This weekend private and public sector delegates convened for a panel discussion about technology’s role in achieving greater global financial inclusion as part of a four-part seminar series at the Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group in Washington, DC.
The panelists included Standard Chartered Bank group chief executive Peter Sands; Colombian Minister of Finance and Public Credit Mauricio Cárdenas; Visa global head of strategic partnerships Bill Gajda; JPMorgan Chase global chair of technology, media and telecom and investment banking Jennifer Nason; and professor of economics at Yale University Dean Karlan. Vice chairman of the US Federal Reserve board Stanley Fischer moderated the discussion.
At the outset, Sands spoke generally about the need for business model reforms to allow the operational and commercial impact of technology’s promise in the financial services industry.
“What we haven’t seen is this kind of sweeping, total transformation of the business model that you’ve seen in industries like music or publishing – and the reason I talk about those is that they’re digital industries and there is nothing about banking that is inherently physical,” he said, adding:
“Even notes and coins are essentially tokens and property rights; they don’t have to be physical.”
Sands was also the one that later introduced the matter of “cyber currencies – bitcoin and so on” and the only delegate to voice his position on them. He said he is unconvinced that they will be more than a niche application, but called the underpinning block chain technology “a true computational innovation that could be very powerful in the context of financial inclusion”.
Gajda echoed Sands’ sentiments about the business model, saying there is a lot of work required to address things like transaction costs for micropayments and issues of interoperability.
While the delegates from the banking and payments industries gave favorable responses to the wave of new technology and innovation so ingrained now in financial services, he said that interoperability will be key in driving the next level of scale. To get there, Gajda concluded, would require some business model innovation from everyone.
The Visa executive didn’t speak about digital currencies specifically, though one could apply many of his points on how to use technology to help financial services grow and move towards alleviating global poverty to bitcoin itself.
“I’m actually very confident about the rate in which technology will advance in these markets and the way it’ll be used to provide scalable and secure payments. The challenge as I see it really isn’t a technical barrier. I think there are some business model barriers and I think a lot of it has to do with consumer education.”
Transforming titled property
There is a counterpart to the financial aspect of financial inclusion: fundamental property rights.
Sands appeared enthusiastic about the potential of bitcoin technology and its potential to reform titled property, which he called “the most bureaucratic, inefficient mechanism there is” in Western countries as well as the developing world.
“You could transfer title to the thing youre buying … If you’re buying a car or a house, your transfer of title using this kind of distributed ledger-type technology could be massively more efficient than the system at the moment.”
If people are going to become economic actors, he added, they must be enabled to establish and transfer property rights, especially as they acquire entrepreneurial tools and skills and eventually become small business owners.
“That’s where I think actually some of these block chain technologies could be really powerful,” Sands concluded.
Infrastructure is key
Cárdenas focused more on the currency aspect of digital currencies, maintaining a critical attitude toward the technology during his remarks.
When discussing inclusion, he put particular importance on the need for a money transfer system in which the sender isn’t required to pay up to 10% in related transaction fees.
“We need to make sure that people who are using those services that are so overpriced have access to technologies where they can take advantage of these efficiencies,” he said. “And that means using less cash.”
However, he added that when he thinks of bitcoin, he also thinks about the value of controlling money “in the broad sense”, placing a lot of weight on policy as a means of stabilizing any economy, generating the conditions for growth and low inflaton, and doing so “under the traditional payments system”.
To this, Fischer responded:
“There’s a very interesting line of research as to whether you actually need the physical money to be there in order to control the price of it or whether you can do it with just the interest rate so it’s clear that as long as there’s an epsilon of money you can control the price or interest rate and then the questions what’s the limit of that process which nobody knows at the moment.”
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