The Digital Path to Citizen-Centric Finance
Global finance has become detached from people’s needs and preferences. But by harnessing the disruptive potential of digital technologies, the world can create a fairer, more inclusive financial system that propels sustainable development.
NEW YORK/JOHANNESBURG – Today, “mobile money” – a service enabling people to send, receive, and store money on a cellphone – allows a market trader in Kenya to borrow a modest amount at sunrise to buy her stock, and then pay it back at sunset from her daily earnings. This seemingly simple micro-level exchange has the power to support livelihoods, increase access to health and education, and improve the lives of people in every country. And the digital revolution in financial technology, or fintech, is extending the reach of finance into many other new domains.
By the end of 2020, one billion people worldwide will use mobile money,with Sub-Saharan Africa having the highest penetration rates. But fintech also underpins multi-billion-dollar carbon markets, plays an essential role in the fight against illicit financial flows, and is pivotal to improving tax collection and boosting the effectiveness of public spending. In short, digital disruption could bring about a radically different, citizen-centric financial system.
Such a change is badly needed, because today’s global financial system seems to follow a logic that suits those working in it. As International Monetary Fund Managing Director Kristalina Georgieva recently emphasized, there is an urgent need to “return the financial services industry to what it is supposed to be – an industry that serves people.”
Digitalization can give people more choice regarding where to place their money – annual global savings will reach an estimated $25 trillion – as well as more say over what it should be used for. New technologies also can give citizens greater influence over the tens of trillions of dollars that governments spend annually in their name. And, crucially, digitalization can disrupt those financial intermediaries that have become entrenched and largely unproductive rent-seekers.
The financial status quo, in whichthe wrong individuals are making the wrong choices, simply is no longer viable. People are the ultimate owners of the world’s income and wealth. In fact, working people are already the world’s financiers. Even if many of them find financial systems baffling, they fuel the global economic engine through their tax payments, household savings and investments, and purchasing decisions.
Yet, global finance has become detached from people’s preferences and needs. The system did not fundamentally change in the aftermath of the 2008 financial crisis, which exacted a tragic human cost, and it remains largely unresponsive to the existential climate challenge that we now face.
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Of course, not all aspects of digitalization are positive. New technologies offer new opportunities for people to avoid paying reasonable levels of tax, or to steal money through fraud. Moreover, high-tech financial traders in effect tax traditional investors such as pension funds and insurance companies merely by getting to market quicker, while adding no real economic value.
But digital disruption’s potential for good most likely will far outweigh the negative, because it offers a chance to repurpose finance to serve people’s needs. Currently, for example, 3.6 billion people worldwide – including a disproportionate number of women – lack the resources and capabilities to take advantage of the digital world. But efforts are underway to help address this.
One such initiative is the UN Secretary-General’s Task Force on Digital Financing of the Sustainable Development Goals (SDGs), which we co-chair. The panel’s work to date has highlighted the extraordinary opportunities that digitalization creates for putting citizens’ voices and needs at the center of financial decision-making. In particular, digitalization could increase the quality and user-friendliness of relevant financial information; reduce the number of financial intermediaries that don’t add real value; and provide citizens with platforms for collective action, whether through crowdfunding or via consumer, employee, or shareholder actions.
The vital point – that finance is a means to an end, namely inclusive, sustainable development – must not be overlooked. People increasingly want their money to be used for positive goals, including climate action and the protection of the natural world. And shifts are already happening. In 2019, for example, European investors poured a record €120 billion ($130 billion) into sustainable funds – twice as much as in 2018.
More information and leadership are now needed to harness fully the power of digital finance to channel money in the right direction – including toward achieving the SDGs. In this respect, the task of managing digital finance is vital. It cannot be left to central banks and financial regulators alone, so long as their mandates are restricted to legitimate but narrow concerns about financial stability and money laundering. We therefore urgently need governance innovations that embrace more inclusive, extensive criteria and capabilities in guiding our money to finance a sustainable future for all.
But as the planet warms, income and wealth inequalities widen, and people on every continent take to the streets in protest, it is clear that the time for short-term thinking has passed. That is why the digital revolution is so important: it could take citizens out of the engine room and put them in the driver’s seat, with a much greater say over financial flows.
If the world is to achieve the SDGs by 2030, then the 2020s must be a “decade of action.” By harnessing the disruptive potential of fintech, we can create a fairer, more inclusive financial system that propels sustainable development everywhere.