The pandemic has accelerated financial digitization in everyday life

Andrés Portilla, the Managing Director of Regulatory Affairs at the Institute of International Finance (IIF), as moderator;  Juan Antonio Ketterer, Chief of the Connectivity Markets and Finance Division at the Inter-American Development Bank (IDB); Leora Klapper, Lead Economist at the World Bank’s Development Research Group; and Ratna Sahay, Senior Adviser on Gender at the International Monetary Fund (IMF) were the protagonists of the second session of BBVA’s global financial education summit, the 2021 EduFin Summit.

During this panel, they analyzed the challenges and opportunities that digitization poses in the post-pandemic world, the difficulties more vulnerable groups face when it comes to accessing financial services and the possible solutions that could be implemented to address these challenges.

The challenges of digitization 

For the experts, there is no question that the pandemic has led to an acceleration of financial digitization in everyday life, which has been a financial relief for many families. “People received their emergency payments from governments,” confirmed Leora Klapper. “We are talking about remittances and users who have opened new accounts in order to perform online transfers.”

Despite the obstacles, the impact of the growing use of digital channels among governments to provide aid and financing to citizens has been very positive. “Thanks to these payments, there have been families that have learned to request money and employees have learned to make their digital payments,” explained Klapper. “Keeping money in an account gives families more negotiation power and greater ability to make decisions.” 

Meanwhile, another participant in the debate, Juan Antonio Kettener of the IDB,  felt that adoption of digital channels has not been that decisive - something that had already been identified before the pandemic. “In the Latin American region, there is what we call the curse of the empty bank account: the account is opened and has a positive balance the first day. The holder withdraws money and starts to pay with cash. The account does not have any activity apart from the first withdrawal.” This type of behavior means that users do not have “a credit history that gives them access to financial products.” “Access to credit is one of the biggest barriers in the region’s development,” said the expert. Ketterer emphasized two aspects: “On the one hand, there is financial inclusion and giving access to the population, and on the other, knowing how to use their money. The latter is a bigger challenge than the former.” Ratna Sahay agreed with this and also pointed to several research projects carried out on this topic.

However, access to these services continues to be uneven. In Latin American countries, “there are huge gaps in coverage, infrastructure and financial services,” explained Juan Antonio Ketterer. “Currently, connectivity is deficient, the speed is low and credit quality is poor. It is important to invest in services and quality. Prior to the pandemic, we were already insisting on this need. Now it has become a priority.”

The role of financial service providers is fundamental in order to make financial digitization more inclusive and secure, especially in the context of a pandemic. In this regard, Ratna Sahay underscored the role of fintech companies: “They are small companies and provide support by reinforcing their customers’ financial knowledge.” According to this expert, who referred to IMF studies, “inclusion not only improves economic growth, but also significantly reduces inequality. Inclusion and financial stability can go hand in hand.”

Inclusion of the most vulnerable 

In the case of Latin America, the challenges of digitization are exacerbated due to the current level of informality in the economy: “A very extensive segment of the economy is not very digitized,” Ketterer explained. “The level of informality is very high, and is concentrated among marginalized sectors. As we go down to the base of the pyramid, the problem gets worse. It is a barrier to offering financial services.”

Other factors like the lack of connectivity, devices and digital skills determine the gaps in access and use of digital financial products and services, especially for more vulnerable sectors like women. “Women should be beneficiaries of digital services and be able to have savings, have protected money and perform digital transactions,” Leora Klapper added.

For them, digitization is the driver that helps them access new opportunities: “In Africa, we have seen cases of women who sell products on a small scale and who are able to get small loans to purchase raw materials. The formal economy benefits them,” Klapper noted.

The participants in the round table discussion agreed that people need to be included in digital finance, but in order to do so, they should receive the necessary education and financial skills. “Experience is the best way to learn,” Klapper argued. “Technology helps to build financial skills.”

For these experts, it is time to integrate financial education into the flow of products and digital applications. “Digital services are a tremendous opportunity,” Ratna Sahay said. “There is no turning back. We have to take advantage of the opportunities, but we must all (providers, authorities, users) be aware of the risks.” 

In the case of Latin America, progress toward greater financial inclusion can be addressed with a combination of financial education and digitization. “Digitization has more important benefits than accessing a bank account,” Ketterer said. “People end up adopting it, and accepting the fact that there is a formalization in all areas.” 

In this context, all actors in the economy can promote greater financial inclusion with the following benefits. “The private and public should work together,” Sahay maintained. “Central banks have the duty to bring stakeholders together, and in collaboration with regulators, grapple with the problems: cybersecurity, regulation, etc.” Sahay also defended the participation of governmental institutions with equal opportunities to compete and with greater access to digitization.  In the case of the private sector, this expert felt that: “It has the levers to influence stakeholders, provide financial inclusion services and ensure that biases that could marginalize more vulnerable populations are eliminated.”

At the upcoming sessions, which will take place on May 19th, 20th and 26th, the 2021 EduFin Summit will continue to address the most important issues in financial education, in a world marked by the COVID-19 crisis. The topic for the next session on May 19th will be financial vulnerability and how to reduce it. At this session, representatives will be present from the Bank of Italy’s Global Partnership for Financial Inclusion (GPFI), the Mastercard Center for Inclusive Growth, the BBVA Microfinance Foundation, the BBVA Pensions Institute, BBVA Research, the Acción’s Center for Financial Inclusion and the European Banking Federation.  

Those who were not able to attend the opening session featuring BBVA Group Chairman Carlos Torres Vila and Bank of Spain Deputy Governor Margarita Delgado will be able to access the full recording here shortly.

Those interested in attending the different sessions of the 2021 EduFin Summit can register for free on this link.