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    Financial Inclusion Policy Is Most Important Thing We Can Do as Humans - Prof

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    Policymakers from around the world gathered in the Russian city of Sochi last week for the annual Alliance for Financial Inclusion (AFI) Global Policy Forum. Sputnik talked to Dirk Andreas Zetzsche, professor of law at the University of Luxembourg, who was the moderator of the plenary session - Regulatory approaches to Fintech - at the forum.

    Sputnik: How important is the AFI Global Policy Forum? What contribution does it bring and what is its use for people?

    Dirk Andreas Zetzsche: We all know that we have meanwhile 7 billion people on the planet and it is particularly important that most of these people have access to the financial system, because the financial system provides a lot of security that we would otherwise not have. Let's just keep into account, for instance, insurance contracts, let's keep into account investments, pensions and provision for your children, provision for old age, but also unemployment.

    All of this is relating to the fact that they've got access to financial system and without this type of access these people are exposed to the vulnerabilities of life every day. That means that if they get sick, they have no income; it's not that they have income from savings or maybe in health insurance, [or] that they may have when they get old, [or] they have retirement insurance.

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    They have nothing, and that means every little bit of sickness, age and unexpected events will put these people in trouble. So altogether, the AFI policy in order to favor financial inclusion over many other goals, is probably the most important thing that we can do as humans.

    Sputnik: How many people in the world have no access to digital financial services? What measures should be taken to include these people in the field of financial accessibility?

    Dirk Andreas Zetzsche: I am not aware of a number for digital financial services, but for financial services we have numbers: it's 1.7 billion people, that's basically roughly 20% of the world's population.

    So one in five that is, on the other hand, concentrated in countries, and in six countries of the world together we have by far the majority of all unbanked people on the planet, and this is, of course, a huge challenge because those unbanked people are typically also unsophisticated in financial affairs and very often illiterate, that means they cannot read, they cannot write. How do you enter into a contract, for instance, if the other side cannot read and write, the other side does not know what it is doing and so it's important for them that we tackle these issues with more sophisticated means than just asking them to go to the bank and open an account.

    Sputnik: Could you tell us about the latest innovations in the field of financial accessibility, digital financial services?

    Dirk Andreas Zetzsche: Basically I'd say that probably 10-15 years ago, the innovative push that we're experiencing right now started by bringing people into the banking system with a smartphone or just a cell phone. So a simple cell phone, for instance, is the access point. In some countries in Africa it's not a smartphone, it's not Internet based, it is just number based: you type in numbers and thereby you access the financial system.

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    So people don't have to be literate to do that, they don't even have to read and write, they have to understand ten numbers and with those ten numbers they can access their bank account and I think simplifying things is very crucial, it doesn't sound high-tech, if I tell you like this, but of course 10-15 years ago, this was a huge innovation and the innovation was simplifying banking rather than making it more sophisticated, more difficult.

    Simplifying things to a level that everyone on the planet can understand, even if they cannot read and write. This is, of course, a huge innovation, although it doesn't sound like that, but sometimes innovation is a step back rather than a step forward.

    Sputnik: Could we say that because of the high pace of progress in the field of financial accessibility it is increasingly difficult for authorities to monitor the risks to the financial systems and, even more so, in a timely manner to respond to them? If so, how does this unbalance influence people? What should we do with that?

    Dirk Andreas Zetzsche: I will answer your question in two parts. The first part is we have new players in the system. So phone operators are banks today, or shopping platforms like Alibaba or Tencent, are banks today, and these new players provide a challenge to the banking regulators, because these new players are usually not regulated when they start and that means regulators have no idea what they're doing.

    And we have labeled these firms Techfins as compared to Fintech, Fintech is basically a small firm that is addressing a pinpoint in the financial system, while Techfins are usually coming from a difference sphere getting into the financial system and those new players provide a challenge, because they now have more clients then all established and regulated banks in the world. And now that the Russian approach in this field is expansive, though they have most of them regulated, but there are many, many players in the world who are unregulated providing financial services.

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    The other type of risk that you see in the financial system is a lot of technology provides services to banks, for instance, cloud services, for instance, blockchain-based services. These services are usually not in the traditional focus of regulators and that means that the regulators have to deal with new technologies which is not easy for them because they're not trained in these new technologies, so they need to build new capacities and new understanding for these technologies.

    Sputnik: Another important topic is identification in this field. Could you please tell us in more detail about the new technologies of digital identification and what's your proposal to increase digital identification?

    Dirk Andreas Zetzsche: The traditional approach is having a passport, but we now know that most people who are unbanked today do not have a passport and the reason is they live too far away from the authorities that could issue a passport. If they need to travel five days in order to get a passport, simply in order to open a bank account, they will not open one. So the trick is how do we pass by the need for a base identity — the passport is your base identity — so when you hold a passport, there's some central authority that has your base identity. Our approach is rather than to look at the base identity, is to look at what you do and who you are.

    So for instance, we could take an iris scan, we can take a fingerprint, we could take the way you hold your smartphone, we can take your voice, all of these are very unique features of you and with that we can identify you much better and our approach is rather than to ask for base identity, is to use these unique features of yourself to identify and to make sure that there are no two of you in the system. If we do that, we can battle fraud and we can battle crime with sufficient certainty.

    The views and opinions expressed by the speaker do not necessarily reflect those of Sputnik.

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