Share

Financial technology growth remains stagnant as inequality gap persists

accreditation
Fintech can meaningfully contribute towards addressing the triple challenges of inequality, unemployment and poverty, but it remains stagnant due to the inequality gap. Picture: iStock
Fintech can meaningfully contribute towards addressing the triple challenges of inequality, unemployment and poverty, but it remains stagnant due to the inequality gap. Picture: iStock

The fourth industrial revolution and the shift to the digital economy give us the opportunity to ensure our country recovers and thrives, writes Francois Groepe.

In South Africa, economic growth has been stagnant for a while, and the challenges of widening inequality, rising unemployment and widespread poverty stubbornly persist. Inequality and perceived economic injustice are increasingly contributing to political outcomes in advanced and emerging economies alike.

As Adam Smith once wrote, “no society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable”.

Hence, policies targeted at increasing GDP growth must also aim to be inclusive if they are to be sustainable in the long term.

One of the key responsibilities of the SA Reserve Bank is the national payment system – the backbone of all the electronic transactions in the country through mechanisms such as ATMs, money remittances and the swiping of cards for purchases.

This system affects the lives of all South Africans and is a crucial enabler of economic activity among consumers and businesses. It has the potential to contribute towards laying a strong foundation on which an inclusive digital economy can be built.

The emergence of financial technology (fintech), the fourth industrial revolution and the continuing shift from the industrial to the digital economy afford us, as a country, the opportunity to leverage these innovations towards lifting the growth potential of our economy.

There are anecdotal estimates that such efforts could contribute 0.5% to 1.5% to GDP

It is therefore not only time that we do something differently, it is time that we do things digitally.

Digitisation, for example, has reshaped financial services in countries such as China, Estonia and Singapore. Less than a decade ago, the Chinese e-commerce retail transaction value accounted for less than 1% of the global value.

This figure has risen to nearly 40% today and, in 2016, mobile payments for goods and services in China totalled $790 billion (R11 trillion) – 11 times more than in the US – as a result of the efforts by giant fintech firms such as Alibaba, Baidu and Tencent.

Research by the International Monetary Fund shows that a one percentage point growth in the digitalisation of China’s economy is associated with a 0.3 percentage point growth in its GDP.

Estonia is a small country with minimal natural resources, but it is leading the charge in embracing digital enablers across various sectors.

A staggering 99% of Estonian companies are established online, reducing the time it takes to establish a business from five days to 18 minutes.

In Estonia, 97% of healthcare patients have countrywide accessible digital records, with 99% of all prescriptions issued digitally.

At least 2% of Estonia’s GDP is saved due to the collective use of digital signatures.

In Singapore, citizens have the ability to store their basic identification information – such as their unique ID number, name, gender and age – electronically on a one-stop data repository known as MyInfo.

This enables faster completion of online information requirements such as e-government or banking services.

If South Africa had to adopt similar technology, it could be used to administer social grants and could result in significant cost savings.

A further application could see the simplification and streamlining of compliance with the Financial Intelligence Centre Act.

The examples from China, Estonia and Singapore demonstrate the potential of technological innovation and fintech.

Governments and central banks should, however, create an enabling environment to facilitate a shift towards a digital economy.

At the inaugural workshop of the Intergovernmental FinTech Working Group in April, it was highlighted that a South African digital identity could increase financial inclusion by making access to financial services easier.

This is just one opportunity where various regulatory bodies and the industry can work together to build a digital foundation and contribute towards the longer term financial wellbeing of South Africans.

The workshop also highlighted the need for a national innovation framework, which would improve our global competitiveness and demonstrate our responsiveness to the fast-moving and ever-changing digital landscape.

The Reserve Bank is willing to play its part in exploring the potential of technological developments such as blockchain, artificial intelligence and machine learning, both in its own operations and as a facilitator of the extension of digital payment services.

In this regard, the Reserve Bank earlier this year successfully ran a trial using distributed ledger technology in the wholesale settlement system, and will soon launch an innovation hub in an effort to encourage innovation and to promote greater competition and efficiencies.

This is consistent with the overarching goals outlined in our National Payment System Framework and Strategy Vision 2025 – a publication that sets out goals and strategies to guide the efforts of the payments industry.

We firmly believe that fintech is not only a key regulatory priority, it is also a potential source of growth for the economy, which can meaningfully contribute towards addressing the triple challenges of inequality, unemployment and poverty.

For South Africa to successfully leverage the potential of technology, there needs to be close collaboration between government, business and civil society

More importantly, this requires vision and political will.

In this regard, Toomas Hendrik Ilves, a former president of Estonia, has emphasised that “it is not about focusing on the technology itself; it is about the political will, vision, policy, laws and regulations … in that order”.

Groepe is deputy governor of the SA Reserve Bank. He is responsible for Financial Stability, the National Payment System, and Risk Management and Compliance

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Voting Booth
Do you believe that the various planned marches against load shedding will prompt government to bring solutions and resolve the power crisis?
Please select an option Oops! Something went wrong, please try again later.
Results
Yes
20% - 103 votes
No
80% - 403 votes
Vote