Charting a Pathway to Financial Inclusion
Interview with Prof. Co-Pierre Georg on FinTech, crypto, and building a just financial system in Africa and beyond
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Read full interview at Rosa Luxemburg Foundation
Co-Pierre Georg is currently an Associate Professor at the EDHEC Business School in Nice. He was previously an Associate Professor at University of Cape Town where he held the South African Reserve Banks Research Chair in Financial Stability Studies. He is also the Director of the Algorand-UCT Innovation Hub.
Of the over 1 billion people who live and work in Africa, most have no access to the traditional banking sector. This fact, compounded by precarious working conditions, poor infrastructure, and Africa’s low position in the international division of labour make it very difficult for most Africans to build up savings, whether for private investment, retirement, or other purposes. Against that backdrop, so-called “FinTech” (financial technology) platforms like the Kenyan M-Pesa have flourished across the African market, promising customers financial inclusion and increased access to international financial markets.
Co-Pierre Georg is currently an Associate Professor at the EDHEC Business School in Nice. He was previously an Associate Professor at University of Cape Town where he held the South African Reserve Banks Research Chair in Financial Stability Studies. He is also the Director of the Algorand-UCT Innovation Hub.
Increasingly, African FinTech is also attracting the attention of major Big Tech firms from around the world. The impact of these firms is still limited, but companies like Google Pay are starting to develop partnerships with regional FinTech firms, and “home-grown” FinTech platforms like M-Pesa have made companies such as Safaricom the most profitable in the region. Meanwhile, others have floated cryptocurrencies like Bitcoin as the answer to Africa’s financial woes.
What will FinTech’s growth in Africa mean for everyday Africans? Can these technologies be harnessed for the public good, and if so, how? Fabio De Masi, author of the recent Rosa Luxemburg Foundation study When Finance Meets Big Data: Financial Technology and the Scramble for Africa, sat down with economist and academic Co-Pierre Georg to get his perspective on the building a pathway to financial inclusion in Africa and beyond.
What is your broader view on data-driven business models? Is FinTech always and everywhere the key to the financial inclusion of underbanked people, or do we also need to secure access to cash for people in the informal economy? Is financial technology even accessible to people with poor access to the internet and electricity?
This question really has two parts, I’ll answer them separately.
A big part of today’s data-driven business models is based on the expropriation of data and users’ inability to control data once they have shared it. While General Data Protection Regulation (GDPR) and other legislation tries to curb the unauthorized use of data, it is way too easy for companies to get around that by hiding how exactly they plan to use data in lengthy end user license agreements.
Consequently, users have no real control over what happens with their data and companies like Robin Hood253 that, for example, sell user data to third parties who then come in and take opposing positions in trades, affecting the price of a stock a user wants to buy. This has significant welfare effects on a larger scale and is a consequence of the way in which our existing data infrastructure was created.
I don’t think FinTech is a panacea for financial inclusion. Most people who are un- or underbanked also do not have a smartphone. The vast majority of FinTech companies use apps to deliver their services, excluding more than half of the world’s population. Those companies who offer services for feature phones often employ other predatory practices. M-Pesa, for example, which is often hailed as a success story, uses the same franchising model that McDonald’s uses to offload risk to M-Pesa agents who have to handle large amounts of cash and have no effective way of curbing the spread of counterfeit money.
The trend towards unbundling of financial services also means that new players will be able to create a bank-like experience without having a banking license.
I don’t think cash is the right solution either, though, because it is wildly expensive, impractical, and creates huge security risks. While there are some new technologies on the horizon that could help solve both digital and financial inclusion at the same time, more efforts are necessary to bring these from research into practice.