The new ABCD of global finance, and what it means for emerging markets

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– Automation, blockchain, cloud computing and digital solutions are changing the face of financial services

– Digital solutions remove the need for human interaction and promote financial inclusion

– Emerging markets are well placed to leverage the ABCD in their recoveries

– Digitalisation is set to continue expanding after the pandemic

One outcome of the coronavirus pandemic has been a massive acceleration of the digital transformation process. Nowhere is this more evident than in the finance industry, where Covid-19 prompted a complete overhaul of legacy processing systems and the widespread implementation of what are known as ABCD technologies – a catch-all term that encompasses artificial intelligence (AI) and automation, blockchain and bitcoin, cloud computing, and digital and data-driven solutions.

While such technologies had been growing in importance within the sector prior to the pandemic, 2020 saw them achieve an irreversible preponderance. Each of the four broad categories brings with it a range of benefits and potential applications.

Firstly, AI can be leveraged within banking and finance in two principal ways.

One the one hand, banks, brokers and asset managers use AI to garner insights and make predictions, related both to the market and to customers’ needs and risk profiles. Online behaviour – for example, how customers use their online bank accounts – is tracked for analysis, which then feeds into financial technology (fintech) interfaces.

On the other hand, AI-based algorithms enable users to leverage so-called Web 2.0 technologies in order to access financial services remotely and seamlessly. Many activities that were made impossible by lockdown measures, such as attending a brick-and-mortar bank branch, were supplanted by AI-based tech.

AI has also enabled financial firms to respond in an agile manner, tailoring their offerings in real time to the shifting demands of the pandemic.

Blockchain, meanwhile, is a hot topic that OBG has explored in depth. The technology offers the potential to increase efficiency in relation to transactions.

Cloud computing has fundamentally changed financial services. In the past, institutions relied on costly, on-site IT systems which rapidly became outmoded. Such systems are now accessed via the cloud and hosted at the data centres of specialised providers, who keep the systems up to date and secure.

The benefits of the cloud are multiple. For example, the time needed for financial institutions to break into new markets becomes significantly less than if they were to set up their own data centres in new territories.

Additionally, cloud solutions are cheaper than in-house systems, creating savings that banks and fintech start-ups alike can pass on to their clients. Significantly, they also mean that fewer workers are needed: the days of huge, in-house IT teams are on the way out.

Lastly, digital solutions refers to all the different ways in which people use technology to manage their finances. Perhaps foremost among them is mobile banking, which has had a transformational impact in recent years. 

The new ABCDs and emerging markets

Even prior to the coronavirus pandemic, many emerging markets were seeing exponential growth in fintech.

This was partly fuelled by younger, tech-savvy populations and the expansion of ICT infrastructure. The spread of mobile technology was another key factor, giving previously unbanked consumers access to fintech solutions, subsequently fast-tracking their financial literacy.

In Mexico, for example, fintech was seeing rapid growth prior to the outbreak of Covid-19, particularly in traditionally underbanked sections of the population.

Fintech promotes cost cutting and efficiency, while providing greater value for customers,” Carlos Serrano, Chief Economist, BBVA México, told OBG last year. “A new model, based on bringing services to the consumer without brick-and-mortar branches or offices, holds great promise for inclusion, and opens the door to untapped sources of profit for financial intermediaries.”

This increase in access to financial services is seen as one of the key tools in reducing poverty and increasing economic activity in emerging markets.

Another example of the successful implementation of ABCD innovations was seen in Kenya, with the 2012 launch of M-Shwari, a combined savings and loans product established by the Commercial Bank of Africa in collaboration with Safaricom.

The M-Shwari system uses AI to streamline and expand financial services, disbursing micro-loans using automated credit assessments and instantaneous approval decisions. Since it was launched, M-Shwari has acquired a customer base of more than 30m.

Bolstering the Covid-19 response

Many emerging markets were able to leverage digital services as part of their response to Covid-19.

For instance, in the immediate aftermath of the outbreak Kenya’s central bank waived fees for financial transactions completed via mobile banking, while in Myanmar the since deposed government sought, where possible, to distribute one-off payments to vulnerable citizens through local digital platforms such as Wave Money and OnePay.

Indeed, in December last year an extensive study – carried out jointly by the World Bank, the Cambridge Centre for Alternative Finance and the World Economic Forum – found that most fintech services, with the exception of lending, had reported strong growth in the first half of 2020.

The report found that this growth was higher in emerging regions, with the Middle East and North Africa seeing the strongest, at 40%, and sub-Saharan Africa and North America coming in joint second at 21%.

In a sign of the importance that fintech services played in allowing people to adhere to virus-protection measures, the report also found that digital payments saw higher growth in countries with stringent lockdown measures, at 29%, nearly double the average in low-stringency jurisdictions over the same period.

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