Future of Fintech 2019

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R A C O N T E U R . N E T 11 Immigration: can fintech help with the transition? Immigrants face an array of financial hurdles when arriving in a new country and some startups are now offering services unavailable from established institutions. True inclusion, however, requires a concerted effort from wider stakeholders to support such initiatives en years ago, Rushd Averroës moved from Yemen to the UK to study. Keen to start settling into the country straightaway, one of his first steps was to try to set up a bank account. But, as he soon found out, getting access to finance wasn't as easy as he had hoped. "It was very hard," says Mr Averroës. "Almost every traditional bank I went to didn't let me open an account because they said I couldn't prove my identity. Even though there were many ways to prove who I was, the banks only wanted to use the system they had been working with for years. This is where immigrants can feel excluded because a bank account is a basic human right." His difficulty in accessing traditional banking services is a common one among the world's nearly 30 million refugees and asylum seekers. Their financial inclusion is being restricted by banking rules that pre - vent access to finance, not only opening a current account, but also getting a business loan. This therefore impacts how quickly new arrivals can start growing financial roots. Swati Mehta Dhawan, researcher and consultant on the financial inclusion of low-income households, has studied access to finance for refugees and asylum seekers in Germany, where immigration has signif - icantly increased over the last few years, amid the arrival of nearly one million peo- ple, notably from Syria and Afghanistan. opportunity is twofold. There is more oppor- tunity for fintechs working with migrants and refugees by using the same tools that others are already leveraging. Leaf, for exam- ple, is using a whole set of tools that didn't exist ten years ago, including mobile money and blockchain. That would not have been possible before because not everybody had a mobile phone and blockchain was just an idea. We have these tools now." The issue is mainly down to discrimi- nation and misunderstanding. Ms Dha- wan says: "It's important not to see refu- gees and immigrants as one homogenous group. These newcomers might have had limited interaction with formal bank- ing systems, but in many cases they are successful entrepreneurs, skilled sav- ers, have built assets and have extensive social networks for borrowing and lending through difficult periods. "The problem is a lot of it was outside the formal financial systems and these skills cannot be transferred to countries that are highly formalised. This is where fintech can play an important role and move beyond traditional banking sys - tems. It can help people build credit his- tories and, crucially, help in areas like remittance and lending." After his experience, Mr Averroës has founded his own company to address access to finance for the unbanked. Using blockchain and biometric identity, BABB aims to decentralise banking and provide peer-to-peer banking services to the global micro-economy. Through the BABB app, which launches offi- cially in the next couple of months, users can open a UK bank account, send and exchange money. He says: "We are designing for the micro-economy, so our system is much cheaper, and we require very basic iden- tification at the beginning. The system is very inclusive; we are getting to the root of the issue." Despite some of the benefits fintech solutions can bring to immigrants and ref- ugees, analysts say more needs to be done to ensure the full financial inclusion of such people in their new countries. Scalable efficient solutions are still in their infancy, according to Mr Raj, who calls for both more innovation and wider engagement with the problem. "We need more startups innovating in this space, looking at models that work by leveraging technology, which didn't necessarily exist before. Then you need investors like ours and our peers to support those compa- nies. Finally, we need larger institutions, regulators, civic society, to integrate with these markets. That's what needs to happen. A whole heap of stake- holders needs to get hip to this." Similarly, Mr Averroës says local and central banks need to get involved. "The issue is not with immigrants and ref- ugees only, or even the unbanked. What about the banked? In some cases, they are the families of the unbanked and need a platform to make a payment. We need one bank for the micro-economy that caters to everyone. I believe connectivity is everything. If we are not connected, it will be very hard to build a financially inclu- sive platform," he concludes. Gouri Sharma T I N C L U S I O N "As people get into the system and inte- grate, they will end up performing a lot of financial firsts, like getting a rental contract, opening a bank account or registering a busi- ness," she says. "They are bound to make mistakes because they don't understand the system or the new language very well. While support for integration in the labour market was in place, we found that when it came to financial aspects, the support was not there." This gap within the context of immi- gration can, however, be filled by fintech solutions. In the past few years, compa- nies such as Leaf, a virtual bank that allows refugees to save and transport assets securely across borders, and Now Money, a digital bank for migrants in the United Arab Emirates that helps them send remit- tances cheaply and easily, are playing a role in banking the unbanked. US-based Accion Venture Lab, the seed- stage investment initiative of global non- profit organisation Accion, is supporting Leaf and has just launched a $23-million fund for inclusive fintech companies. Vikas Raj, managing director of Accion Venture Lab, says: "From our perspective, the Almost every traditional bank I went to didn't let me open an account because they said I couldn't prove my identity MIGR ANT TR ANSITION Survey of more than 500 migrants and refugees in seven EU countries European Migrant Advisory Board 2019 BBAB Yemen-born Rushd Averroës, founder and chief executive of fintech BABB 5 4 3 1 2 Getting used to the system Remittances Considered high risk Fleeing their homes Saving and accessing Refugees and asylum seekers are confronted with various challenges once they reach a new country. In many cases, they are starting afresh with a new language and they don't know or understand com- plex financial or benefits sys- tems. This may lead them to avoid, or to not being able, to put their money in banks. They may also have to rely on more informal sources for loans, further delaying formal finan- cial inclusion in their new country. Fintech solutions give the user more control and pri- vacy over how much data they share. Additionally, they are able to kickstart the financial inclusion process by building digital financial records. According to the World Bank, remittance flows to low and middle-income countries is expected to reach $549 billion this year. Transaction fees and other costs that come with tra- ditional remittance services can often make it very expensive for someone to send money back home. There are a number of companies working with tech- nology to make this process easier and cheaper. These include InstaReM, which offers rates at much more competi- tive levels than traditional ser- vices, and Now Money, a digital bank that works with employ- ers of migrant workers in the United Arab Emirates. Studies show that traditional financial providers don't under- stand the financial needs of ref- ugees and immigrants, view them as high-cost and high-risk clients, and therefore restrict their access to finance. As Micol Pistelli, financial inclusion expert at the United Nations ref- ugee agency UNHCR, says: "Pro- viders lack information on liveli- hood opportunities for refugees, the business case for serving them and their credit risk, and so they make assumptions. Typ- ical assumptions tend to be that refugees are only in the coun- try temporarily, that they are dependent on aid and that they don't have any assets." Analysts say fintechs don't have the same high-cost and risk implications, so can offer a more cost-effective solution to its users. With many refugees fleeing their home countries during times of conflict, taking and keeping hold of IDs such as passports or birth certificates is not always possible. Traditional bank- ing regulations such as know your customer, which aim to tackle money laundering, make things particularly difficult for refugees and immigrants because they aren't always able to comply with these strict demands. Fintech solu- tions using biometric data make it possible for people to be identified through alter- native means. Iris scans are being used in refugee camps in Jordan, with data storing how much cash and products an individual should receive. A refugee's journey can be dangerous and travelling with financial assets can make them more vulnerable. Virtual banking using mobile phones is one fintech solution that provides access to finance at a later stage. Companies such as Leaf are working to alleviate risks. The company is using blockchain to convert money into stable investments. The company says: "W henever the refugee reaches a point of safety, they can with- draw into the new loca l cur- rency or use their ba lance as collatera l on a micro-loan. Leaf 's platform offers a secure, affordable, convenient way to safeg uard and trans- fer money across borders that ultimately leads to an economic identity." Five common financial challenges facing immigrants Getting used to a new banking system, access to finance and documentation are among the most common obstacles during the transition are very dissatisfied with the integration services provided have heard about the availability of small loans for refugees and migrants of those who had heard about microcredit did actually apply for it 73% 12% 6%

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