal consumption patterns from banks and credit card details from merchants. </p>
<p>Cryptocurrencies might also find a new limelight in the pandemic. Hailed as cash for the internet, the inbuilt privacy mechanisms of Bitcoin, Zcash and Monero could work to mask transactions. </p>
<p>However, finding companies that accept them is challenging, and their <a href="https://www.google.com.au/books/edition/Money_Code_Space/QZj5DwAAQBAJ?hl=en&gbpv=0#spf=1599549442513">privacy capabilities are often overstated</a> for everyday users. This is particularly true when using exchanges and third-party wallet software such as <a href="https://www.coinbase.com/">Coinbase</a>.</p>
<p>In brick-and-mortar stores, staying under the radar can be more difficult. <a href="https://auspost.com.au/money-insurance/buy-gift-cards/auspost-gift-card">Prepaid cards</a> are one option – but you’ll need to buy the card itself with cash if you want to keep your anonymity fully intact. And that takes us back to square one.</p><img src="https://counter.theconversation.com/content/145179/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jack Parkin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Using less cash means leaving more digital traces of where your money goes - but there are ways to keep some privacy.Jack Parkin, Digital Economist, Western Sydney UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1272552019-11-19T18:22:53Z2019-11-19T18:22:53ZQuantum computing, the new frontier of finance<figure><img src="https://images.theconversation.com/files/302156/original/file-20191118-66953-pqj5x8.jpg?ixlib=rb-1.1.0&rect=0%2C111%2C1526%2C1055&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Close-up on the circuitry of the Vesuvius quantum computer, announced in 2012 by the Canadian firm D-Wave Systems.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/jurvetson/39188582795">Steve Jurvetson/Flickr</a></span></figcaption></figure><p>The evolution of modern finance was closely linked to the evolution of computers, communications, and financial mathematics. Two main changes happened in the 1970s with the beginning of derivative trading and after the crisis of 2007 with the massive introduction of fintech.</p>
<p>Derivatives pricing started with the celebrated <a href="https://www.investopedia.com/terms/b/blackscholes.asp">Black and Scholes equation</a> and formulas in 1974, followed by a wealth of mathematical methods to compute the prices of derivatives. Still, even the 1980s derivative pricing required supercomputers, giving big firms a major competitive advantage – before the 2007 crisis, the trading volume was close to 1 trillion dollars a day. The prevailing opinion was that derivatives had enabled us to complete financial markets so that any stream of cash flows could be engineered.</p>
<p>This belief was shattered by the <a href="https://www.nytimes.com/2018/09/12/upshot/financial-crisis-recession-recovery.html">2007 financial crisis</a>, which showed that hedging can be perfect only as long as counterparties stay solvent. With the <a href="https://www.nytimes.com/2018/09/17/opinion/lehman-brothers-financial-crisis.html">failure of Lehman Brothers</a>, the world of finance became painfully understood that there is risk in derivatives and that free markets are not self-regulating. To save them, central banks injected trillions of dollars, euros and yens in liquidity through <a href="https://www.investopedia.com/terms/q/quantitative-easing.asp">quantitative easing</a> (QE). In the United States, the Fed injected some 4.5 trillion dollars in liquidity, roughly <a href="https://fred.stlouisfed.org/">one-third of the total monetary mass</a>.</p>
<h2>Understanding clients and mitigating problems</h2>
<p>After the crisis, the financial world turned its attention to understanding clients and to mitigate the problems created by market manipulations made possible by automated trading. Fintech uses computer-based techniques to model client behaviour, to automate dealing with clients and to plan and execute trades. At the same time, a number of <a href="https://www.investopedia.com/terms/f/flash-crash.asp">“flash crashes”</a> – sudden but short-lived large drops in market value – has heightened the attention of major players to the risk of crowding of algorithms.</p>
<p>A major new change is now in sight through the possible implementation of quantum computers. Instead of binary bits – the classic elementary unit of information – quantum computing uses <a href="https://en.wikipedia.org/wiki/Qubit">qubits</a> (quantum bits), obtained by the superposition of binary states. This would allow them to process a much larger amount of information thousands of times faster than classical computers. </p>
<p>It was generally believed that quantum computing was far in the future, but Google has recently announced to have actually reached this goal. First, the <a href="https://www.ft.com/content/b9bb4e54-dbc1-11e9-8f9b-77216ebe1f17"><em>Financial Times</em> reported</a> that Google had posted a paper on the NASA website announcing that its quantum computer called Sycamore has been able to perform in three minutes a computation that would take 10,000 years to perform on classical supercomputers. The paper was later removed from the website, but Google confirmed the announcement with an <a href="https://www.nature.com/articles/d41586-019-03224-w">October 23 paper in <em>Nature</em></a> and invited scientists and journalists to <a href="https://www.nytimes.com/2019/10/30/opinion/google-quantum-computer-sycamore.html">watch the computation</a>.</p>
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<figcaption><span class="caption">Google claims “quantum computer supremacy” with new processor (ABC News).</span></figcaption>
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<h2>Quantum leaps</h2>
<p>Why is it so important to reach <a href="https://en.wikipedia.org/wiki/Quantum_supremacy">quantum supremacy</a>? Modern economies are shaped by complex computations. Supercomputers are used to design products such as cars and planes, invent new drugs, create electronic circuits, model economies, organise large-scale logistics and study the climate. Unfortunately, computations also allow us to build lethal weapons and, increasingly, to monitor and attempt to control the behaviour of populations.</p>
<p>In the last 70 years, computing power has increased by a mind-boggling multiple. In the 1960s, even powerful computers were able to perform only a few MFLOPS (millions of floating point operations per second) while today the most powerful computer is able to perform almost <a href="https://www.theverge.com/circuitbreaker/2018/6/12/17453918/ibm-summit-worlds-fastest-supercomputer-america-department-of-energy">100 PetFLOPS</a> (10 raised to 17th power).</p>
<p>Even with such power, there are important computational tasks that are not solvable or only partially solvable today. The study of combustion and turbulence, the study of molecules from basic physical principles (quantum-mechanical simulation), engineering nuclear fusion and even logistic problems are some of the grand Challenges of computation as defined by federal <a href="http://www.hpcc.gov/">High Performance Computing and Communications</a> (HPCC) program. Solving these problems would give a firm or even a nation an important competitive advantage. There is, of course, also the sinister possibility of creating more destructive weapons.</p>
<p>What would be the importance of quantum supremacy for finance and economics? First, quantum computing would make current cryptographic techniques unsafe. Methods and algorithms will have to be changed. <a href="https://www.technologyreview.com/s/613946/explainer-what-is-post-quantum-cryptography/">Post-quantum cryptography</a>, or quantum-resistant cryptography, is a flourishing sector of study both in academia and with firms involved in cryptography. Some firms already offer products for post-quantum cryptography, which will be big business.</p>
<h2>Intuition, not brute force</h2>
<p>But probably the major changes would be in artificial intelligence (AI) and machine learning. The fact is that we do not know how human intuition and problem-solving works. Ultimately, computers solve problems with a brute-force approach by looking at different alternatives and choosing the best. The search space of quantum computers could be thousands of time larger than the search space considered by current computers. It would become feasible to synthesise a design from specifications and machines could become more “creative” through the ability to explore an immense range of possible design solutions. In the fields of finance and economics, quantum computing could lead to analysing a large space of heterogeneous data to make financial and predictions and understanding economic phenomena. </p>
<p>Amid such hope, caution is necessary: financial and economic data are truly complex, and analysis will not necessarily lead to more accurate predictions given the complexity of data. The complexity and non-stationarity of data might defy analysis. In other words, it is questionable if the use of quantum computing will reduce uncertainty.</p>
<p>The global effect of quantum computing on economic and social life will depend on the use that will be made of this tool – and that stems from human decisions rather than being forced by knowledge itself.</p><img src="https://counter.theconversation.com/content/127255/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Les auteurs ne travaillent pas, ne conseillent pas, ne possèdent pas de parts, ne reçoivent pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'ont déclaré aucune autre affiliation que leur organisme de recherche.</span></em></p>On October 23 Google announced that it built a quantum computer thousands of times faster than classic computers. This could have immense impacts on finance, cryptography and other fields.Sergio Focardi, Enseignant-chercheur en Finance quantitative à l’ESILV et à l'EMLV, membre du De Vinci Research Center, Pôle Léonard de VinciDavide Mazza, Professor of Finance, Pôle Léonard de VinciLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1242012019-09-27T09:34:00Z2019-09-27T09:34:00ZTraditional banks are struggling to stave off the fintech revolution<figure><img src="https://images.theconversation.com/files/294416/original/file-20190926-51457-1cl4tp2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/mobile-banking-network-business-people-using-598806239?src=9jBF3-FwxB6cCyO5pVOjfw-1-3">Shutterstock</a></span></figcaption></figure><p>Traditional banks are haunted by financial technology – fintech – firms. Challengers such as mobile-first banks Chime in the US, Monzo in the UK and Germany’s N26 have been around for a number of years now, but big global and regional banks are still struggling to deal with the competition. While fintechs experience a goldrush of investment – US$111 billion in 2018, up <a href="https://www.consultancy.eu/news/2390/global-fintech-investment-more-than-doubled-to-112-billion">from US$51 billion in 2017</a> – banking CEOs find themselves under increasing pressure from shareholders <a href="https://www.ft.com/content/08621722-b70a-11e9-8a88-aa6628ac896c">alarmed at the slow rate of change taking place</a>.</p>
<p>In our conversations with senior managers of banks, we spot several blind spots which are often found among incumbents who get hit the hardest by disruption. Two stand out in particular: an over-reliance on existing competitive advantages and an inherent misunderstanding of what disruption really means for them. </p>
<h2>Eroding advantages</h2>
<p>Traditional banks have a few advantages that they believe will protect them from the fintech threat: branch coverage, the trust they enjoy from customers and government regulation. But these advantages are eroding rapidly. </p>
<p>According to international consultancy firm <a href="https://www.mckinsey.com/%7E/media/mckinsey/industries/financial%20services/our%20insights/rewriting%20the%20rules%20in%20retail%20banking/rewriting-the-rules-succeeding-in-the-new-retail-banking-landscape.ashx">McKinsey</a>, in the past decade, the top 25 US banks managed to grow deposits while reducing their branch footprint by 15%. Clearly, having a physical branch in every neighbourhood is no longer necessary to drive customer deposits, as well as engagement. </p>
<p>Following the global financial crisis and bank bailouts, trust in the banking system was irrevocably shaken. Arguably, tech companies such as Amazon, Google, and Apple <a href="https://www.ft.com/content/3a3419f4-78b1-11e9-be7d-6d846537acab">enjoy</a> more trust from the global consumer than banks. With billions of devices and services from these companies already holding banking data and payment access in the form of apps and mobile wallet cards, customers seem to have already moved their financial transactions. </p>
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<img alt="" src="https://images.theconversation.com/files/294418/original/file-20190926-51438-111pm88.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/294418/original/file-20190926-51438-111pm88.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/294418/original/file-20190926-51438-111pm88.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/294418/original/file-20190926-51438-111pm88.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/294418/original/file-20190926-51438-111pm88.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/294418/original/file-20190926-51438-111pm88.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/294418/original/file-20190926-51438-111pm88.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Legacy infrastructure.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/bank-sign-over-entrance-door-black-262316411?src=lM6oo_HsgoJdPMFRC2el0Q-1-19">Kevin George / Shutterstock</a></span>
</figcaption>
</figure>
<p>Regulation used to make it very difficult to set up and run a bank. But the new European Payment Services Directive (<a href="https://www.fca.org.uk/news/press-releases/fca-finalises-revised-psd2-requirements">PSD2</a>) could soon bring down this barrier to entry. PSD2 is a set of policies that gives significant choice and protection to customers on how they want to fulfil their banking needs, as well as allowing them to put all their banking data in one place. </p>
<p>Meanwhile, regulation technology (“regtech”) tools are also <a href="https://www2.deloitte.com/lu/en/pages/technology/articles/regtech-companies-compliance.html">maturing</a>. These are making core compliance, risk management and transaction monitoring processes easier for new entrants. So it is only a matter of time before the regulation barrier protecting banks falls away completely across the globe.</p>
<h2>Misunderstanding disruption</h2>
<p>The other blind spot for legacy banks is their tendency to have a narrow and misguided understanding of disruptive business models. This usually begins with treating a new species of competitors as traditional ones. For example <a href="https://www.cnbc.com/2019/03/27/bank-of-americas-tech-chief-says-nothing-new-about-the-apple-card.html">Cathy Bessant</a>, Bank of America’s CTO, commented on Apple’s announcement of a new credit card: “My reaction when I saw the announcement was, first competitively, all of the features that are in that card are offerings we have today.” </p>
<p>The propensity to see only the product or service and not the entire business model is common among incumbents across a range of industries. Kodak, Blockbuster and Nokia were only three of the hundreds of disrupted incumbents which were able to see only the product (and associated features) that threatened them and not how the business models of their competitors allowed the creation of entirely new ecosystems that they were poorly equipped to survive in. By stooping down to competing on a feature by feature basis, incumbents lose the chance to redefine an industry that they once dominated.</p>
<p>It is therefore not a surprise to us when we see banks closing down branches one by one, as a means of lowering costs, without attempting to find a position of power in their newly evolving ecosystem. This indicates a flawed understanding of the threat along the lines of: fintechs are winning because they offer similar services at a lower cost with better, digital-only customer experiences. Nothing could be further from the truth. </p>
<p>If there is anything to be learned from disruptions <a href="https://blogs.wsj.com/source/2012/02/26/the-demise-of-kodak-five-reasons">in other industries</a>, it is that disruption is not a simple substitution at a lower cost. When customers adopted digital cameras they did so not because the quality of image and cost were now comparable to film, but because digitised images could be shared electronically. What photographs meant to people, who took them, when and of what, all changed in one fell swoop. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/294517/original/file-20190927-185364-crb6eu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/294517/original/file-20190927-185364-crb6eu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=342&fit=crop&dpr=1 600w, https://images.theconversation.com/files/294517/original/file-20190927-185364-crb6eu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=342&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/294517/original/file-20190927-185364-crb6eu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=342&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/294517/original/file-20190927-185364-crb6eu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=430&fit=crop&dpr=1 754w, https://images.theconversation.com/files/294517/original/file-20190927-185364-crb6eu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=430&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/294517/original/file-20190927-185364-crb6eu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=430&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Kodak had its moment.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/ukraine-lviv-january-26-2017-kodak-782299681?src=gO4387mUsXCGBcoqiimWhw-1-0">Rizhka Nazar / Shutterstock.com</a></span>
</figcaption>
</figure>
<p>Fintechs are similarly changing what banking means to people, how they engage with it and what their expectations will be from their financial providers in the future. What killed Kodak in the end was not that they could not keep up with the technology, but their inability to appreciate the wider cultural <a href="https://hbr.org/2016/07/kodaks-downfall-wasnt-about-technology">and behavioural shift that ensued</a>.</p>
<p>In the case of banks, the most important aspect of the shift is the move from product-focused to platform-based competition. Bankers feel good after making a profitable sale, or clinching a deal. Platforms are not about making profit from individual sales but how an expanding user base creates value <a href="https://issues.org/the-rise-of-the-platform-economy/">for the entire network</a> – a concept foreign to most banks. For platforms like Amazon or Facebook, customers are not just people who pay for products or services, they are the company’s most valuable asset – the reason why Facebook paid US$19 billion for WhatsApp. </p>
<p>It would be a mistake for banks to view the Apple Card as yet another card. The card, aimed at Apple’s <a href="https://www.macrumors.com/2019/01/29/apple-1-4-billion-active-devices/">1.4 billion active devices</a> and varied customer base, is just the tip of the iceberg. Facebook’s Libra, which has <a href="https://www.statista.com/statistics/264810/number-of-monthly-active-facebook-users-worldwide/">2.4 billion users at its disposal</a>, is not just a far-fetched dream which will take years to be accepted. It will bite incumbents sooner than they realise.</p>
<p>The quicker banks come to realise that they have a limited understanding of the fintech challenge, the more likely they will counter it successfully. Rather than trying to survive by closing down branches, launching mobile apps and hanging on to the promise of regulatory barriers, they should try to learn from the mistakes Kodak, Blockbuster, Nokia and others made.</p><img src="https://counter.theconversation.com/content/124201/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Traditional banks don’t understand the challenge they face from fintech disruptors and their competitive advantage is on the wane.Kamal A Munir, Associate Professor of Strategy and Policy, Cambridge Judge Business SchoolHamza Mudassir, Visiting Fellow in Strategy, Cambridge Judge Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1115782019-02-18T14:51:23Z2019-02-18T14:51:23ZRevolut: could allegations of Russian involvement sidetrack a fintech revolution?<figure><img src="https://images.theconversation.com/files/259513/original/file-20190218-56212-l47acp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Karolis Kavolelis / Shutterstock.com</span></span></figcaption></figure><p>Revolut has been one of the <a href="https://theconversation.com/monzo-revolut-and-other-challenger-banks-are-shaking-up-the-industry-99564">biggest disruptors</a> to the banking industry in recent years. The fintech company is intent on revolutionising international payments – and it has. </p>
<p>With traditional banks, international payments are monopolised by <a href="https://www.investopedia.com/articles/personal-finance/050515/how-swift-system-works.asp">the Swift system</a>. Customers pay a hefty fee for transfers, which very often do not require any effort on the part of a bank. Instead, Revolut offers an easy-to-use wallet which enables a customer to transfer money between currencies, free of charge. A wallet can include US dollars, UAE dirhams, as well as cryptocurrencies like bitcoin and ethereum. </p>
<p>In the short time since it was founded, Revolut has attracted more than 3m customers. It now has an EU banking licence, which means it can start offering current accounts and loans to clients across the EU. But politics in Lithuania, where Revolut gained its banking licence, could cause some serious issues for the new bank.</p>
<h2>Looking to Lithuania</h2>
<p>Founded in the UK in 2015 by Nikolay Storonsky and Vlad Yatsenko, Revolut was originally regulated by the UK’s Financial Conduct Authority. Under its rules, Revolut was not classified as a bank and any money deposited had to be ring-fenced in an account with a regulated bank. But amid the prospects of a hard Brexit, and the opportunities provided by a larger EU banking market, Revolut started looking for a eurozone-based banking license. </p>
<p>Lithuania was an obvious candidate. An EU member since 2003, it started its <a href="https://www.forbes.com/sites/joewalleneurope/2018/10/28/how-has-lithuania-become-one-of-europes-most-exciting-fintech-hotspots/#ed7bacb7dc21">campaign to attract fintech companies</a> in early 2016 and has made considerable progress in creating a proper environment for the development of the fintech industry. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1073203105968414721"}"></div></p>
<p>The Lithuanian government simplified procedures for obtaining licences to operate e-money and payments services. Start-ups can obtain an e-money or payment license in just three months (four if the preparation stage is included), which is two to three times faster <a href="https://emerging-europe.com/intelligence/lithuanias-fintech-future/">than in other EU jurisdictions</a>. Plus, the government passed laws to regulate peer-to-peer lending platforms and crowdfunding. Initial capital requirements for bank licenses are also five times lower than in other EU countries.</p>
<p>With its Lithuanian-issued EU banking licence, Revolut will start accepting deposits and offering retail and business lending in 2019, making it an <a href="https://investlithuania.com/news/revolut-turns-new-page-with-lithuania-facilitated-banking-license/">even bigger rival for traditional banks</a>. Meanwhile, Lithuania benefits from the supply of very well trained IT personnel, stable government policies and digital-friendly society.</p>
<h2>The scandal</h2>
<p>Soon after Revolut got its banking licence, however, Lithuanian politics started muddying the waters. To grasp what happened next, it’s important to understand the politically sensitive relations between Lithuania and Russia. Lithuania was under the iron fist of the Russian empire for 123 years, and then part of the Soviet Union until its independence in 1990. Russia is therefore <a href="https://www.politico.eu/article/lithuania-russia-tension-baltics-waiting-for-history-to-start-again/">perceived</a> as a constant threat to the country’s stability. </p>
<p>This is why claims that Revolut has links with the Russian government are causing controversy in Lithuania at the moment. Stasys Jakeliūnas, chair of the Lithuanian parliament’s budget and finance committee has accused Revolut of being <a href="https://www.telegraph.co.uk/technology/2019/02/12/revolut-boss-denies-british-digital-bank-has-kremlin-links/">involved with the Kremlin</a>. </p>
<p>This led to calls for an official investigation into Revolut’s activities by Jakeliūnas’s office. Jakeliūnas claimed the “potential existence of persons related to <a href="https://www.15min.lt/verslas/naujiena/finansai/stasys-jakeliunas-del-revolut-veiklos-kreipesi-i-fntt-662-1084340">Russian policy among the Bank’s shareholders</a>”. His stated concerns were that the father of Revolut CEO Storonsky was a director at a division of Gazprom, a company with close ties to the Kremlin, and that one of Revolut’s shareholders (DST Global Fund) was owned by Russians. The investigation could ultimately result in Revolut’s banking licence being revoked. Stoking the fires further in Lithuania, the LRT news channel also <a href="https://www.15min.lt/verslas/naujiena/finansai/lrt-tyrimas-slaptose-pazymose-apie-revolut-rysiai-su-kremliumi-662-1091230">reported</a> that Revolut servers might be transferred to Russia. This would put personal data about Lithuanian customers in Russia’s hands.</p>
<p>Revolut’s reaction was <a href="https://www.15min.lt/verslas/naujiena/finansai/lrt-tyrimas-slaptose-pazymose-apie-revolut-rysiai-su-kremliumi-662-1091230">a little clumsy</a>. A PR representative of the new bank in Lithuania denied the Storonsky family connection. Soon afterwards, however, she accepted her mistake and confirmed it. </p>
<p>Storonsky went on to release an <a href="https://en.delfi.lt/lithuania/society/revolut-chief-accusations-constructed-under-false-statements-and-unrelated-facts.d?id=80176483">open letter</a> rejecting accusations of the company’s potential links to the Kremlin. In the letter, he assures customers that Revolut has data servers only in the EU. It states that Storonsky’s father is an engineering scientist for the company Promgaz, without specifying that this belongs to the Russian gas conglomerate Gazprom. It also declares that DST Global Fund’s only connection to Russia was that one of its six partners, Yuri Milner, was born in Russia. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/259515/original/file-20190218-56215-35euyr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/259515/original/file-20190218-56215-35euyr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/259515/original/file-20190218-56215-35euyr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/259515/original/file-20190218-56215-35euyr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/259515/original/file-20190218-56215-35euyr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/259515/original/file-20190218-56215-35euyr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/259515/original/file-20190218-56215-35euyr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Revolut CEO Nikolay Storonsky dismisses allegations of Russian interference.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/websummit/45766663321/in/photolist-Jw9LN2-L36poC-D8K5bu-M4Zd7a-29JwVyh-25q3ywj-ZbHBms-2cJf7w6-26NuL7B-L35mXC-25q3y1E-QAsWWm">Web Summit / flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>In many ways, this is a robust rebuttal of the accusations that Revolut has Kremlin ties – and these are accusations that have not gained much traction outside of Lithuania. But it indicates that an anti-Revolut campaign may be under way in Lithuania. The decision whether to revoke its banking license will definitely determine its fate, and will depend, not only on involvement of Russian politics, but also on the reaction of the Lithuanian population.</p>
<p>At the end of the day, politics play a big role in innovation. The success of a massively disruptive bank, born in the UK under the auspices of a fintech-friendly environment, will depend on its ability to operate in the euro area. This, in turn, boils down to historical and political connections between two nations that were once enemies.</p>
<p>This should not prevent Lithuania from proceeding with building its reputation as a European fintech hub. But the lesson must be learned about handling politically sensitive topics with extreme care.</p><img src="https://counter.theconversation.com/content/111578/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Revolut recently got an EU banking licence from Lithuania but it’s facing some political headwinds.Gerda Zigiene, Professor of Finance, Kaunas University of TechnologyArturo Bris, Professor of Finance, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/997532018-11-08T19:33:16Z2018-11-08T19:33:16ZHow open banking could transform financial services<figure><img src="https://images.theconversation.com/files/229234/original/file-20180725-194131-ytzn2t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">FinTech is rapidly growing, both in Australia and internationally.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/fintech-investment-financial-internet-technology-concept-463804160?src=E-dGxlYsOOboRb22WSuo2Q-2-77">Shutterstock</a></span></figcaption></figure><p>Until recently, the idea of waiting a day or two for a bank transfer to reach your account was normal, however consumers are starting to demand immediate and seamless payment alternatives. With upcoming developments in the Australian financial services sector, we should start to see these demands met – if not by banks, then by FinTech firms aiming to transform the financial services industry.</p>
<p>Twelve months after the government announced the introduction of a Consumer Data Right (<a href="https://www.accc.gov.au/focus-areas/consumer-data-right">CDR</a>) in Australia, Data61 has <a href="https://www.computerworld.com.au/article/649169/data61-releases-draft-open-banking-apis/">released a working draft</a> of the standards that will underpin it. </p>
<p>The CDR will offer Australians control over the data held about them by service providers, and the right to share it with a third party provider – including competitors to the service that compiled it. The CDR will first be implemented in the financial services sector under the Open Banking framework from July 2019. </p>
<p>ACCC Chairman Rod Sims <a href="https://www.accc.gov.au/media-release/accc-welcomes-consumer-data-right">expects</a> the framework to:</p>
<blockquote>
<p>…encourage competition between service providers, leading not only to better prices for customers but also more innovation of products and services.</p>
</blockquote>
<p>We’re already seeing new services emerge in this space, such as the ability to pay at checkouts via your mobile phone, but real disruption will take time to occur as FinTech firms are provided with access to consumer data to create products we haven’t yet heard of. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/what-we-can-do-once-the-banks-give-us-back-our-data-84282">What we can do once the banks give us back our data</a>
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<h2>FinTech in Australia is growing</h2>
<p>FinTech is a term used to describe the use of technology in financial services. FinTech firms are often startup businesses that use new business models to disrupt existing financial systems. They create financial tools for everyday people, serious investors and the banks themselves.</p>
<p>Their customer focus caters to the growing millennial and Gen Z population who have large digital appetites. The Australian startup <a href="http://zipmoneylimited.com.au/">Zip Money</a> offers a cloud-based digital platform that allows retailers to offer a “buy now, pay later” service to customers for their products. In 2016, the company acquired <a href="https://getpocketbook.com/">Pocketbook</a>, which syncs transaction data from bank accounts to help users track their spending and manage their money. </p>
<p>Services like these aren’t a replacement for traditional banking. Rather, they use your banking data to create new services to deliver a better experience for users.</p>
<p>FinTech is rapidly growing, both <a href="https://fintechaustralia.org.au/australias-fintech-industry-median-revenue-up-200-per-cent-from-2016-major-research-report-finds/">in Australia</a> and internationally. According to a <a href="https://fintechauscensus.ey.com/2018/Documents/EY%20FinTech%20Australia%20Census%202018.pdf">recent survey</a>, Australian FinTech companies have seen a 200% increase in median revenue since 2016. </p>
<p>Open banking will lead to further innovation and growth in the industry. We may even see banks shifting into the backdrop as these businesses become the shopfronts of financial services, using customer data held by banks. </p>
<h2>How Open Banking will work</h2>
<p>The CDR is only useful to consumers if the data is available in a format that is machine readable. FinTechs in Australia are currently using a manual “screen scraping” approach to gaining access to data held by banks. </p>
<p>For example, the Pocketbook app, with your permission, periodically pulls your bank transactions into the app to help you manage your finances. The technology is read-only, so you can’t use the app to actually process transactions.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/restructuring-alone-wont-clean-up-the-banks-act-99142">Restructuring alone won't clean up the banks' act</a>
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<p><a href="https://www.afr.com/technology/open-banking-standards-to-be-agreed-in-coming-months-20180619-h11kk3">Open banking</a> will force the four major banks to make data about their customer’s card, deposit and transaction accounts available to different services by 1 July 2019. Mortgage data will follow by 1 February 2020. But this data will only be made available to other services with the permission of customers, and that permission can be revoked at any time.</p>
<p>Under this framework, FinTechs will be able to access customer banking data using APIs.</p>
<h2>APIs will transform the industry</h2>
<p>An Application Program Interface (<a href="https://medium.freecodecamp.org/what-is-an-api-in-english-please-b880a3214a82">API</a>) is like a universal power socket for the digital world, allowing multiple systems to work together and speak to each other. </p>
<p>APIs will revolutionise the efficiency and speed at which payments are made by giving FinTechs easier and cleaner access to user accounts, with real-time updates and the ability to process transactions.</p>
<p><a href="https://www.paypal.com/au/webapps/mpp/faster-and-safer-way-to-buy-and-sell2">PayPal</a>, for example, uses a <a href="https://gomedici.com/the-most-important-thing-in-fintech-advent-of-apis-and-banking-apis-are-real-too/">REST API</a>. REST APIs enable merchants and developers to create applications that manage payments, payment pre-approvals and refunds. </p>
<p>Open Banking will allow businesses, such as Amazon or Whatsapp, to offer financial services and products directly through their platforms, rather than through banking sites. This already happens in China via the social networking platform <a href="https://pay.weixin.qq.com/index.php/public/wechatpay">WeChat</a>.</p>
<h2>Consumer data standards</h2>
<p>Sharing data, especially confidential financial data, does give rise to important security issues. Data61 has been appointed by the government to develop standards that will underpin Open Banking and the CDR, a <a href="https://consumerdatastandardsaustralia.github.io/standards/#introduction">draft</a> of which was recently released. </p>
<p>The standards are guided by a series of outcome principles stipulating that APIs will be secure, use open standards, provide a good customer experience and provide a good developer experience. Technical principles include that APIs will be RESTful, simple, consistent and backwards compatible. Data61 is currently <a href="https://github.com/ConsumerDataStandardsAustralia/standards/issues">seeking feedback</a> on the draft rules. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/fintech-firms-freed-to-compete-with-banks-but-disruption-yet-to-come-56613">Fintech firms freed to compete with banks, but disruption yet to come</a>
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</p>
<hr>
<p>It is no secret that millennials tend to trust the digital world <a href="https://newsroom.accenture.com/news/tech-giants-online-retailers-face-uphill-battle-pursuing-bank-market-share-in-australia-but-new-open-banking-rules-could-tilt-the-landscape-accenture-research-finds.htm">more than they trust their banks</a>. And, as a result of the <a href="https://financialservices.royalcommission.gov.au/Pages/default.aspx">banking inquiry</a>, Australian banks are having their cultures questioned and their <a href="https://www.theguardian.com/australia-news/commentisfree/2018/mar/22/banking-inquiry-has-already-exposed-shocking-corruption-but-it-needs-more-time">unethical business practices</a> exposed. New waves of products offered by FinTechs are likely to spur banks to compete in a space where they have been slow to innovate.</p>
<p>The introduction of open APIs will help Australia keep up with global trends in the growing digital economy. Whether that means we’ll soon be seeing an Australian version of WeChat’s comprehensive payment system remains to be seen.</p><img src="https://counter.theconversation.com/content/99753/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grace Borsellino does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>New waves of products offered by FinTech companies are likely to spur banks to compete in a space where they have been slow to innovate.Grace Borsellino, Lecturer in Corporate Law and Governance, Western Sydney UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/925832018-04-15T20:36:25Z2018-04-15T20:36:25ZMediatech could be the new fintech - this is why<figure><img src="https://images.theconversation.com/files/213713/original/file-20180408-5572-88il5k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Spotify's listing in April this year valued the company at US$29 billion making it the second largest VC-backed debut this decade. </span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/jus10h/39206738880/">Justin Higuchi/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>The mediatech revolution is well underway. It’s in our lounge rooms, bedrooms and on our way to and from work. We’re tuning into Spotify, playing Fortnite and watching Netflix into the wee hours like there’s no tomorrow.</p>
<p>The term “mediatech” has been used for over a decade to label startups with a media and technology focus in the age of the web.</p>
<p>There are now more than <a href="https://www.cbinsights.com/research-unicorn-companies">twice as many private companies worth more than US$1 billion</a> (also known as unicorns) in mediatech today (116) than as in the more well-known <a href="https://www.investopedia.com/terms/f/fintech.asp">financial technology (fintech)</a> sector (52).</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/213701/original/file-20180408-5569-hjynmq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/213701/original/file-20180408-5569-hjynmq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/213701/original/file-20180408-5569-hjynmq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=300&fit=crop&dpr=1 600w, https://images.theconversation.com/files/213701/original/file-20180408-5569-hjynmq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=300&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/213701/original/file-20180408-5569-hjynmq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=300&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/213701/original/file-20180408-5569-hjynmq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=377&fit=crop&dpr=1 754w, https://images.theconversation.com/files/213701/original/file-20180408-5569-hjynmq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=377&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/213701/original/file-20180408-5569-hjynmq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=377&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Fintechs vs mediatech unicorns by year.</span>
</figcaption>
</figure>
<p>The total cumulative value of the Top 100 mediatech unicorns and recent ex-unicorns that have gone public such as Spotify, Dropbox and Snap! is now worth more than US$275 billion. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/213702/original/file-20180408-5569-cgt5qa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/213702/original/file-20180408-5569-cgt5qa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/213702/original/file-20180408-5569-cgt5qa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=300&fit=crop&dpr=1 600w, https://images.theconversation.com/files/213702/original/file-20180408-5569-cgt5qa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=300&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/213702/original/file-20180408-5569-cgt5qa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=300&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/213702/original/file-20180408-5569-cgt5qa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=377&fit=crop&dpr=1 754w, https://images.theconversation.com/files/213702/original/file-20180408-5569-cgt5qa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=377&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/213702/original/file-20180408-5569-cgt5qa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=377&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Top 100 mediatech unicorns cumulative value.</span>
<span class="attribution"><span class="source">CB</span></span>
</figcaption>
</figure>
<p>Today’s tech giants including Apple, Microsoft and Adobe all have their roots in media technology for the personal computer at the famous <a href="https://en.wikipedia.org/wiki/PARC_(company)">Xerox PARC</a> - the revolutionary media research lab that reinvented the modern office in an age of the personal computer. Its legacy includes many of the things we take for granted in computers today such as the familiar windows, icons, mouse and pointer-driven graphical user interface, local networking and the faithful reproduction on printers of what you see on the screen.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/214693/original/file-20180413-577-1tgenoy.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/214693/original/file-20180413-577-1tgenoy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/214693/original/file-20180413-577-1tgenoy.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=774&fit=crop&dpr=1 600w, https://images.theconversation.com/files/214693/original/file-20180413-577-1tgenoy.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=774&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/214693/original/file-20180413-577-1tgenoy.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=774&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/214693/original/file-20180413-577-1tgenoy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=973&fit=crop&dpr=1 754w, https://images.theconversation.com/files/214693/original/file-20180413-577-1tgenoy.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=973&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/214693/original/file-20180413-577-1tgenoy.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=973&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Traditional media vs online.</span>
<span class="attribution"><span class="source">Author supplied</span></span>
</figcaption>
</figure>
<p>So far however there has not yet been a mediatech “movement” in the way the 2015 fintech rush took off. Perhaps that is because many mediatech companies are still seen as music, games, photography, or advertising tech companies. </p>
<p>Many of the today’s largest players in financial services are fintechs from another era. Bloomberg, Vanguard and Computershare all began as pioneers at the intersection of technology and differing areas of financial services: revolutionising and later dominating the market data, index fund and share registry sectors respectively. </p>
<p>The real roller coaster ride for fintech began in January 2015 when leading US technology venture capital firm <a href="https://a16z.com/">Andreesen Horowitz</a> set up shop in London and invested in the UK-based global online cross-border foreign exchange startup <a href="https://transferwise.com/">Transferwise</a>. </p>
<p>Andreesen Horowitz had previously backed Facebook, Skype and Twitter and so this triggered a global rush of excitement about the potential for further investments in this vein. In each year since, venture capitalists have made over 1,000 investments each year in fintech startups representing over US$12 billion per annum according to <a href="https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2018/02/pulse_of_fintech_q4_2017.pdf">KMPG’s latest Pulse of Fintech Report</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/213696/original/file-20180408-5572-79qcev.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/213696/original/file-20180408-5572-79qcev.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/213696/original/file-20180408-5572-79qcev.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=300&fit=crop&dpr=1 600w, https://images.theconversation.com/files/213696/original/file-20180408-5572-79qcev.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=300&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/213696/original/file-20180408-5572-79qcev.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=300&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/213696/original/file-20180408-5572-79qcev.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=377&fit=crop&dpr=1 754w, https://images.theconversation.com/files/213696/original/file-20180408-5572-79qcev.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=377&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/213696/original/file-20180408-5572-79qcev.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=377&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The first mention of Fintech on twitter was on January 11, 2007 yet, you can see it really caught on as a concept in January 2015 when the leading technology venture capital firm Andreesen Horowitz invested in Transferwise.</span>
<span class="attribution"><span class="source">Chart: Online Gravity</span></span>
</figcaption>
</figure>
<h2>Has mediatech’s day in the sun arrived?</h2>
<p>Like finance, media and technology have enjoyed a long and productive history together. As early bedfellows, one of Hewlett Packard’s important foundation customers was the pioneering Walt Disney who was using HP’s oscilloscopes to create pioneering feature-length animated films like Fantasia — the first film with surround sound. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/213716/original/file-20180408-5578-rqmovo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/213716/original/file-20180408-5578-rqmovo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/213716/original/file-20180408-5578-rqmovo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/213716/original/file-20180408-5578-rqmovo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/213716/original/file-20180408-5578-rqmovo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/213716/original/file-20180408-5578-rqmovo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/213716/original/file-20180408-5578-rqmovo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">In June 2016 Finland’s Supercell (and maker of Clash of Clans) became Europe’s 1st decacorn (private tech co valued at over US$10bn) thanks to a majority investment from China’s Tencent.</span>
<span class="attribution"><span class="source">bata/flickr</span></span>
</figcaption>
</figure>
<p>Next generation classified giants like Zillow, Seek and even dating services like eHarmony and Tinder are all mediatech companies at heart as they aggregate, organise and present photos, maps and data online. And popular collaborative services marketplaces like Kaggle, Deliveroo and Airbnb are also new forms of mediatech. Their principal functions are to create online platforms for third parties to meet, facilitate workflow and exchange services. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-startup-investors-love-online-marketplaces-54483">Why startup investors love online marketplaces</a>
</strong>
</em>
</p>
<hr>
<p>New media formats continue to be a source of innovation as dozens of high growth mediatech startups emerge around the world. They span everything from 3D printing, such as <a href="http://formlabs.com/">Formlabs</a> in Cambridge, Massachusetts; to virtual reality, such as the enigmatic and secretive <a href="https://www.magicleap.com/">Magic Leap</a> based in Florida. Outside the US, <a href="http://oovvuu.com/">Oovvuu</a> is another example, offering automated matching of videos, using artificial intelligence, with news stories and readers around the world. </p>
<h2>Mediatech in everyday use</h2>
<p>As we did with the Graphical User Interface desktop computing era, we are now seeing a new group of online media technology giants come of age who make our office life more productive. These include <a href="https://www.campaignmonitor.com/">Campaign Monitor</a> that makes beautifully illustrated email easy, <a href="https://slack.com/">Slack</a> that makes it easy to share documents, photos and data across multiple devices, platforms and formats, and <a href="https://buffer.com/">Buffer,</a> that simplifies the scheduling of social media postings. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/213712/original/file-20180408-5572-q5qrn0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/213712/original/file-20180408-5572-q5qrn0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/213712/original/file-20180408-5572-q5qrn0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/213712/original/file-20180408-5572-q5qrn0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/213712/original/file-20180408-5572-q5qrn0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/213712/original/file-20180408-5572-q5qrn0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/213712/original/file-20180408-5572-q5qrn0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/213712/original/file-20180408-5572-q5qrn0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Chief Evangelist of Apple, Guy Kawasaki, is now working for mediatech unicorn Canva.</span>
<span class="attribution"><span class="source">cebitaus</span></span>
</figcaption>
</figure>
<p>The potential for mediatech is enormous — today’s largest tech companies, each now worth over US$200 billion, got their start in mediatech - Apple with mobile music, Amazon by selling books online, Tencent with online gaming. And Facebook, Baidu and Google are all massive global marketplaces for advertising — using the power of the web to disrupt traditional media channels such as TV, newspapers and phone directories. </p>
<p><a href="https://theconversation.com/what-we-can-learn-from-the-warren-buffett-of-the-web-85993">Softbank’s</a> impressive founder Masayoshi Son began by bringing coin-operated arcade games like Space Invaders to the US. </p>
<p>One may ask is there an equivalent to Transferwise moment for mediatech? </p>
<p>In January 2018, <a href="https://techcrunch.com/2018/01/08/new-sequoia-china-investment-values-australian-design-company-canva-at-1-billion/">Sequoia China led an investment in Sydney-based Canva that valued it at US$1 billion</a>, crowning it the latest Unicorn. Canva is helping reinvent desktop design and has 10 million users in 190 countries. Given its predecessor Adobe’s valuation at US$106 billion it clearly has ample headroom for further expansion. </p>
<p>Are we are on the cusp of global #mediatech movement? That remains to be seen but the stage is set for investors, businesses and consumers alike.</p><img src="https://counter.theconversation.com/content/92583/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul X. McCarthy does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Now with more unicorns than fintech, could it be showtime for mediatech?Paul X. McCarthy, Adjunct Professor, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.