(Weekly series of articles): Money technology services and their role in financial inclusion – fifth article, end of the series

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Date: 25 - 04 - 2019

Dr..Eng. Ali Mohamed El Khouri

Article number 5 and final in this series

In the previous articles, we exposed concepts and techniques related to the digital economy, and showed that the digital economy is a catalyst for the concept of value chains (VALUE CHAINS), which is the chain of economic value creation that starts from the raw materials of production and ends with its arrival to the final beneficiary, and we have shown that the intersection in value production chains is formed It has a network of economic transactions, the provisions of which determine the rules of supply-demand, and here we would like to point out that the interrelationships within this network can be studied through what has been scientifically termed as microeconomics.

Microeconomics is a branch of economics that focuses on the study of the economic behavior of each unit of the economy in a supply and demand network, such as individuals, firms, or industrial sectors. Microeconomics is concerned with the factors that affect the choices of consumers or institutions in the decision-making process, which in turn regulate the laws of supply and demand, and the factors that help achieve balance in markets – between the price of products and goods and the ability of the consumer to purchase – which are major factors that control the rotation of the economic wheel.

And the mediator, which expresses the point of balance between supply and demand – that is, the compatibility between decisions – is the value or price, which means money, which is the price agreed upon between the seller and the buyer or between the service provider or producer and its consumer and beneficiary. That is, the movement of money in the markets between economic units is like the fuel that manages and enables the rotation of the economic wheel.

This introduction was necessary to pose our question about how to activate microeconomic mechanisms, to stimulate the economic relationship between the value-producing entity and the person requesting it?

In this article, we will discuss the technology of money, which is called (Fintech), which is an abbreviation of the name (financial technology).

The term (Fintech) is used to describe a new technology that seeks to improve the provision and use of financial services by automating them and providing them to users in order to help companies, business owners and consumers manage and implement their financial transactions electronically and securely, through the use of software and applications on computers and smartphones.

Fintech comes in the form of a variety of simple and complex financial activities. For example:

  1. Remittances, whether within or outside the geographical borders of the country
  2. Apply for credit or apply for a loan and financing to start a business without the need to visit a bank branch
  3. Managing investment portfolios and being guided by the advice of smart automated systems that replace the financial advisors
  4. Transactions in cryptocurrency and digital cash
  5. Automated contract processing and conclusion (often using blockchain technology) to automatically execute contracts between buyers and sellers.
  6. Regtech – Regulatory Technology, which seeks to help financial services companies meet compliance rules imposed by central banks and the government, especially those associated with anti-money laundering and fraud standards.
  7. Non-banking services that are provided to individuals who lack bank accounts, and seek to serve individuals with limited income such as social support services.

According to EY’s Fintech Adoption Index 2017, a third of online consumers use at least two or more Fintech services, and these consumers are increasingly aware of their importance, and are even becoming more and more aware of their importance. It is an integral part of their daily life. According to statistics, this percentage did not exceed 16% in 2015, meaning that it doubled within two years, a growth rate that is expected to continue at the same pace, until it reaches the desired level of maturity.

The exciting thing today is that financial technology has gone beyond the stage of digitizing money, to modeling data and information, to become a source of income and makes it an economic value in itself. The issue here is how to obtain and invest the added value from data, which is what we see as an unprecedented economic revolution, where in the past, people could not benefit from data as a source of wealth like gold, silver, oil and minerals, but now with digital technology such as financial technology, data has become It is an important economic source, which means that we are witnessing a new era that will redefine the economy to confirm that it is a science subject to development and change, not like mathematics or physics, for example.

Fintech solutions promise huge opportunities for all businesses of all sizes, especially small businesses, to survive and thrive. It offers integrated digital solutions that enable these companies to better manage their financial resources and cash flows. It is known that small and medium-sized companies constitute the main building block and the real engine of economic growth, as they provide the largest source of jobs, and even constitute the largest percentage of the value-added network that we seek to activate and enable them to move, produce and market.

Today, financial technology is considered one of the most important tools of societal transformation to integrate individuals and institutions within the umbrella of financial inclusion. Financial inclusion, according to the definition of the World Bank, means the availability of financial services to all segments of society, including individuals and institutions, and through official channels, including bank accounts, payment and transfer services, insurance, financing and credit, and other innovative financial services at competitive prices.

There is no doubt that governments around the world pay great attention to expanding the scope of financial coverage for all their citizens, institutions and companies operating on their territories. According to international reports, especially the World Bank, financial inclusion has been considered a major potential for seven goals within the 17 global sustainability goals, so it is at the top of its priorities, especially in the areas of combating poverty, promoting investment opportunities and the circulation of capital for local development, complying with laws, and enabling Marginalized groups, promoting gender equality, improving women’s conditions, creating new employment opportunities, reducing unemployment, and improving the quality of life for citizens.

Financial inclusion would support the efforts of Arab governments to protect the rights of users of financial services, and encourage them to better manage their money and savings, in order to avoid some resorting to informal channels and means that are not subject to oversight and supervision and do not pay taxes, and often depend on “prices.” High”. According to international statistics, the global number of people without bank accounts reached 1.7 billion in 2017, compared to 2.4 billion in 2011. This improvement in financial inclusion rates, and despite the population increase, clearly shows where the world is heading today, and there will come a day when almost no one is included in the Legal Financial Inclusion Umbrella.

Moreover, the inclusion of micro-enterprises within the umbrella of financial inclusion, that is, by owning bank accounts, will support the use of digital financial services, including mobile financial services, electronic payment cards, and other financial technology applications. Assuming that these enterprises have bank accounts, they are more likely to use other financial services, such as credit, borrowing and insurance services, to start and expand businesses, which will be reflected in their ability to manage risks and deal with financial shocks.

In general, financial inclusion would enhance the economic situation of the country and expand access to financial services by developing the capabilities of all parties involved in the economic value creation network so that producers can benefit from these services, whether by financing, borrowing, or providing financial services that attract customers, such as insurance or Competitive prices. In the same way, the customer benefits from this network through financial technology services, which provide electronic payment services, installments, borrowing and financing automated purchases, not to mention the extreme ease of use.

It is worth noting that Dubai Smart Government, in cooperation with the Dubai International Financial Center, launched the first accelerator for financial technology in the region, with the aim of improving the customer experience and enhancing operational efficiency in the financial services sector.

ADGM launched a similar program called “Regulatory Lab” in 2018.

These government initiatives come to support the public and private sectors to stimulate the use of financial technology in digitizing services, which in turn will contribute to supporting the movement of the economic system in the country.

Money technology is seen by many experts and bankers as a real threat to the traditional banking sector

Unless the latter changes its policies and integrates with this preferred technology of the young generation, especially the generations that will enter the labor market during the next decade,

It is a category that favors smart applications and solutions.

According to the statistics circulating today, the value of the amounts managed today through financial technology companies is about 5 trillion dollars. It is expected that major financial institutions such as banks and banks around the world will lose 24 percent of their revenues to such companies over the next three to five years.

That’s according to a new study by PricewaterhouseCoopers.

During a period of simple years, which we estimate at most, five years, most adult individuals will remain under the umbrella of financial inclusion,

And digital inclusion as well, as financial technology services will be their preferred means of access to financial services, especially with the spread of mobile phones and Internet networks, and their link to artificial intelligence, machine learning and big data technologies. Governments should see this as a real opportunity to enable and develop the development system, and an engine to accelerate and expand economic activities.

And a catalyst for attracting investments in vital sectors such as education, health, trade and industry, and improving the quality of life in its comprehensive sense.

Dr..Eng. Ali Mohamed El Khouri

Advisor to the Council of Arab Economic Unity and President of the Arab Federation for Digital Economy