Jason Simon describes how to reduce the barriers that hinder digital financial inclusion in Latin America

Technological innovation has created new trends in financial technology, such as FinTechs. These companies have established themselves as low-cost alternatives that can meet the needs of all segments of society, even the most vulnerable. Latin America and the Caribbean have seen a rapid growth in FinTech, with a lot of attention to financial inclusion. This is evident in the fact that 40% of FinTech startups serve underbanked or unbanked SMEs as their primary client. Jason Simon shares his perspective on the challenges that prevent digital financial inclusion in Latin America based on his extensive knowledge of FinTech.

FinTechs, like any innovation, have shown in short periods of times their ability to change plans, integrate actors and create new products to meet the needs of customers, particularly those who do not have access to the financial sector. In order to address the financial inclusion gaps, CAF, Development Bank of Latin America, has created the Financial Inclusion Lab (FIL). This Lab seeks to identify and evaluate the top FinTech initiatives in Latin America for financial inclusion of vulnerable populations and SME’s.

“Although FinTechs represent an important opportunity, in order to achieve greater digital financial inclusion in the region, it is necessary to design and implement comprehensive measures that include policy responses from the supply and demand sides, while addressing potential barriers that may hinder the use of digital financial services,” Simon says.

On the one hand, supply-side policies must be implemented to guarantee the existence of infrastructure and coverage for the use of new technologies. At the same time, there must be regulatory frameworks that promote competition and efficiency in the telecommunications sector to ensure that data usage prices are affordable and competitive.

The same must happen with the financial sector and the different actors that offer digital financial services: both traditional banking and FinTechs, so that prices and fees for the use of these services are competitive and affordable for the entire population.

“With regard to telecommunications infrastructure and connectivity, it is important to ensure that populations in remote areas have access to connectivity networks that allow them to access digital financial services,” Simon points out. “The same must be true on the side of the financial sector and the various players must offer digital means for financial transactions, both traditional banking and FinTechs.”

Moreover, countries in the region must promote appropriate regulatory frameworks in order to achieve the multiple objectives of financial inclusion policymakers: financial stability and integrity, and consumer protection. This regulation should protect consumers and investors, ensure healthy competition and guard against financial stability and integrity risks.

Similarly, policymakers will also need to consider novel approaches to ensure high-quality supervision and regulation, support the safe use of innovative technologies and, at the same time, ensure that regulation is proportionate to the risks involved. To this extent, it is important to adapt regulatory frameworks to strike the right balance between enabling financial innovation and addressing challenges and risks to financial integrity, consumer protection, and financial stability.

“Particular awareness should also be provided to the need to promote the digital skills and knowledge of the most vulnerable populations, as well as those who have been traditionally excluded from the financial system,” Simon suggests. “In this sense, it is important that financial inclusion public policies contemplate the strengthening of digital capabilities, not only financial ones.”

Finally, it is necessary to keep in mind the different edges and dimensions of financial digitalization driven by the COVID-19 pandemic. This can actually translate into greater inclusion and greater financial wellbeing for the population. If this comprehensive vision is not maintained, the initiatives may not translate into the expected results and the existing gaps, as well as the already high financial vulnerability of the population in the region, could be exacerbated.