To say 2020 has been a challenging year is a massive understatement. The Covid-19 pandemic has quickly undermined development gains from recent decades and slowed growth in many Asian economies.
Yet, every crisis presents opportunities. One is the rapid advance in digital technology, which offers a way to recoup some of these gains and spur a strong economic revival once the pandemic has passed.
As we all know, the pandemic has accelerated the use of digital technology. Many of us have become adept at online video conferencing and other digital tools while working from home. Pervasive restrictions on mobility and lockdowns have driven companies to shift their businesses and services online. The use of digital technology and e-commerce has become the business norm.
Digital payment platforms have eased a transition from offline to online transactions – and their use has skyrocketed in many parts of the region.
In the Philippines, for example, the leading mobile wallet company GCash saw a 700 per cent year-to-year increase in transaction volume in June alone, and doubled its registered users in the first half of this year.
New business models have proliferated with the rise of digital platforms. Last year, digital platform revenues reached $3.8 trillion globally, equivalent to 4.4 per cent of global gross domestic product (GDP).
Asia accounted for just under half of that, while the US generated 22 per cent, and the euro area 11 per cent. The use of digital financial services also increased consistently, with the rise in the use of digital platforms.
If promoted wisely, fintech solutions can help secure a sustainable and inclusive recovery from the pandemic. Fintech applications through smartphone-enabled saving, crowd-funding, and security tokens can greatly enhance the efficiency of resource allocation and reduce transaction costs. They can also encourage efficient delivery of social goods and services.
For that to happen, we need to work together to close digital divides that deprive socially marginalised and vulnerable groups, including the poor, women, elderly and rural communities, of the connectivity they need to join the digital economy and leverage fintech to promote inclusive growth.
Recently, the Asian Development Bank (ADB) approved a $500 million loan in Indonesia to promote fintech-led financial inclusion for micro and small enterprises and marginalised groups.
Going forward, there are five actions the private and public sectors can jointly take to realise fintech potential and help communities build back better from the pandemic.
Equitable access to digital financial infrastructure is the first. Asia continues to see uneven development of basic digital infrastructure and varying degrees of digital readiness.
Steps should be taken to expand investment in digital infrastructure and connectivity by expanding broadband internet access and coverage, and by improving the delivery of affordable mobile and broadband services. Providing digital education and training will also unlock the ability of communities to capitalise on the spread of digital technologies.
Second, an effective digital ecosystem needs to be developed to support the creation, diffusion and scaling up of technology and innovation. The private sector will drive most innovation. However, in most countries, public policy continues to play an important role in forging critical links between financial and technology firms.
A complementary, consistent and multifaceted policy framework is needed to develop and nurture a digital ecosystem. This should include measures to ensure fair competition, lower barriers to entry, protect consumers and promote data privacy.
Third, in developing Asia the lack of digital ID often blocks access to digital services, which require verifiable identities to use. Steps should be taken to ensure the development of robust, secure, and sustainable digital ID systems. Progress is being made.
In Papua New Guinea, the ADB is helping develop a smart card using near-field communication (NFC) technology to enable identity verification even in areas without electricity or internet.
Fourth, fintech offers new ways to catalyse sustainable development finance amid considerable development gaps. Fintech platforms can also be used to increase savings and channel resources into publicly or privately funded investments.
Blockchain-based solutions and asset tokenisation (which transforms tradable assets into a security token that digitally represents the asset ownership) are promising ways of addressing financing gaps and securing sustainable funding for infrastructure.
Initiatives by entrepreneurs to develop and implement new fintech solutions should be supported by appropriate policies and regulations to develop viable business models that can reduce costs and meet investment needs.
Fifth, the increasing reliance on digital financial solutions risks spurring fraudulent and criminal activities that threaten data integrity and privacy. Financial institutions need a holistic approach to fortify their cyber-defence and security.
This can be done by reducing risks and strengthening the ability to recover quickly after an attack through platforms to share intelligence on incidents, often in real-time.
Governments also need to ensure their regulatory systems can adapt to the ever-evolving global digital landscape. International cooperation is essential to safeguard cybersecurity – given that there are no borders in cyberspace.
This tragic pandemic has highlighted the power of digital technology. We must harness this power to reinvigorate inclusive growth so that communities, especially in poor and remote areas, can survive this crisis and thrive beyond it.
Bambang Susantono is vice-president for knowledge management and sustainable development at the Asian Development Bank.
THE JAKARTA POST/ASIA NEWS NETWORK