In the last decade, there has been a wave of innovative financial services aimed at serving non-banking people in emerging markets. Low-income individuals, micro-entrepreneurs, and the rural population, who were previously excluded from the market due to the high cost of physical expansion, now gain access to financial services through cell phones and agent networks, acting as financial service providers.
This has led to an exceptionally rapid increase in financial affordability in some countries and an increase in the quality of financial assistance. In other markets, implementation has been slower and results are less outstanding, but all markets are developing and should continue to grow as services and products develop. The expansion of digital financial services is expected to contribute significantly to the goal of universal financial access by 2020.
However, many of the opportunities offered by revolutionary technologies and innovative business operations are also fraught with new risks. In order for the financial integration sector to take full advantage of digital financial services, it is important that the risks associated with them are understood and adequately addressed.
In this rapidly changing field, it has become clear that what affects one supplier affects them all, because, for example, many cases of fraud cast doubt on consumer confidence not only in one supplier, but in the entire market. and in the promise of digital financial integration in general.
Mobile financial assistance and management is a joint initiative to develop microfinance and promote digital financial services in countries. Through interactions with program clients, as well as with the wider sector in the region and elsewhere, we have identified the need to prepare guidelines on the best way to manage risk for digital financial services.
There are a number of interesting industry publications focusing on specific risks, such as fraud or regulatory risk, as well as documents addressing specific issues that specific institutions face, such as risk management.
However, there is no comprehensive guide to the risks associated with overall implementation, which could easily help an institution understand from the very beginning what risks are, how they affect deployment and how to manage them. In 2015, we launched a series of research projects to answer these questions and develop this guide. To develop this guide, we interviewed more than 30 practitioners, software vendors, and industry participants, and conducted four in-depth organizational risk assessments.
Most of these practitioners are located in the south, but their experience may also be useful in other regions. In the course of the study, we found that there were very few institutions, including banks, MFIs, and OPMs, which had some kind of risk management structure. Only one institution has developed a comprehensive risk management system that is regularly used and published monthly at the group level.
It is probably no coincidence that this was the only institution among institutions that has never encountered public reporting of fraud, small or large. We were surprised to find that the banks in our sample had the lowest levels of managerial implementation, while banks, as you know, are risk-averse institutions with strong risk management departments. and compliance. We conclude that financial service providers across the industry must absolutely strengthen their mobile financial assistance management practices if they want to achieve their business goals.
As a result, the data received from all customers of the bank are large and contain significant information. Thus, the ability to classify, coordinate, develop a decision-making algorithm and analyze this data becomes a competitive advantage for financial companies. In addition, customers are increasingly aware of the value of their money. They want them to belong to them. They want to control their use. This is a trend towards monetization.