17 June 2021
The world’s reliance on technology is changing the way we live, influencing our economic, social and financial behaviour; undoubtedly, it is changing our relationship with money. Yet, the new normality exacerbates the relevance to address fair access to technology for all, especially for those who are in the move for prosperity such as international migrants.
It can be thought that the fintech (financial technology) revolution and digital solutions could lead a positive transformation in people’s lives, but how is this happening and whose lives are being transformed? Do they promote inclusion in accessing digital and financial services, for those traditionally left behind? What are the key variables steering success and equality?
Before embracing the spread of this digital solution, the new IGP working paper “Fintech, remittances and migrants’ prosperity: A systematic review and exploration of the Mexican case” frames these questions and rethinks to what extend fintech are leveraging the foundations of prosperity for migrants and remittance’s recipients. This commonly excluded community represents 3.5% of the global population and 700 billion USD in remittances travelling, yearly, into low-and-middle-income countries (LMICs) as alternative finance to alleviate poverty. Analysing fintech’ capacity to open or close gaps is paramount if we remind that access to information and communication technologies (ICT), the baseline for tech-solutions, have social and economic disparities underpinned, such as income, education, digital literacy skills.
Finding how tech can help to access a better life is what the working paper is about. For the author, financial inclusion matters for migrants because, through remittances, they can cover basic needs and save or invest in securing their future using channels they understand and trust. Nevertheless, migrants often remain excluded from essential financial services, and most of them remain unbanked before, during and after immigration. As we enter an era where digitalisation is not an option but a necessity, the challenge of reducing social inequalities and improving lives of those significantly distanced, through financial technology, becomes more relevant than ever.
After a careful exploration of the remittances market and a systematic review of the impact of fintech in LMICs and migrants, the author concludes that financial technologies are creating a positive impact, yet, they leave behind those unbanked, literacy unskilled, highly rural-based.
Fintech can strengthen the foundations of prosperity for migrants, increasing their real household disposable income, providing access to better jobs, financial and digital services while shaping financial behaviour. It also encourages women empowerment and reduce poverty levels, but the effect on social inequality and financial stress through debt and credit remains unclear. When examining the key variables behind fintech’ success, tech users are not those on the last mile; they are more educated, urban-based, usually employed, mostly banked, more likely to have digital literacy skills and to own a phone with mobile network coverage or access to the internet. In addition, ICT infrastructure development and penetration, institutional capacity, security and investment in the country, plus specific fintech services attributes are decisive for creating the perfect environment for digital solutions to be adopted. However, these conditions have inequalities embedded, as they are present in more developed economies, where regulations are effective and governments are stable.
Rethinking fintech and increasing commitment from governments to ease the tech adoption among potential users below poverty lines should be the next step in order to achieve real transformations.
These primary results are confirmed when exploring the Mexican case, a promising economy leading the fintech revolution in Latin America. Fintech success rests on those who use the technology, which in Mexico and in the LMICs analysed, are not those traditionally left behind. In Mexico, tech solutions should be aware and understand the potential of rural and semirural communities, where most of the remittances arrived, to accomplish the promise of financial inclusion and fair access to all.
As long as equal access to technology is not a priority for governments and business, and fintech leaving behind those who need it the most, its impact and influence on global prosperity will be limited.
Silvia Velasco was a student in MSc in Global Prosperity at the IGP, 2019-2020. The working paper is based on Silvia’s MSc dissertation, which won the IGP Dissertation Prize.
You can find the working paper here.
Image credit: Marvin Meyer on Unsplash
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