Locked out of Europe: fintechs holding the key to financial inclusion of refugees
Between 2015 and 2019, there were 4.3 million first-time requests for asylum in the European Union from refugees, according to data from Eurostat. The TV cameras may have gone away, but the significant challenge of integration has remained.
One of the cornerstones of integration is participation in the formal financial system. But Europe’s supposedly sophisticated system excludes many refugees, who often lack acceptable identification or do not speak the language.
Without a bank account, they find it harder to perform tasks that most of us take for granted, such as sending funds to relatives, receiving a paycheque or obtaining a loan. Their daily lives have become even more challenging during the coronavirus pandemic, as many businesses have recently gone “cashless” and bank loans are less available to them, exacerbating inequalities.
Fintechs could, in principle, fill the void left by the large incumbents. A recent report from the Committee on Payments and Market Infrastructures and the World Bank entitled, “Payment Aspects of Financial Inclusion in the Fintech Era”, underscores the fact that fintech can be used to underpin access to and usage of transaction accounts. Such accounts are the bedrock of financial inclusion, paving the way for expanded access to other important services, such as credit and insurance.
Without question, innovative technologies are being developed in Europe, such as digital identity tools to help those who lack identification (Gravity) or blockchain tools that can help simplify remittances (BankeNu). These technologies could help level the playing field in terms of access to the services that most members of society take for granted.
However, through engagement with such inclusive fintechs, investors, NGOs, financial institutions, academics, mobile operators and refugees themselves, we learned they are not actually being deployed in Europe. They are rather serving unbanked populations and marginalised communities outside of it.
There are four main reasons for this discrepancy: Opaque and inconsistent regulations, difficulties in building partnerships, a lack of investment, and an inadequate understanding of refugees’ needs. Because of these barriers, refugees in particular remain both excluded from formal systems and unable to benefit from close alternatives.
Here are some of the key ways we think that investors, financial institutions, government leaders and startups can reduce these barriers, to realise the promise of inclusive fintech. We expand on them in our report, “Breaking Down Barriers: Fintech solutions for Refugees”:
- Governments should specify how financial services providers can tailor products and due diligence for refugees, for example by detailing exactly which identity documents refugees can use to open accounts: Only half of EU national regulators have issued formal guidelines on the financial inclusion of refugees and IDs from refugee producing countries often remain invalid for Know Your Customer purposes.
- Governments should foster regulatory sandboxes to allow fintech startups to innovate and develop and scale products for refugees. Sandboxes are, according to the Judge Business School: “a tool for regulators to collaboratively engage in marketplace innovation, probe the risks and benefits of emerging technology, and develop long-term policy from a more informed position”
- Startups should recruit ex-NGO and public sector staff with insights to help build partnerships that help them develop their products, ensure regulatory compliance, and reach their target user groups
- Startups should make refugees part of the team to gain insights into a diverse user group with different financial service priorities to other population groups, or gather information through knowledge gathering tools such as Migport. Many do not and uptake of their solutions suffers.
- Investors should use the Refugee Investment Network’s Refugee Investment Lens to evaluate different types of refugee-focused investment opportunities and consider which type of entity (refugee led, refugee focused etc.) they are interested in supporting. Importantly, this need not be at the cost of returns because for example of evidence from Kiva that refugees repay: “financial assistance as quickly and completely as the average global borrower”
- Investors can identify and de-risk investments through bodies such as the Refugee Investment Network or Techfugees
If all actors can make progress in line with such recommendations, then the benefits will be wide-ranging. Too often, refugees that are excluded from the financial systems of their host nation are seen as a burden, whereas granting them improved financial access would allow them to contribute to the broader economy. Aside from the direct benefits around social integration, innovative fintech can help reduce informal economies and black markets, helping governments gain more transparency into their financial system.
As the world emerges from the COVID-19 crisis, it is more important than ever for us to support innovations that will create a more equitable world and build economies that are more resilient.
If you are a reader with such an innovation, join us for an impact-driven grant-giving accelerator with PayPal and MetLife Foundation called Finance Forward Europe 2020. But hurry, the deadline for applications is closing soon.