Written by: Emily Middleton.
This post introduces the research and exploration UNICEF Office of Innovation is leading on financial technology, in collaboration with country offices and other teams within UNICEF.
Imagine if a vulnerable mother in Jordan could receive welfare payments by scanning her iris at a nearby ATM, instead of traveling miles and queuing for hours to collect physical cash?
Imagine if Ugandan parents could save and make micropayments for their children’s schooling on their mobile phones, instead of struggling to afford a large bill?
Imagine if a Somali woman working in the UK could send money to family in Somalia more quickly and cheaply online, while at the same time donating to a fund for the most vulnerable Somali children?
Why financial technology?
The scenarios above show where financial technology (FinTech) could – or already is – making a positive difference to the lives of children and families. It might be rare to hear “FinTech” and “children” in the same sentence, but we believe that will change. After all, the ability to easily send, receive and save money is at the core of a family’s ability to care for its children. And digital technologies can massively reduce the cost of providing these services – in the case of digital payment technologies, by as much as 90 per cent. These savings can be used to broaden access on a scale that hasn’t been viable in the past.
There is an increasing body of research to suggest that basic financial products – when they are cheap, accessible and well designed – can improve welfare outcomes for women and children. Basic financial services help vulnerable families to survive economic shocks. They can also improve their overall welfare – for instance, a recent MIT study showed that access to mobile money has reduced extreme poverty by 9.2 per cent, and increased daily per capita consumption by an average of 18.5 per cent among female-headed households. Yet more than two billion adults remain excluded from the formal financial system – and more than half of them are women.
At the same time, the pace of change in digital financial services is accelerating. Investment in FinTech has increased over the last three years by almost 60x in China to $10.1Bn; by 4x in India to $1.1Bn; 3x in Southeast Asia to $217M; and almost 10x in Africa to $203M (Ian Dowson (“Fintech investment trends” – as presented at London Fintech Week, July 2017). Usage is on the rise dramatically in digitally active consumer groups – one survey of 20 established and emerging markets showed an increase from 18% adoption in 2015 to 50% in 2016. We believe UNICEF should act now to ensure the most vulnerable children and families benefit from these trends.
What are the opportunities?
So where should UNICEF be focussing its efforts? Over the past few months, we’ve heard about ideas and live projects from colleagues in country offices and across different teams. We’re also fortunate to have heard a diverse range of outside perspectives, from speaking to more than twenty external experts in other development agencies, and in digital banking, FinTech startups and venture capital. This input has led us to focus on three main ways FinTech can make a difference:
- Through better cash transfers: using technology to increase the efficiency, speed and accountability of cash-based programming; For example: enabling vulnerable families to collect welfare payments by scanning their fingerprint or iris at an ATM, without the need to remember a PIN number or carry a card.
- Through digital financial services to improve welfare outcomes (including improved education, nutrition and health outcomes, and economic wellbeing) for families. For example: extending financial literacy training to young people, and making it easier and cheaper for them to access basic financial services.
- Through new digitally-enabled sources of funds for children and families. For example: raising funds for children via digital remittances.
We’ve also been looking at the role of emerging technologies in these areas. For instance, blockchain can enable faster, cheaper transfers across borders. The World Food Programme has trialled transferring digital vouchers to refugees in Jordan via a blockchain-based computing platform, to make the distribution cheaper, quicker and more secure. Many major banks have partnered with blockchain companies to demonstrate that cross-border payments can be executed in seconds. The cost can also be much lower: for instance, it costs only $0.03 to transfer $100k using the peer-to-peer cryptocurrency Dash.
In the longer term, a global digital ID system – which has common standards and widespread recognition – could be a key enabler of financial inclusion. This could open up financial services to many who struggle to prove their identity today, and replace some of the documentation typically required to satisfy regulatory requirements.
We also see potential for big data to make it easier to identify the beneficiaries of cash transfer payments. Artificial intelligence will provide more accessible personalized financial advice, including to the poorest customers. Where the infrastructure exists, we will increasingly see payment via wearables, such as M-Pesa 1-TAP, which enables payment via an Near Field Communication-enabled wristband or phone sticker.
Over the coming months, we will be collaborating with many different teams and country offices within UNICEF to define our next steps, and determine which technologies we want to test, and in what contexts. We also plan to engage more with external partners soon, and launch a FinTech-themed call for UNICEF’s Innovation Fund – so watch this space.