Technology can help democratize financial services


The writer is professor of financial economics at Imperial College London

The economic damage caused by the pandemic is in part masked by the extraordinary level of support injected by governments around the world. In September, many pandemic rescue packages will begin to end in the United States and the United Kingdom. This reveals the uneven effects of the pandemic, with the worst impact on low-income and low-income households. Wealth inequality, which was already a serious concern before the pandemic, is now even more extreme.

Over the past decades we have seen progress all over the world Lower the rank of the very poor, There is a big wealth gap in the growing global middle class, there is a big difference Between the middle class and the very rich..Wealthy families during the pandemic An increased lead over the poor, In part because we were able to save more. However, the high returns on long-term, high-risk investments such as stocks and housing also benefit wealthy people who have easy access to risky financial markets and have been able to borrow at unprecedented interest rates. Bring.

The privileged financial access of the rich is a permanent feature of globalization. The disadvantages for poor families can be significant. For example, in India, the cost of the second best financial arrangement is Is estimated At 10 percent of the actual annual income of a typical middle-class household.

One of the obvious problems is that the fixed costs of providing financial services make small investments and high borrowing. Many financial products assume stable income and expenditure flows and do not meet the needs of poor families living with volatile cash flows. The poor often lack the social networks and privileged education to learn about lucrative investment opportunities. Nor do we have the time to protect ourselves from financial service providers who exploit their weaknesses.

The good news is that now we have a special opportunity to make a difference. The pandemic-ravaged economy is looking for ways to achieve efficiency and unleash the entrepreneurial spirit of those who have been detained for more than a year. Technology is the only way to communicate with others during this difficult time, and as a result, you have familiarized yourself with tools that can lower the cost of basic financial services. And perhaps more importantly, it is widely recognized that social stability is threatened by inequality between aspects of wealth, race and gender.

What can you do to increase access to high quality, affordable financial management? Household arrangements reflect the great diversity of their economic conditions, so financial products must be personalized. The challenge is to do it affordably, even on the small scale that poor families need. Technology is an important part of the solution because it can process small transactions at lower cost and respond to changing conditions such as fluctuating revenues.

However, there are limits to technical evangelism. Building a healthy family financial system destroys exploitation or value, such as credit scoring algorithms that increase existing biases and smartphone transactions that encourage small investors to buy high-priced meam stocks. Technology needs to be regulated to spur innovation while prohibiting action.

With these caveats in mind, there are ways to improve the lives of millions of people by providing inexpensive access to personalized financial products. For example, the creation of national postal services opened up new possibilities for petty trade in the 19th century by reducing costs. Likewise, well-regulated technology can increase access to financial services in the 21st century.

John Campbell, professor of economics at Harvard University, contributed to this article

Technology can help democratize financial services Technology can help democratize financial services

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