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Sustainability, FinTech and Financial Inclusion

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Abstract

We argue financial technology (FinTech) is the key driver for financial inclusion, which in turn underlies sustainable balanced development, as embodied in the UN Sustainable Development Goals (SDGs). The full potential of FinTech to support the SDGs may be realized with a progressive approach to the development of underlying infrastructure to support digital financial transformation. Our research suggests that the best way to think about such a strategy is to focus on four primary pillars. The first pillar requires the building of digital identity, simplified account opening and e-KYC systems, supported by the second pillar of open interoperable electronic payments systems. The third pillar involves using the infrastructure of the first and second pillars to underpin electronic provision of government services and payments. The fourth pillar—design of digital financial markets and systems—supports broader access to finance and investment. Implementing the four pillars is a major journey for any economy, but one which has tremendous potential to transform not only finance but economies and societies, through FinTech, financial inclusion and sustainable balanced development.

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Notes

  1. See on the evolution of the FinTech sector and FinTech in general Arner et al. (2016), p 1275, Arner et al. (2017), pp 377–378.

  2. See Zetzsche et al. (2018b); Arner et al. (2017), p 373.

  3. See on FinTech European Commission (2018a). On sustainable finance see European Commission (2018b).

  4. Regarding sustainable finance, most notably, the Grand Duchy of Luxembourg has launched a Green Finance initiative, inspired by the ambition to claim market leadership in Green Finance financial products. Other prominent EU examples include the sustainability agendas of France, the Netherlands and Germany, which seek to steer capital flows into sustainable financial products.

  5. See e.g. Delimatsis (2016) (arguing that a ‘discomfort with the functioning, working methods and certain rigidities of the global standardizing bodies such as the ISO led to a mushrooming of a new generation of private standard-setters at the transnational level’). In return, the European Commission has started work on an own taxonomy, see European Commission (2018b), work programme in Annex II and III; see also Schanzenbach and Sitkoff (2019) (arguing that ESG investing is only possible for trusts if the trustee reasonably concludes and solely acts because of the fact that the ESG investment will be directly beneficial for the beneficiary by improving risk-adjusted return); Sjafjell and Bruner (2019) (the contributions in the edited volume discuss the mismatch between global markets and territorially rooted national sustainability regulation).

  6. Rather than referring to the large volume of legal work in this field (including our own), we instead refer to some key economic research, including Biais et al. (2019) (analysing economics of Blockchain technology); Hornuf and Schwienbacher (2017a); Buchak et al. (2018) (measuring the impact of technologies); Bacache et al. (2015) (as example for related topics such as taxation of the digital economy).

  7. See Global Partnership for Financial Inclusion (GPFI) (2016).

  8. See The World Bank’s financial inclusion policy work at https://www.worldbank.org/en/topic/financialinclusion.

  9. Including the International Monetary Fund, the OECD, and others, NGOs such as the Alliance for Financial Inclusion, The Toronto Centre, and Microfinance Centre, as well as the state-sponsored development banks (EIB, ADB, IDB, FDIC, etc.).

  10. Demirguc-Kunt et al. (2018).

  11. See World Bank (2017).

  12. GSMA (2017); Ashenafi et al. (2016).

  13. Chien and Randall (2018); see also Zhou et al. (2015), p 25.

  14. See on the India Stack https://indiastack.org/. For a detailed discussion, see Arner et al. (2019b), pp 55, 64 et seq.

  15. See e.g. Lal and Sachdev (2015).

  16. See e.g. with regard to technology Ashta (2010).

  17. See e.g. Barr (2004a, b, 2012); Lee (2017), as well as the contributions in Barr et al. (2007).

  18. See in particular Barr (2012) and the contributions in Barr et al. (2007), as well as Blank and Barr (2009).

  19. See e.g. Buckley et al. (2015); de Koker et al. (2017); Lal and Sachdev (2015); Winn (2016); Zhou et al. (2015).

  20. See BCBS (2010); Trujillo et al. (2014, 2015); Rosengard (2011).

  21. See Harris and Barr (2019).

  22. See Biermann (2019), pp 52–53; Kanie and Biermann (2017) (with contributions on the governance function and implementation of the UN SDGs).

  23. See the groundbreaking report by Alexander (2014) (assessing the link between systemic environmental risks and financial stability, and offering insights into how some members of the Basel Committee are already acting on these links).

  24. See Zetzsche et al. (2019b); Arner et al. (2019a, b); Buckley et al. (2019); Zetzsche et al. (2018a, b).

  25. See e.g. Chiu (2018).

  26. Cf. Vermeulen et al. (2018).

  27. Cf. Hornuf and Schwienbacher (2017b).

  28. See Paech (2017); Vermeulen and Fenwick (2019); Avgouleas and Kiayias (2019); Finck (2018).

  29. Cf. Chiu (2017).

  30. See Allen (2019); Avgouleas (2018); Brummer (2015); Brummer and Yadav (2019); Chiu (2016); Haddad and Hornuf (2019); Omarova (2019); Magnuson (2018); Ringe and Ruof (2018).

  31. To our knowledge, two exceptions apply. A recent volume edited by representatives of the European Bank for Reconstruction and Development, to which we have contributed, links to our knowledge for the first time sustainable finance to financial technologies and inclusion, Zetzsche et al. (2019a). Further, an article by Chiu and Greene proposes using ICO-style fund-raising in order to achieve greater marketization of sustainable and social finance products, see Chiu and Greene (2019).

  32. See e.g. GPFI (2018a), a follow-up to GPFI (2016), as well as GPFI (2018b), endorsed in August 2018. See also UNCDF (2019); World Bank (2019).

  33. FATF (2013), p 12.

  34. CFI (2019).

  35. These are listed as key challenges in the United Nations Sustainable Development Goals, https://www.un.org/sustainabledevelopment.

  36. See Klapper et al. (2015), p 16.

  37. See Klapper et al. (2015), p 16.

  38. UKFCA (2016), p 13.

  39. UKFCA (2016), p 13.

  40. See report by consultancy firm McKinsey cited in Wallace (2015).

  41. See Brignall (2019).

  42. See Nguyen (2014) (stating that closings have prolonged negative impact on credit supply to local small businesses of − 13% for several years, even after the entry of new banks), as well as Nguyen (2019) (stating that bank branch closings in the USA during the 2000s lead to a persistent decline in local small business lending (fall by 453,000 USD after a closure off a baseline of 4,700,000 USD) for 6 years, while being very localized, dissipating within six miles).

  43. See the overview of the initiatives and discussions on the European Commission’s online platform for adult learning, https://epale.ec.europa.eu/en/themes/financial-literacy.

  44. See the recent proposal by Safeguarding Ireland, Scoping of a Regulatory Framework for Adult Safeguarding Welcomed—Call for Establishment of a National Advocacy Service, taken from the European Commission’s platform for adult learning, https://epale.ec.europa.eu/en/content/scoping-regulatory-framework-adult-safeguarding-welcomed-call-establishment-national.

  45. UNESCO (2018).

  46. See Kenyan Digital Literacy Programme by the Ministry of Information, Communications and Technology (ICT): http://icta.go.ke/update-on-the-digital-literacy-programme-being-implemented-by-the-ict-authority/.

  47. G20 Financial Inclusion Experts Group (2010); GPFI (2010).

  48. For the latest version see GPFI (2017); Buckley (2014), p 63.

  49. GPFI (2013).

  50. GPFI (2016).

  51. See Responsible Finance Forum (2011).

  52. See World Bank, Identification for Development: http://www.worldbank.org/en/programs/id4d.

  53. Timmermann and Gmehling (2017).

  54. AFI (2017a, b).

  55. UNSG (2018).

  56. The Table draws on the authors’ own research and experience. That digital financial services support the UN SDGs is very broadly accepted: see United Nations, Digital Finance and the SDGs, http://www.uncdf.org/mm4p/dfs-and-the-sdgs.

  57. See UN Secretary-General’s Task Force on Digital Financing of the Sustainable Development Goals, https://digitalfinancingtaskforce.org/.

  58. See the AFI special report by lead authors Arner et al. (2018).

  59. World Bank, Fintech and Financial Inclusion, http://pubdocs.worldbank.org/en/877721478111918039/breakout-DigiFinance-McConaghy-Fintech.pdf.

  60. We know of FinTech initiatives by the Asian Development Bank, the Islamic Development Bank, the European Investment Bank, and the Financial Development Corporation.

  61. GPFI (2018a).

  62. See on data-driven financial services Zetzsche et al. (2018b).

  63. What Is IndiaStack?, https://indiastack.org/about/.

  64. Bose (2016). To learn more about India Stack, see https://indiastack.org/about/.

  65. Arner et al. (2018).

  66. See for an extensive analysis of ID techniques and respective regulation Arner et al. (2019b).

  67. About Aadhaar, Unique Identification Authority of India, http://bit.ly/2HsyzJd.

  68. See https://www.irisguard.com/node/39.

  69. Ibid.

  70. Ibid.

  71. Arner et al. (2019b), section 4.3.

  72. Ibid., at section 4.4.2.

  73. Desai and Jasuja (2016).

  74. India Infoline News Service (2014).

  75. For example, AXIS Bank (https://www.axisbank.com/accounts/savings-account/axis-asap/axis_ASAP.html) and RBL Bank (https://abacus.rblbank.com/).

  76. European Commission (2017), pp 13–14.

  77. See Arner et al. (2019b), p 58.

  78. Arner et al. (2019b), section 4.4.2.

  79. Scharwatt et al. (2015).

  80. AFI Mobile Financial Services Working Group (2014).

  81. In 2016, through embracing M-Pesa and other digital payment networks, over 75% of adults in Kenya had access to formal financial services, a 26.7% increase from a decade earlier, Ndung’u (2017).

  82. Buckley and Webster (2016), p 151.

  83. For example, the Central Bank of Kenya applied a ‘light-touch’ approach from the outset, which many believe assisted the provision of these services.

  84. Buckley and Mas (2016), p 71.

  85. Arner et al. (2018), p 12. For the impact on financial stability also see the in-depth analysis by GSMA (2019), pp 20 et seq.

  86. Bushell-Embling (2018).

  87. Mu (2014).

  88. Millward (2018).

  89. China Tech Insights (2017).

  90. See for an overview of China’s financial sector regulation Zhou et al. (2015), pp 28 et seq. (‘discussing China’s last mover advantage’).

  91. Hong (2017).

  92. Wang (2018).

  93. Xinhua (2017).

  94. CGAP, Govt. to Person Payments, http://www.cgap.org/topics/gov-person-payments; Stewart (2016).

  95. Stewart (2016), p 29 (citing policy reports from PFIP, CGAP, Gates Foundation and others).

  96. CGAP, Govt. to Person Payments, http://www.cgap.org/topics/gov-person-payments.

  97. Ibid.

  98. Stewart (2016), p 2.

  99. Ibid., p 19.

  100. Government of Pakistan and BISP (2017), p 12.

  101. Zetzsche et al. (2018b), pp 406 et seq.

  102. See e.g. Uber’s use of machine learning, Reese (2016).

  103. Zetzsche et al. (2019b).

  104. Zetzsche et al. (2017).

  105. For a detailed analysis for regulatory sandboxes around the globe, see Buckley et al. (2020).

  106. See Buckley et al. (2019), pp 1–11.

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Acknowledgements

We are grateful for the financial support for this research provided by the Alliance for Financial Inclusion (AFI); the Australian Research Council; the Hong Kong Research Grants Council Research Impact Fund; and the Qatar National Research Fund National Priorities Fund. All responsibility is the authors’. This article draws upon our earlier, extended report for AFI: ‘FinTech for Financial Inclusion: A Framework for Digital Financial Transformation’, September 2018; available at https://www.afi-global.org/publications/2844/FinTech-for-Financial-Inclusion-A-Framework-for-Digital-Financial-Transformation.

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Authors and Affiliations

  1. Kerry Holdings Professor in Law and Director, Asian Institute of International Financial Law, Faculty of Law, University of Hong Kong, Hong Kong, China

    Douglas W. Arner

  2. Board Member, Centre for Finance, Technology and Entrepreneurship (CFTE), London, UK

    Douglas W. Arner

  3. KPMG Law-King and Wood Mallesons Professor of Disruptive Innovation, and Scientia Professor, UNSW Sydney, Sydney, Australia

    Ross P. Buckley

  4. Professor of Law, ADA Chair in Financial Law (Inclusive Finance), Faculty of Law, Economics and Finance, University of Luxembourg, Luxembourg, Luxembourg

    Dirk A. Zetzsche

  5. Director, Centre for Business and Corporate Law, Heinrich-Heine-University, Düsseldorf, Germany

    Dirk A. Zetzsche

  6. Research Associate, ADA Chair in Financial Law (Inclusive Finance), Faculty of Law, Economics and Finance, University of Luxembourg, Luxembourg, Luxembourg

    Robin Veidt

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Correspondence to Douglas W. Arner.

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Arner, D.W., Buckley, R.P., Zetzsche, D.A. et al. Sustainability, FinTech and Financial Inclusion. Eur Bus Org Law Rev 21, 7–35 (2020). https://doi.org/10.1007/s40804-020-00183-y

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