Colloquium on ‘Digital Finance in Africa’s Future: Innovations and Implications’

by Lena Gronbach and Prof. John Sharp

An international Colloquium entitled ‘Digital Finance in Africa’s Future: Innovations and Implications’ was held in Johannesburg, South Africa, on 22-26 October 2018.

Opening Keynote: Mr. Trevor Manuel

Organised by the Johannesburg Institute for Advanced Study and the Human Economy Research Programme at the University of Pretoria, in association with Disrupting Africa, the colloquium brought together African innovators in the field of digital finance, as well as academics from various disciplines within the humanities, to discuss the latest developments in this increasingly important field.

The participants were drawn from a variety of academic institutions and FinTech companies, including the University of Geneva, the University of Addis Ababa, The Institute for Money, Technology & Financial Inclusion (IMTFI), Temple University, and the American University, as well as MFS Africa, eTranzact, Creditable, Wala, Inclusivity Solutions and Gosocket. The South African Reserve Bank and the Central Bank of Kenya were represented as well.

The Colloquium had two complementary aims. The first was to give some key players in the field of digital finance in Africa the opportunity to highlight the extent and sophistication of their innovations, and to discuss their successes as well as the obstacles and challenges they face. The second aim was to bring these innovators into conversation with academics with a special interest in the social, political and economic implications of the innovations in question.

South Africa’s former Minister of Finance, Mr. Trevor Manuel, opened the colloquium by emphasizing the importance of understanding the social and economic implications of new payment technologies and the need for prudent yet enabling regulation: “We must build on the success of mobile money, where Africa is recognized as a world leader. But much depends on the extent to which existing institutions can respond the demands of rapid, repeated structural and cultural shifts, and, at the same time, drive financial access to better serve all people across Africa.” Further, he acknowledged that “we have to focus on whose interests will best be served by the race to digitalization” – in other words, to consider the social impact of FinTech innovations in addition to their technological feasibility and financial profitability.

Mr. Manuel’s keynote speech led into an open discussion guided by Nnamdi Oranye, FinTech author and founder of Disrupting Africa, and Stephen Mwaura Nduati, former head of the Central Bank of Kenya’s national payment system.

Stephen Mwaura Nduati (former head of the national payments system of the Kenyan Central Bank) and Mesfin Fikre Woldmariam (University of Addis Ababa/ IMTFI alumni)

Eight working sessions took place over the next four days, each consisting of presentations by an innovator and an academic or a regulator, followed by group discussion. The topics included mobile money and digital payments, regulation, agent networks, remittances, G2P transfers, insurance, start-up capital, and the blockchain. While the number of delegates was kept small to allow for in-depth discussion among the delegates, ‘virtual participants’ from across the globe could follow the sessions via a live streaming platform and submit their comments and questions online.

The consensus that emerged from the lively and highly interactive discussions – frequently extending beyond the allocated time slots – was that there is a strong need for innovators, regulators and academics to engage in regular and interdisciplinary debate. While most innovators are aware that the technological feasibility of an invention does not guarantee that it will be socially beneficial, they do not always have the expertise to consider the wider implications of their technological prowess. And while humanities researchers can provide these insights, they do not always fully understand the technological complexity involved or the financial and regulatory challenges faced by innovators. Finally, regulators need to balance the interests of governments, banks, and FinTech start-ups with broader concerns about social and economic development. This difficult task requires insights into both the technological and the social implications of FinTech innovations and new financial products.

As one of the delegates put it: “Every innovator in Africa should have a Humanities scholar, such as an anthropologist, alongside them for the journey. The insights that emerged when we brought innovators and academics together were exceptional and far exceeded anything we could have imagined.”

Nnamdi Oranye, founder of Disrupting Africa

Other noteworthy points made by the delegates included the need to incorporate FinTech-related topics into academic curricula in order to prepare students for their future in a digital and globally connected world in the context of the Fourth Industrial Revolution. Further, the participants emphasized the need for a focused, interdisciplinary research agenda that explores both the technological and the social implications of FinTech innovations in different geographic, cultural and regulatory settings.

With these goals in mind, the organizers would like to encourage individuals, companies and institutions with an interest in these issues to join our emerging network of scholars, innovators and regulators (contact details below). The highly successful format of this Colloquium lends itself to replication in other parts of the world where innovations such as mobile money have already had a transformative impact or will do so in the near future.

From left to right, back row: Mari-Lise du Preez (i2i), Olufunmilayo Arewa (Temple University), Ubuhle Zwane (MFS Africa), Sean Maliehe (UP), John Sharp (UP), Dare Okoudjou (MFS Africa), Peter Vale (JIAS), Stephen Mwaura Nduati (FinTech consultant), Sechaba Ngwenya (Creditable), Nnamdi Oranye (Disrupting Africa), Solène Morvant-Roux (University of Geneva). Front row: Observer, Hennie Bester (Cenfri), Sibel Kusimba (American University), Lena Gronbach (UP), Marc Wegerif (UP), Mario Fernandez (Gosocket), Mesfin Fikre Woldmariam (University of Addis Ababa).  

The detailed deliberations of the Colloquium will appear in the form of a conference report in early 2019. Recordings of the sessions and the opening event are now available here. Regular updates on the progress of this emerging project will be made available on the conference website.

Read up on conference insights from IMTFI alums Sibel Kusimba and Solène Morvant-Roux: "Academics, Innovators and Regulators at 'Digital Finance in Africa’s Future."

Authors:
Lena Gronbach, Researcher/Administrator: The Human Economy Research Project (Lena.gronbach@up.ac.za)

Prof. John Sharp, Programme Director: The Human Economy Research Project (John.sharp@up.ac.za)

Photo credit: Riaan de Villiers, acumen publishing solutions

Understanding fintech from the U.S. to China

By Melissa Wrapp and Bill Maurer

On September 28-29, the 2018 California-Shanghai Innovation Dialogues hosted by UC Irvine brought together scholars, policymakers, and industry professionals from across the globe to discuss the ethics and broader social impact of emergent technologies, from insurtech to blockchain to roboadvising. Filene’s newest Fellow, Bill Maurer, gave a talk analyzing the burgeoning cryptocurrency ‘ICO’ phenomenon focusing on the power of big data and digital platforms to create seemingly totalizing systems. Here, Maurer teases out some of the major financial innovations headed our way and the socioeconomic implications that credit unions should be attuned to.

Photo credit: Marilyn Nguyen

What changes are happening in the international fintech space?
We are living in an increasingly digital world. The decreasing costs and rising quality of smart devices is accelerating fintech use. More and more we can expect to see technologies developing around what some are calling the ABCDs: AI, Blockchain, Cloud, and big Data. In China in particular, apps that create an ecosystem of different utilities, such as WeChat Pay and Alipay, are becoming giants in the mobile payments space—and reaching beyond payments into transit, bike sharing, credit, dog walking, you name it. Although their rise in China is in part linked to particularities of the local context, it is important for us to understand these technologies as companies like Facebook, Apple, and Google make moves toward integrating payments, social media, news, and other applications.

Filene Fellow Bill Maurer. Photo Credit: Marilyn Nguyen.

Americans sometimes struggle to understand what they see as Chinese consumers’ relaxed attitude toward data aggregation. What is the appeal of these apps?
For many in China, it is the same as the reason we in the US unthinkingly click through user license agreements without reading: convenience. Analysts are often quick to jump to a framework of surveillance and oppression in conceptualizing Chinese financial innovations. This isn’t unreasonable given the government’s proclivities toward censorship. There are already signs that “social credit” schemes (think Uber ratings, but for everything in your life) may be used to silence political dissidents. And products like Zhima Credit (also known as Sesame Credit), a new social credit scoring system offered by Ant Financial, coincide with broader government plans to collect citizens’ social credit data. However, as scholars at the conference pointed out, these possibilities for algorithmic governance fit into a much broader system of regulation geared toward promoting and maintaining trust in China’s low-trust market environment. So it is important to keep in mind that “convenience” in China is bound up in the social value of stability, concerns over fraudulent goods, and transparent pricing; and that it means something completely different than it does in the American context.

What is something unexpected social scientists have discovered about how people are engaging with new fintech?
People in the tech space often pitch their products in terms of revolutionary, wholesale disruption. However, what we are finding is that rather than entirely replacing things that came before, fintech is creating new layers of possibilities. Turning again to social credit schemes in China, for example, researchers have found that migrant workers are using new apps to access credit in order to extend longstanding patterns of informal lending to friends. Migrants’ efforts to improve their credit scores, therefore, are not linked to a desire to consume more for themselves, but to be able to lend to relations and friends. It is important to pay attention to the way new technologies mix up formal and informal practices, as well as older traditions and tendencies around money with new delivery channels, interfaces, and possibilities. All these continue to be informed by culturally specific moral logics around money, as well as existing financial practices.

Insurtech panel (LtoR): Lei Guang, Liz McFall, Xian Xu, Robert Collins
Photo Credit: Marilyn Nguyen 

What do participants in the credit union movement need to understand about new fintech products?
Despite our best efforts to channel our customers’ behavior toward certain ends, humans will always find workarounds. No matter how “intelligent” roboadvising becomes, for example, it will never fully exclude affect and emotion. No matter how much data is collected by insurtech companies, there will always be a smoker who lives forever and a marathoner who dies young. Sociologist Liz McFall reminds us that the origins of the word risk are related to “things to avoid in the sea.” There will always be things to avoid in the sea: sea monsters, rocks, and reefs lurking beneath the surface that are not fully known. It is better to recognize when people are tinkering, subverting, and otherwise creatively repurposing our technology and try to understand what they are up to and why, than to assume they will adopt tech the way we intend.

Take this conversation to the next level with Filene Fellow, Bill Maurer, when he speaks to how credit unions should analyze the risks of adopting new fintech with its promises and opportunity costs at big.bright.minds.2018. big.bright.minds. brings together experts from each of Filene’s Centers of Excellence to help us redefine consumer financial wellness. Join Bill Maurer and Filene in San Diego on December 6-7.

See original post - https://filene.org/blog/understanding-fintech-from-the-us-to-china

Melissa K. Wrapp
PhD Candidate, Department of Anthropology
University of California, Irvine

Bill Maurer
Dean, School of Social Sciences; Professor, Department of Anthropology and School of Law; Director, Institute for Money, Technology and Financial Inclusion
University of California, Irvine

On the Media: Money, Then and Now

The origins of money are in bartering, right? Not so, explains IMTFI Director, Bill Maurer speaking with Bob Garfield at On the Media, "in the beginning was not the coin... in the beginning was the receipt."

Stone money from the island of Yap.
(Bartosz Cieślak/Wikimedia Commons) 

Most schoolchildren learn that money arose when barter proved insufficient for meeting everyday trade needs. People required more complex transactions, so they invented currency: a medium of exchange, unit of account and store of value. It's a compelling story...but a false one. Instead, most evidence suggests that money arose from recordkeeping. In this segment, Bob speaks with Professor and Dean Maurer at UC Irvine and Brown University's Mark Blyth about past and present myths about money, and what the history of money might suggest about its future.

To listen to the interview or read the full transcript, please visit On The Media: Listen | WNYC Studios | Podcasts: bit.ly/2yKLLq2

How Software Ate the Point of Sale: Or, why paying for stuff is so complicated now

By ALEXIS C. MADRIGAL in The Atlantic

Photo credit: Adam Hunger/Reuters

I’m standing at the counter of a Vietnamese restaurant in Berkeley, ordering a pork bun. There was a time when I knew exactly what would happen next. I’d hand over my card, the cashier would swipe it, a little receipt would curl out of a machine, I’d sign it, and I’d crumple the bottom copy into a pocket. Easy.

Now all kinds of things can happen. I might stick my card directly into a point-of-sale (POS) system. Maybe I swipe; maybe the cashier does. Perhaps a screen is swiveled at me. I could enter my PIN on a little purpose-built machine; I could sign with my finger on a screen; I could not have to sign or enter a PIN at all. I could tap my phone on a terminal to pay. Usually, there’s a chip reader for my no-longer-new chip card. When I put the card in one of the machines, sometimes it takes four seconds; other times, I have time to pull out my phone and stare at it, which means I forget about the card until the reader begins to beep at me, at which point I pull it out, mildly flustered, as if I’d caused too much ice to pour out of a soda fountain. Ah! Okay. Sorry.

The act of paying for stuff is undergoing a great transformation. The networks of machines and code that let you move your imaginary money from your bank account to a merchant are changing—the gadget that takes your card, the computer that tracks a restaurant or store’s inventory, the cards themselves (or their dematerialized abstractions inside your phone). But all this newness must remain compatible with systems that were designed 50 years ago, at the dawn of the credit-card age. This combination of old and new systems, janky and hacky and functional, is the standard state of affairs for technology, despite the many myths about how the world changes in vast leaps and revolutions.

If some areas of financial technology, or Fintech, promise a new elegance, the point of sale serves as a reminder of the viscosity of the everyday technologies on which most Americans rely. If you want to divine the future of transportation, you’d probably learn more thinking about the bus than the rocket. If you want to know how money is gonna change in the future, you need to look at the cash register as much as the blockchain.

[The future of money-like things]

But the most powerful and ambitious companies in the world have tremendous incentive to take interest in the cash register. It’s there where the two great data streams of the modern world flow together: what people do on their phones and what they buy in the physical world. In the first stream, the tech one, the rule is that data becomes money, after it is fed into machine-learning systems tuned to show you better ads. In the other, the data is money. If these two streams fully merged, a company could have a perfect ledger of what you saw and then everything you bought. The ads would get better, so you’d buy more stuff, and in buying more stuff, you’d make the ads better. Online, Facebook (and others) can already track all kinds of activity. But about 90 percent of purchases are still made IRL. Imagine the vast sums of money that could be made if every transaction became part of the ledger. Unsurprisingly, the big tech companies want a piece of this action—as do the banks, as do many start-ups and established, niche players.

So Americans are living through what Bill Maurer, the director of the Institute for Money, Technology, and Financial Inclusion at the University of California, Irvine calls the “Cambrian explosion in payments.” The “point of sale”—once a poky machine or just a person with a calculator or a pencil—is now a computer like everything else, tied deeply into the operations of the restaurant or store. The labor of making a payment could fall to the cashier, as in the old days, or to me, the customer, but we’re both accessing a complex, evolved system of reckoning between banks and their attached remoras, feeding on whatever money ends up in the water.

For the full story, please visit:
https://www.theatlantic.com/technology/archive/2018/07/when-software-ate-the-point-of-sale/565919/

Market Watch: How artificial intelligence could replace credit scores and reshape how we get loans

“In the abstract, having access to credit is better than not having access to credit and certainly better than having access to really predatory credit at extremely high interest rates,” said Stephen Rea, IMTFI Fellow cited in Market Watch, Oct. 15, 2018. Still, he cautions that while increased credit access has the potential to meaningfully improve the standard of living in emerging markets, companies and consumers must tread carefully.

Image credit: Peter Grundy

Market Watch: How artificial intelligence could replace credit scores and reshape how we get loans

Alternative credit scores — using data, in part, from customers’ smartphones — will be migrating from emerging economies to the U.S.

by Emily Bary

You may not think the number of words in an email subject line says anything about you, but at least one company is betting that the metric can help determine your likelihood of paying back a loan.

LenddoEFL, based in Singapore, is one of a handful of startups using alternative data points for credit scoring. Those companies review behavioral traits and smartphone habits to build models of creditworthiness for consumers in emerging markets, where standard credit reporting barely exists.

In addition to analyzing financial-transaction data, Lenddo’s algorithm takes into consideration things such as whether you avoid one-word subject lines (meaning you care about details) and regularly use financial apps on your smartphone (meaning you take your finances seriously). Lenddo also looks at the ratio of smartphone photos in your library that were taken with a front-facing camera, since selfies indicate youth, helping the company divide people into customer segments.

The data points are unconventional, but Darshan Shah, Lenddo’s managing director for South Asia, says the company’s overall algorithm is a reliable predictor of creditworthiness for the so-called underbanked. For those who lack formal credit histories, Lenddo and others say artificial intelligence can help sort through a variety of data points that, in sum, indicate financial responsibility.

For the full story, please visit https://www.marketwatch.com/story/ai-based-credit-scores-will-soon-give-one-billion-people-access-to-banking-services-2018-10-09

No Shirt, No Swipe, No Service: Cash is a miracle. So why are more businesses refusing it?

By Henry Grabar in Slate, staff writer for Slate's Moneybox

Photo illustration by Slate. Photo by paulprescott72/iStock.

For years, small businesses have asked customers to pay cash, set credit card minimums, or added a surcharge onto card transactions, in an effort to defray the premiums imposed by companies like Mastercard and Visa. Now, an increasing number of businesses are doing the opposite. Head out of Slate’s offices for lunch and you might wind up at Dos Toros, a local burrito minichain; for coffee you might pick Devoción, a Colombian-born coffeehouse with an airy storefront. In either case, you’d be confronted with the same demand: Pay with plastic.

Stores are eliminating cash registers and coin rolls in pursuit of what they say is a safer, more streamlined payment process—and one that most of their customers want to use anyway. At Dos Toros, co-founder Leo Kremer said that more than half of the shop’s customers used cash when its first location opened in Manhattan in 2009. By the beginning of this year, that number had fallen to just 15 percent. At that point, the various hassles of dealing with cash—employee training, banking fees, armored-truck pickups, and the occasional robbery—outweighed the cost of credit card fees on those transactions. The shift wound up being more or less revenue-neutral, Kremer said, but saved a lot of time and trouble. Dos Toros’ New York locations have been fully cash-free since the winter.

And what about customers who don’t carry a card? “You agonize over that,” Kremer said. “After talking to the team and absorbing the flow at the register, we felt like almost everyone who used cash had a card. It just hasn’t been an issue.”

Read original post and see what IMTFI Director Bill Maurer has to say here: https://slate.com/business/2018/07/cashless-stores-and-restaurants-are-on-the-rise-to-the-delight-of-credit-card-companies.html

Remittance Channels & Regulatory Chokepoints

By Ivan Small in Limn Magazine, Issue 10: Chokepoints

The bells jingled on the door as I entered a small store tucked in a New England Vietnamese shopping center. Specializing in transactions between the United States and Vietnam, the store is representative of many small operations providing travel and financial services, including plane tickets, visas, box shipping, and remittances. Discussing her business, the owner Kelly gestured to a wall covered with children’s pictures. She explained they were extra passport photos of her customers’ kids, many of whom were now grown up and customers themselves—a testament to the store’s enduring role in facilitating transnational ties for the Vietnamese American community. 

Bitcoin ATM in Ho Chi Minh City, 2017. Blockchain technologies offer
a potential remittance channel that may circumnavigate
regulatory checkpoints, for now. Photo credit: I. Small.

Yet when our discussion turned specifically to remittances, Kelly lamented that it was becoming more difficult for small businesses like hers to compete. In the past, she handled remittance transfers herself, via a bank account. Now, according to her, “banks don’t allow it.” As an informal remittance service provider operating in a gray area to facilitate small transfers, her company had become visible to the expanding reach of the formal financial world—most notably, as a potential “black market” operation. Kelly recently contracted financial-transfer services to an external provider but noted that, at $1.25 per transaction, “It’s hardly worth it anymore. Nonetheless, our customers need to send money and expect us to do it for them, so we continue as long as we can.” 

The informal money-transfer sector has been integral to the Vietnamese community in the United States, but during the past ten years its share of the U.S.-Vietnam remittance market has fallen from one-half to one-third. Kelly’s operation was one of many affected by remittance oversight regulations put in place after the 2008 financial crisis. Specifically, regulations associated with Dodd-Frank require low-value transfers of more than $15 to comply with disclosure, consumer protection, and error-resolution rules requiring more steps and paperwork for remittance providers. Such regulations were emerging as a problematic chokepoint, disrupting and diverting the long-standing channels of her financial-transfer services. Kelly experienced this regulatory chokepoint as a slow but significant shift, pressuring her to diversify from remittances to other services. Writ large, “not being allowed to do it anymore” signaled a significant shift in the financial infrastructures linking diasporas and homelands—Vietnamese and otherwise. 

Reforms of international remittance infrastructures since 2008 have impacted transnational banking, financialization, and payments. By highlighting these transitions—as well as the stories and histories of money-transfer operators like Kelly, who facilitate not only financial connections between Vietnam and the United States but also other material and bodily mobilities—we gain insight into how emerging chokepoints in the international financial system are experienced and navigated. Doing so draws attention to the practical, technical, and affective value of such services in framing and maintaining economic and social relations.

Read full original post - https://limn.it/articles/remittance-channels-regulatory-chokepoints/