🇬🇧Payment Digitization, Unbanked Reduction, Financial Inclusion and Intell Issues

crypocurrency unbanked and underbanked
Digitalization and unbanked

Archive, January 12, 2018, payments digitalization and unbanked

The ‘unbanked’ are the people who, in the strict sense, do not have any relationship with the financial system while underbanked hold it exclusively in nominal terms, because they do not use it.

The existence of the first is essentially due to market reasons : low income and the amenity that characterising a territory and its low population density are factors that inhibit the physical penetration of financial operators ; social causes are the explanation of underbanked existence, before all low income (I have a bank account but I don’t use it because I have nothing to put in it). The two categories have homogeneous features, the most obvious of which are the non-use of the opportunities that the financial market offers as a tool and the wide use of cash. The traits are common both for private individuals and for economic entities, which, however modest, are nevertheless an integral part of the speech.

World Bank keeps a close watch on the phenomenon, which goes under the

name of ‘financial inclusion’ cause the inclusion of larger layers of population in the financial markets is synonymous of total development : every four years publishes a report on the state of the art and constantly monitors the situation with prospectively vision. The macro data is that overall (unbanked and underbanked) the financial inclusion upped from 38% in 2011 to 50% of 2014 of the world adult population and the cause of growth is one, and that is the ‘digital inclusion’ in three of its components. Penetration of mobile phones, the availability of low-cost devices and the penetration of the internet in the mobile component. The logical process is that the global development, even at low speed, of the net and the spread of its generalized use through economic cell phones has allowed even elementary financial services, such as payments or microcredit, to reach ever more population-wide layers.

Two additional factors on which to base the analysis : first the disintermediation of financial markets, for which technological innovation applied to finance (fintech) has led to the emergence in the market of players and services, very articulated and diverse, no longer dependent on the old monopolies of banking origin ; the second, one of the sectors that benefited most from the phenomenon of financial inclusion was, logically, that of the transnational remittances from the rich countries, subjects of immigration, to poor countries, emigration subjects. So all OK and go?

Not at all. Center for Global Development, CGD, published in September 2015 a report entitled ‘Unintended Consequences of Anti-Money Laundering Policies for Poor Countries’ (where with ‘poor countries’ are those that according to World Bank have a GNI per capita (GNI=GDP + remittances of immigrants) less than $4,185 $) that analyzes the relationship between financial inclusion and the need for financial intelligence.

In the CGD report evidence as to the policies deemed necessary against financial crime and the financial aspects of common crime and terrorism, which in general are derived from the adoption, at the system level of financial intermediaries for the various countries, of the AML and CFT regulations, are creating collateral damage. Damage is considered under double optics : that of the exclusion of certain categories of consumers from the financial system, in other words the (re) generation of unbanked and underbanked with the resulting decrease of financial inclusion, and that of curbing the development of the poorest countries.

CGD identifies three mega trends through which the phenomenon manifests itself :

  • de-banking for which, especially in Anglo-Saxon countries, banks prefer not to offer their services to small money transfer services : cause they are labeled by high-risk supervisory authorities, middlemen consider too risky and expensive to continue the business with these figures. The effects are two. The first is that remittances, even micro-ones, which are a critical source of income for the poorest economies, take other less transparent roads ; the second is that, predictably, in the medium term this will lead to a decrease in competition with the rise in the costs of transfers ;
  • the second trend is that the correspondence accounts between banks to countries deemed to be at higher risk by the supervisory authorities are closed. Even in this dual effect : the transactions, still necessary to trade, take other roads, through third countries, with more difficult tracking possibilities and higher costs ; in the long run, if not properly addressed, the issue can be revealed as an emerging development factor ;
  • finally, the No Profit Organization, NPO, which in an anti-terrorist perspective, especially those from Islamic mining and those operating in certain contexts, are considered by FATF/GAFI at high risk and suffer a series of consequences from such labelling : they have very high costs to support for compliance procedures, they lose donors who prefer to apply elsewhere, banks also apply to them the de-banking first seen for small money transfers. So the trend for NPO is to abandon the most high-risk areas of intervention which, for the most part, also coincide with the scenarios in which they are most needed.

CDG explains that the wrong fund concept is to make generalized alerts for which operators do not care, because too expensive, to examine case by case the risk positions preferring to break off relationships with entire categories of interlocutors, creating the collateral damage.

From the analysis point of view on one side we observe how, once in more, the macro-structures, which are to counter criminal and terrorist infiltrations in the financial sector, in their work would prefer to suggest generalized rather than targeted interventions ; this leads to cost-benefit assessments by operators who, by market logic, in most cases lead to give up the development.

In other way, it becomes essential for the economic actor who is to enter on certain areas to subject the treasury processes to careful due diligence, even a practical one in the field. For those who already operate, plan B and plan C do not have to be optional but constantly updated scenarios from operational intelligence based mainly on HUMINT, relative to the sentiment expressed by high-ranking local officials of the banks with which they intend to operate.

This post was originally published on January 12, 2018, in Italian version on www.thescanner.info .This is adaptation of a neuronal Italian/English AI translation by IBM Watson.

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