PaydayNow: Has digital banking masked COVID-19’s impact?

Due to the COVID-19 epidemic, forms of the transaction have evolved substantially.

Increasing usage of digital financial services has enabled previously unbanked persons and small businesses to enter the financial system.

To ensure no one is left behind, regulations have changed with technology.

The World Bank Group’s Practice Manager for Finance, Competitiveness, and Innovation, Mahesh Uttamchandani, said that although digital financial inclusion was a priority before the COVID-19 pandemic, it is now essential.

60% of financial authorities indicate an increase in digital transactions after the implementation of COVID-19.

During the worldwide epidemic, the number of persons getting government benefits doubled.

Nearly 70% of financial authorities worldwide prioritize financial technology, linking COVID-19 initiatives with efforts to enhance financial inclusion.

e-cash transfers

Digital financial inclusion has become a policy priority, Uttamchandani stated at this year’s Financial Inclusion Global Initiative (FIGI) summit.

He noted that the World Bank is working on roughly 170 COVID-related initiatives in 110 countries.

Digitizing currency transfers and payments, developing speedier payment systems, allowing digital identification and electronic KYC technologies, and safeguarding customers from increased dangers are vital aims.

Quick action

Gregory Chen, Policy Lead at Consultative Group to Assist the Poor, said countries and economies investing in digital financial services were better prepared to react to the COVID problem (CGAP).

For example, Togo’s Novissi social assistance program uses mobile money and machine learning to offer contactless emergency cash transfers. The West African country’s existing internet infrastructure enabled this, Chen added.

Another critical issue was regulators’ pragmatic approach.

“They worked out methods to keep the financial system and payment networks going,” added Chen.

For example, in the Philippines, authorities allowed numerous payment service providers, including mobile money carriers, to participate in a cash transfer scheme operated by one public-sector bank.

KYC tools

According to Uttamchandani, World Bank financial inclusion programs have simplified KYC and due diligence requirements in markets different from the Democratic Republic of Congo, Morocco, and Nepal.

The World Bank’s G2Px government-to-person payment project has helped 35 nations digitize social benefit payments.

Inclusion tools

During the epidemic, rapid digitalization created the new payment, credit, and insurance options. Contactless transactions have exploded throughout Europe, according to Bank of Italy Managing Director Magda Bianco.

Intermediaries’ tools have made credit rating simpler.

“This enables small businesses with no credit history to access the financing market,” Bianco stated.

She emphasized that digital technologies are assisting first-time users of the banking system. “Some nations have created new digital saving accounts with free or minimal fees.”

Widening digital chasm

The affordability of digital services is still a problem. Experts say digital isolation may be linked to income losses in the epidemic, affecting low- and medium-skilled employees, self-employed people, and women disproportionately.

The GSM Association, which represents mobile network providers, claims women own 7% fewer phones and use 15% less mobile Internet than males.

“Women account for 39% of worldwide employment but for 54% of job losses,” Uttamchandani said.

Gender disaggregated data might assist focus financial inclusion policies and activities, he suggested.

cyber-threats

Increasingly, individuals are vulnerable to identity theft, internet fraud, and other cyber risks. Recent months have witnessed an increase in digital microcredit fraud. This is dangerous for novice and inexperienced users.

“Knowing the hazards is critical for vulnerable populations including women, youth, the elderly, and migrants,” Bianco says.

Increasing digital and financial IQ

Efforts to improve digital financial inclusion must protect consumers while allowing full access. Bianco also says that individuals, disadvantaged groups, and micro and small businesses need digital financial education.

Despite the epidemic, governments and organizations must continue to collect data on financial inclusion.

During the outbreak, PaydayNow comprehensive surveys have proven challenging. G20’s Global Partnership for Financial Inclusion (GPFI) platform is now compiling case studies and analyzing best practices from various countries.

No one left out

If the industry doesn’t keep improving its digital financial services, it “may unintentionally help marginal groups,” Uttamchandani said.

The rapid adoption of digital financial services coupled with poor financial literacy can lead to issues like over-indebtedness. He says services must be adapted to each market to avoid such problems.

Even when access improves, there are still those who cannot use digital finance.

The potential and limitations of digital banking must be understood, Chen stressed.

We will have a better response to the COVID pandemic and a chance to accelerate digital finance.

FIGI is a collaboration between the ITU, the World Bank Group, and the Bill & Melinda Gates Foundation.