Driving FinTech innovation in Commonwealth countries
A blog by: Akeem Rahaman, Economic Adviser, Sophie Brain, Research Officer, and James Gregory, Research Officer work in the Economic Policy and Small States Directorate of the Commonwealth Secretariat.
Since the last financial crisis in 2008/09, investment in technology-enabled financial services (‘FinTech’) has grown. Similarly, at a time of socio-economic crisis, the COVID-19 pandemic has created and amplified the second wave of FinTech advancements, leading to increased financial innovation. It is clear that new technologies, such as artificial intelligence, big data, blockchain, digital identity and digital financial services, are changing the financial landscape even in times of crisis.
FinTech innovations, such as mobile money, have been shown to reduce poverty and income inequality and narrow the rural-urban income gap, while increasing financial inclusion. In some cases, FinTech has also proven to act as an enabler of entrepreneurship among rural residents. FinTech helps the most marginalized in society – including women and young people by increasing the rate of financial inclusion.
Harnessing the potential of FinTech to achieve the goals of sustainable development
Ahead of next week’s 2022 Commonwealth Finance Ministers’ Meeting, the Commonwealth FinTech Program is releasing a new report ‘Commonwealth Countries: Driving FinTech Innovation’. As part of our knowledge products from the FinTech programme, a FinTech toolkit was developed and launched in 2020 to help governments harness financial innovation. This new report compliments our other knowledge products and brings together the experiences of Commonwealth members, helping them understand how they can continue to promote FinTech in their countries.
The evidence from this report suggests that opportunities are ripe for learning from Commonwealth FinTech pioneers, to support FinTech capacity building across the Commonwealth, as well as prospects for partnership and knowledge sharing with other Commonwealth countries.
The growth and use of FinTech is not homogeneous across Commonwealth member states. FinTech applications, such as mobile money, which are popular in East Africa, are different from those, such as central bank digital currencies (CBDC), which are more common in the Caribbean.
About the Commonwealth FinTech Report
We describe what FinTech is and its classification by technologies and financial service applications. Given the many potential benefits of FinTech, the report explores several facets, including FinTech for development, economic growth, financial inclusion, income inequality, women and youth and the Sustainable Development Goals.
FinTech in the Commonwealth
We reviewed the key FinTech innovations, services and activities used across the Commonwealth membership, including mobile money and other digital payments, central bank digital currencies (CBDCs), enterprise technology, cryptocurrency and alternative credit. The adoption of these FinTech innovations and activities was found to be country and region specific, filling the gaps that currently exist in these countries and regions.
Identify the demand and supply drivers of FinTech
The reason why specific FinTech applications have grown more in some countries or regions than others is because of specific demand and supply drivers, which are at the core of the Commonwealth’s FinTech landscape, as highlighted in our report. Demand-side drivers increase the need for technology-enabled financial services, while supply-side drivers provide an environment that facilitates FinTech growth.
Filling the gap and tackling challenges in FinTech adoption and the way forward
To help Commonwealth member states tackle FinTech challenges, our recommendations will focus on three areas:
1) promote financial literacy;
2) improve digital infrastructure; and
3) facilitate effective FinTech regulation, which can provide guidance for FinTech service providers going forward.
Based on the findings of the report, a key driver of financial literacy is the promotion of financial inclusion and other aspects of FinTech adoption. As such, the Commonwealth plans to focus on improving financial literacy, particularly across Commonwealth developing countries and small states. The first step in this direction will be a Commonwealth FinTech event to be held in Washington DC on October 10, bringing together a panel of experts on financial literacy and financial inclusion. The results of this event will be presented at the Commonwealth Central Bank Governors meeting and chart a course forward for continued work on the development of a Commonwealth Financial Literacy programme.
