Innovations in digital technology have created new and exciting opportunities to reach unbanked and underbanked low-income customers in emerging markets as well as developed countries. Traditionally, these customer segments have been considered too risky and too poor to be of interest to banks and insurance companies. Mobile wallets and mobile money transfers, peer-to-peer and other alternative lending platforms, pay-as-you-go asset finance and digital micro-credit are examples of recent innovations that are reaching hundreds of millions of consumers and small businesses. These innovations are radically changing the financial services landscape around the globe.
While the opportunities have increased, so too have the risks surrounding digital financial services for investors, investees, customers and wider digital ecosystems across markets and regions. An example is the rapid growth of digital lending products, some of which carry risks of overpricing and over-lending to customers. One factor that is holding back investors in inclusive digital financial services is the lack of a framework to help them evaluate these risks. In a world where the old rules are being rewritten daily, it can be hard to know where best to invest your time, energy and money.
Recognizing this, over 40 leading organizations have joined up to develop a set of guidelines for investors who are interested in funding inclusive digital financial services in a responsible way. How these organizations define and handle the issues facing the fintech industry will enable the investor community to better identify new opportunities and manage investment risks.
The resulting Guidelines on Responsible Digital Financial Services comprise 10 touchpoints that financial investors and their fintech investees can use to evaluate opportunities, mitigate risks and contribute to a more responsible and inclusive digital finance ecosystem. These include promoting fair and transparent pricing and better disclosure of terms and conditions for customers, preventing people taking on more debt than they can comfortably manage, increasing their financial literacy, establishing customer identity, data privacy and security standards, fostering a proportionate legal and regulatory framework, and enabling the interoperability of digital financial services.
The guidelines will enable investors and their fintech investee companies offer new financial services to millions of consumers by helping them recognize the opportunities and points to consider and mitigate risks. Any investment organization can subscribe to the guidelines and join the community of investors. All they are asked to do in return is to use them as the basis for due diligence and monitoring of their fintech investments, and to share new insights with their fellow investors as the fintech revolution spreads across the globe. “The guidelines are just that – guidelines,” says Martin Holtmann, Head of Digital Finance and Microfinance at IFC, the private sector arm of the World Bank Group and one of the co-founders of the Guidelines. “They are not new rules or regulations, not a law, not red tape. They are a voluntary framework that organizations can sign up to and use as guidance when they invest in responsible digital financial services. The guidelines will benefit digital financial service providers and their customers by helping investors to better evaluate and manage risks associated with digital transformation and digitalization.”
For more information about the guidelines: https://responsiblefinanceforum.org/