- There are many aspects to digital finance that can improve the functioning of emerging economies and advance the cause of sustainable development.
- Open data for finance, where financial data is shared digitally between financial institutions with limited effort or manipulation, is a powerful tool for this purpose.
- Both consumers and financial providers stand to benefit from the adoption of open data for finance, for example by increasing access to financial services and reducing fraud.
- A McKinsey Global Institute study shows that economies can benefit from open data, especially emerging ones like India, where the increase could be equivalent to 4-5% of GDP.
Access to finance is one of the major challenges of sustainable development. In emerging economies, despite tremendous progress over the past decade, up to 1.7 billion people still do not have a bank account or the ability to get credit, according to World Bank data.
Even where banking services have become more prevalent, thanks to the breakthroughs made by mobile phones and online banking, individuals and small businesses often face procedural hurdles in funding their needs, including tons of paperwork that can have a deterrent effect.
To help fill these gaps and strengthen their digital financial infrastructure, a growing number of emerging economies are looking to lay the groundwork for an effective “open data” system for finance. Essentially, this means that financial data is shared digitally between financial institutions with limited effort or manipulation.
Benefits for all of being open
Both consumers and financial providers stand to benefit from the adoption of open data for finance, in both advanced and emerging economies.
For consumers, a critical part of open data ecosystems is that they increase access to financial services, including for individuals and small businesses who might otherwise be excluded due to a lack of credit history. A well-functioning open data system allows financial institutions to extract data such as utility or telephone bill payments to create a larger picture of a potential borrower’s creditworthiness. These systems also improve user convenience, including potentially substantial time savings through less routine form filling, among other things, and offer a much wider range of financial product options.
Financial providers also benefit. Other benefits include increased operational efficiency resulting from more efficient data management, as well as enhanced fraud prevention, better workforce allocation, and reduced intermediation frictions. data, given the reduced need to extract data from third-party vendors.
Our recently published study suggests that GDP can get a powerful boost from open data for finance. To date, even economies with the most advanced financial data sharing mechanisms are not capturing the full potential value, and economic recovery could be particularly important in emerging economies. We identified seven mechanisms for creating value from the adoption of open data for finance, which we sized based on 24 use cases. Extrapolating to a country or region level, our analysis suggests that the boost given to the economy by the widespread adoption of open data ecosystems could be the equivalent of around 1 to 1.5. % of GDP in 2030 in the European Union, the United Kingdom and the United States. States – and up to 4-5% in India in 2030, where micro and small businesses stand to gain the most from greater and frictionless access to finance.
While we have not specifically assessed the potential gains for other emerging economies with lower levels of financial inclusion, we would expect the economic boost for them to be in a range similar to that of the United States. India.
Global interest in the issue has certainly increased. In Asia, open data sharing frameworks have been launched in Hong Kong, and India is rapidly expanding its interoperable unified payment stack and financial account aggregator mechanism.
In Latin America, Brazil’s central bank has drafted data access, technical standards, and consumer consent guidelines that will require financial institutions to provide open access to data to non-bank third parties, and others. countries in the region could follow closely.
In Africa, a nonprofit industry group in Nigeria – the Open Technology Foundation – has been formed to develop open data standards and market players are also taking the lead in South Africa. At the same time, many African countries have adopted data protection regulations, using the EU’s General Data Protection Regulation (GDPR) as an example of a framework.
Setting up an effective system requires careful consideration of two essential elements: the extent of the data shared and the degree of standardization of this data. The larger and more standardized the data, the more efficient the open data system and the greater the economic benefits.
This is an annual meeting showcasing the best examples of public-private cooperation and Fourth Industrial Revolution technologies used to develop the sustainable development agenda.
It runs alongside the United Nations General Assembly, which this year hosts a one-day climate summit. This is timely given growing public fears – and citizen action – about weather conditions, pollution, healthy oceans and dwindling wildlife. It also reflects the understanding of the growing business case for action.
The UN Strategic Development Goals and the Paris Agreement provide the architecture to resolve many of these challenges. But to get there, we need to change the way we produce, operate and consume.
The work of the World Economic Forum is essential, with the summit providing the opportunity to debate, discuss and engage on these issues at the global political level.
Beyond these mechanical and design issues, other key issues need to be addressed, particularly data privacy and cybersecurity. A challenge for many emerging economies is how to make their often nascent digital infrastructure more robust. Solutions range from a larger investment in broadband coverage to the development of a high-assurance digital identification system. India has built its digital financial infrastructure on the back of its Aadhaar digital ID system, for example, and we estimate the country has managed to access around 60% of the value of open data for finance to date. , as a result, in part because small businesses have dramatically reduced the time they have to spend filling out financial forms.
Digital finance has many aspects that can make economies work better and advance the cause of sustainable development. Open data for finance is a powerful tool for this purpose.