Decades of almost unbroken economic growth have made many Asian nations the envy of the rest of the world. Highly sophisticated financial systems, from capital markets to banking and payments, have developed rapidly in these new centres of prosperity. But that financial infrastructure has often failed to pick up poorer sections of society or smaller businesses.
Financial inclusion – or more accurately, the provision of financial services to those excluded from them – has become a key issue for politicians, banks, payment providers and policy-makers in Asia.
Among the latter group, it is certainly one they take seriously. In an OMFIF survey of central banks and financial regulators analysed in detail in the OMFIF-AWS report, ‘Enabling financial inclusion in APAC through the cloud’, 73% of respondents identified financial inclusion as an explicit target or objective for their institution.
According to the same policy-makers, 90% of respondents believe that digital payments will be the core competency in extending basic financial inclusion. Providing the underbanked with financial services is therefore intertwined with policies related to digital infrastructure reliability and conducive fintech ecosystems. Data management costs, processing and storage issues, and reliability of digital infrastructure are all ubiquitous fundamentals associated with the development of digital financial services. However, legacy infrastructures have offered little to avert the rising barriers for smaller fintechs and new entrants that could potentially provide meaningful solutions to improve financial inclusion, leading to suboptimal outcomes.
Advances in the cloud could provide the impetus which has so far been lacking. Cloud computing can help facilitate the digital shift of incumbent financial institutions and the market entry of new challenger fintechs alike by providing the high-volume, high-intensity computing power that supports digital financial services. It also enables scalability at a lower cost, aligning the provision of affordable products and services to significant populations of underbanked individuals and small businesses.
The report lays out the progress made towards expanding financial inclusion in Asia Pacific as well as the underlying policy areas in which cheaper, more streamlined access to financial services can drive the potential for economic development and empowerment among individuals and businesses.
In infrastructure-constrained rural areas, and among small, innovative financial service firms, migration of workloads to the cloud can greatly optimise IT operational costs, benefiting both firms and end-users.
In particular, cloud policies that complement fintech applications and government initiatives in basic areas such as digital payments and secure digital identity will be key foundations to catalyse cheaper, more efficient means of providing accounts, transactions, loans and savings to the unbanked.
As these new technologies and business models for financial services emerge, regulatory institutions and central banks will correspondingly need to attain a better understanding of the benefits and challenges of cloud platforms and their utility as inclusive financial service infrastructures. Although cloud can help deliver customised, effective and profitable financial services with tailored products to specific demographics, there are also concerns over data management, exchange and operational resilience linked to regulatory mandates for consumer protection and financial stability.
Despite the challenges from cloud and other new technologies, many central bank and regulator respondents to the survey are confident that improving awareness and promoting effective governance and risk management capabilities will enable central banks and financial institutions to enjoy the advantages of cloud, while minimising its risks.
In line with this, rather than taking a passive approach to cloud regulation, several jurisdictions in Asia Pacific have developed, or are in the process of actively developing, guidelines and rules that clarify regulatory requirements and expectations for compliance and risk management in the adoption of cloud services. As cloud migration and implementation eases and supervisory safeguards improve, the contributions of cloud to financial inclusion in Asia will only increase.
Bhavin Patel is Senior Economist and Head of Fintech Research and Brandon Chye is Economist at OMFIF.