More than almost any industry, travel and hospitality took a beating this year as governments issued lockdowns and stay-at-home orders in response to the COVID-19 pandemic. Naturally, this has led many to question the state of loyalty programs. As airlines and hotels wait out the clock until a vaccinated world can once again take flight, how likely are these organizations to continue to honor their customers’ hard-earned points? It stands to reason that airlines, instead of laying off staff or downsizing their fleet, could devalue miles to squeeze more revenue from passengers, while hotels -- already disrupted by rental marketplace platforms like Airbnb -- might do the same to make up for the revenue shortfalls incurred when they issued mass cash refunds earlier this year. Now, with the light at the end of the tunnel in sight, can travelers trust that their points will still be worth as much next year? And for those itching to make plans for 2021, when is the right (and safe) time to redeem?

It Was A Very Bad Year

As bad as COVID-19 has been for a range of industries, travel has perhaps suffered most of all. Commercial flights first began to decline significantly in late January, dipping below 2019 levels for a time before plummeting in mid-March. By April, commercial travel was down more than 73% worldwide. As some restrictions eased over the summer, commercial travel picked up, but has since leveled off. Flight volume has not increased significantly since late July, and remains more than 40% reduced relative to last year’s levels.

Source: Flightradar24.com

Most would agree that airlines are not to blame for the year they’re having. International air travel has been all but impossible in light of many countries closing their borders to non-essential travel, while domestic travel, in the COVID-stricken U.S. and elsewhere, remains depressed. This fact may simply reflect global public concern about the pandemic, and not a diminished enthusiasm for travel, according to Rick Elieson, Vice President of Customer Loyalty and President of AAdvantage at American Airlines:

“This has been a challenging year for the airline industry, for our team members and for every one of our customers. The impact on our ability to support our same broad network of international flying has been especially pronounced. The rapid development of a vaccine is truly amazing and much welcomed news, and I hope that forecasts are correct and international travel picks back up in 2021. But a lot of uncertainty still remains. What I’m sure of, is that there is tremendous desire to get out and travel again, just as soon as people feel like they can do so safely.”
Rick Elieson, Vice President of Customer Loyalty and President of AAdvantage, American Airlines

No matter the underlying driver, such a reduction in activity -- even a temporary one -- would hurt any industry. However, the pandemic and its immediate economic effects have lasted longer than many anticipated, and the travel and hospitality industries have been operating under significant strain for close to 10 months. Many governments provided aid to airlines and hotels during the early days of the pandemic in the hopes of staving off layoffs, but the travel industry’s slow recovery means that more aid is likely needed -- and soon.

Fortunately, governments around the world appear sympathetic to airlines and hotels as the year draws to a close without a resolution to the pandemic. In the U.S., the latest bipartisan proposal contains $17 billion in aid for airlines after stalled negotiations led to industry-wide furloughs in October. The French government, meanwhile, is doubling down on its investment in Air France-KLM, offering €4-5 billion (adding to an initial €7 billion bailout earlier in the year) for a further 14% stake in the carrier. Likewise, the government of Germany traded €9 billion for a 20% stake in Lufthansa in May -- although the airline has nevertheless enacted tough cost-saving measures and warned that it is unlikely to turn a profit before 2022.

Hotels, along similar lines, are taking out loans, closing facilities, furloughing employees, and cutting executive salaries to stay afloat. Hilton, one of the world’s largest chains, saw a 77% year-over-year decrease in revenue in Q2 of 2020, followed by a modest improvement to 61% YOY decrease in Q3. Marriott, another large chain, reported similar figures (comprising a 72% and 57% YOY decline in Q2 and Q3, respectively). Operating expenses like building leases and overhead are down, too, but not enough; Hilton, Marriott, and other major chains will likely post net operating losses for 2020, even after drastic cost-cutting. But even if a strong rebound is in store for 2021, hotels are holding on for additional government aid. A November survey of U.S. hoteliers revealed that without further aid, more than 70% of hotels in the country may shut their doors within six months. Within this group, about half said they wouldn’t last more than three months.

Source: AHLA Front Desk Survey

It’s against this austere backdrop that observers have expressed concerns about the future value of loyalty points. If airlines and hotels alike are tightening their belts where possible, loyalty rewards in the form of hotel points or airline miles could be at risk of devaluation, or worse. With revenue so hard to come by, granting free flights and hotel rooms is presumably not at the top of the list for most companies.

More Than Just Miles

Airlines and hotel loyalty programs have become increasingly complex over the past few years, with co-branded credit cards gaining popularity and seemingly more avenues available than ever before to redeem points for flights, nights, and more. In addition to traditional reward schemes and elite status programs, airlines and hotels are innovating ways to engage travelers via different digital touchpoints, many of them COVID-friendly:

“One of the things that airline loyalty programs do really well is provide opportunities for members to engage with us - and earn miles - outside of flying, or even travel. This year we’ve seen a big increase in the use of the AAdvantage eShopping platform. The browser extension makes it really easy to earn miles when shopping online, and the pandemic has thrown gasoline on the digital commerce fire.”
Rick Elieson, Vice President of Customer Loyalty and President of AAdvantage, American Airlines

American’s AAdvantage eShopping platform allows users to access hundreds of ecommerce sites via a portal on the airline’s site, and then earn bonus miles on purchases at those sites. Alternatively, a Google Chrome extension adds a button into users’ browser toolbar that alerts them when they’re browsing a site where qualifying purchases earn miles. With their eShopping platform, American has the opportunity to connect with customers as they shop for everything from mobile data plans to home goods and electronics. The miles they issue can in turn be redeemed for flights, whether on American or one of their partner airlines.

But do innovations like e-commerce integration mean anything to travelers if the points they earn could be worth much less next year? Some experts have noted that points devaluation has been more-or-less a constant since the advent of loyalty programs. It’s standard practice for airlines and hotels to offer less value in exchange for rewards points over time, and it’s rare to see points become more valuable over time, according to industry observers. In fact, travel writers were already ringing the alarm bell on devaluations last year, and the year before that, and the year before that.

There’s no question that 2020 is different. Never before have the travel and hospitality industries suffered a black swan event of this magnitude, with the recovery ahead likely more methodical than meteoric. Whether this portends widespread devaluation, however, will depend on a few factors. Firstly, the fact that government aid often comes in the form of loans -- which need to be repaid -- means that airlines and hotels will likely prioritize the paying down of debt once the pandemic is finally over. For that to happen, these companies need cash flow, and points redemptions represent just the opposite; for every free flight or night redeemed, the airline or hotel must pay for the associated overhead.

The Case For Value

But on the contrary, an in-depth examination of airline accounting practices (again using AAdvantage as an example) reveals that loyalty rewards are in fact a profit center for airlines and hotels. These companies offset the liability of providing free flights by selling miles to banks for cash, then using that cash to invest in other revenue-generating activities. Furthermore, a significant amount of “breakage” -- or miles and points that expire or go unredeemed -- occurs, improving the profit margin of loyalty programs for airlines and hotels. In fact, when American began to devalue AAdvantage points in 2016, it likely cost the airline hundreds of millions in revenue. This is because travelers who might have signed on for American’s new rewards card, offered in partnership with Citi and Barclays, changed their minds when news broke of the point devaluations. In other words: the cash that Citi and Barclays would’ve paid to American in exchange for miles -- which the banks would in turn have given to the customers signing up for the new card -- came up short because the perceived value of the miles was too low.

So while the travel industry as a whole is going through lean times, there are counterforces at play which may persuade airlines and hotels to maintain the value of their points. While it is perhaps not profitable to let travelers fly and stay for free, a healthy profit can be turned when points and miles are in demand. This is because banks and other partners are often eager to purchase rewards directly, which they in turn use to improve their value proposition to potential customers. Given that these purchases are made in cash, airlines and hotels would be wise to keep their loyalty programs healthy, at least until a vaccine is available to the world’s travelers. In the meantime, further government aid -- and reminiscing on voyages past -- will help to keep the dream of travel alive.

As the quintessential legacy system stretching back in some parts hundreds or even thousands of years, the property industry has its origins in very analog times. Though facing tremendous hurdles in digitization, fragmentation, legacy interests, and data opacity, PropTech — a broad category of technologies developed for the property industry to better manage, analyze and transact assets — has seen a proliferation of solutions targeting investors, brokers, property managers, and renters alike. And while a comprehensive digital-first rebuild of real estate remains elusive, innovators are picking off and rethinking pieces of the property value chain – with modernized financial services and FinTech powering much of the disruption.

FinTech Comes Home

PropTech encompasses multiple areas and can be an amorphous term — does it include Construction Tech (ConTech) or not? — but it is seen as an umbrella term for three technological movements that are increasingly intertwined: smart buildings, which are technology-based platforms facilitating the operation and management of real estate assets; the shared economy, which entails technology-based platforms facilitating the use of real estate assets; and real estate FinTech, which facilitates the transactions of real estate assets. An incredibly young industry — in one MetaProp survey, only 13% of PropTech companies were more than five years old — PropTech began in earnest in the 1980s with simple advances like the personal computer and digital spreadsheets. But a tech industry focused on real estate solutions really only commenced this millennium with the advent of online residential marketplaces, like Rightmove in the UK, and Trulia and Zillow in the U.S., around fifteen years ago.

At that juncture — and to a certain degree today — real estate documents were still being digitized. The entire real estate transaction chain was horribly fragmented among its various traditional niches — agents, brokers, insurance companies, service sellers, etc.— with the underlying financial data largely kept out of public view. Such inefficient, opaque systems render real estate a frustratingly illiquid asset in terms of speed of sale, probability of sale, and costs associated with that sale. Fraud and agent bias can pose issues during the drawn out buying/selling process which incurs paperwork and numerous fees from the fragmented chain of service providers.

Partnering with agents and owners, online residential brokers transformed the consumer research experience by creating standardized marketplaces for homes. Most critically, these online marketplaces provided a foundation for data-derived innovations powering real estate FinTech innovations today. In recent years, advancements in machine learning and artificial intelligence have allowed for predictive models of unlisted home prices by scraping publicly listed information online, fostering deeper transparency to the opaque industry through automated valuation models (AVMs).

Such innovations have firmly placed big data and data analytics at the forefront of PropTech’s acceleration. And within real estate more broadly, commercial real estate is particularly fragmented and opaque, with automated valuation models still catching up. However, big data firms like Reonomy are partnering with institutions across the commercial real estate spectrum to better inform transactions and management of assets and property. Aggregating alternative data from numerous sources, Reonomy provides a standardized data structure which the commercial real estate industry has glaringly lacked, and it utilizes a vast partner network to unearth and string together critical property data. During the pandemic, such data and analytical models have remained essential for companies managing assets through uncertainty. So while funding overall has fallen in the short term, big data has accelerated in adoption — with accompanying tech solutions as well.

“For a while, there were a lot of people evangelizing technology as imbuing our systems or companies with the right tools to get ahead, but it was just a lot of chatter, not implementation. Now, we are at the phase where there is that kind of mass market adoption in play.”
Aviva Fink, VP of Business Development, Reonomy

Through partnerships and alternative collection methods similar to FinTech’s tactics in other data-obscure markets, waves of data have enabled increasingly sophisticated solutions to tackle liquidity and transparency in real estate. Online listing sites like Zillow, a late so-called “PropTech 1.0” firm that came to dominate the U.S. market, act as an accessory to the work of legacy agents and brokers. But the industry faced outright disruption when iBuyers entered the market in the past few years, compelling leading broker Zillow to enter the iBuyer space as well.

iBuyers leverage big data and AI to fuel AVMs, which enable them to both list and buy properties. iBuyers like Opendoor and Offerpad buy homes and resell them after a minor refurbishment, also charging a service fee of around 7% of property value. These outlets have embraced AI and VR to enable unaccompanied or virtual house tours — elements which unsurprisingly have accelerated during the pandemic. Incorporating LegalTech such as smart contracts, these iBuyers cut out many analog middlemen from the arduous transaction chain, with AVMs democratizing information and eliminating fees for buyers and sellers alike. FinTech solutions are being applied to renting as well, with perhaps the most prominent example being Rentberry, which connects tenants with landlords and facilitates price negotiation.

Buy The Dip

When the COVID-19 pandemic hit, iBuyers struggled as inventory plummeted. Many temporarily closed up shop. But in the months since, the iBuyer market has come roaring back, with demand “higher than ever,” as the pandemic — and its underlying uncertainty — has granted an opening to tech schemes able to capitalize on distressed customers’ financial positions and streamline the process through digital means.

Flyhomes, for example, is a real estate brokerage and tech company that helps prospective homebuyers. When a customer finds a suitable home, Flyhomes fronts cash for the transaction — due to speed and certainty of transaction, cash buyers tend to receive steep discounts — and sells it back to them at the same price (plus an industry standard real estate broker fee). Possessing a mortgage branch as well, Flyhomes assists homeowners looking to upsize or downsize. As Flyhomes CEO Tushar Garg explained, by simplifying the real estate transaction process (and digitizing it where possible), the company has enjoyed an increase in demand during the pandemic as work, school, entertainment, shopping, and even exercise have relocated to the confines of home.

“A big part of the issues underlying the homebuying experience was the tremendous uncertainty throughout the process. Sellers, when they take an offer, they should be able to move on from their lives, and the buyers should be able to get long-term financing and be able to close at exactly the same day. The process was fundamentally broken, and we saw that every day. The premium in trust was placed higher. So in my mind, we were built for times like this.”
Tushar Garg, CEO and Co-Founder of Flyhomes

Garg noted a correlation between the pandemic and stay-at-home orders on one hand, and growing public willingness to accomplish more of the homebuying experience online on the other. While in the past Flyhomes did on-boarding meetings in person, the company found that in 2020 customers typically preferred on-board meetings through Zoom. The remaining in-person sticking point seems to be in-house tours, and even then, there are cases of homes sold 100% virtually. The pandemic has led companies to expand options and allow prospective buyers to enjoy unaccompanied viewings utilizing geolocation technology to grant them remote access — an application from the Smart Buildings sector of PropTech.

While real estate has traditionally been debt-driven — sometimes to devastating macro effect — some real estate FinTech solutions are inverting the traditional model towards a growth-driven equity or investment model. For homebuyers, equity loan providers offer cash to bridge deposit shortfalls in return for a minority equity position in a property. “Part own, part rental” startups like StrideUP, Unmortgate, and Heylo Housing offer private market-shared ownership products through which no debt is used and an aspiring homeowner can initially buy a small fraction of the property and rent the rest, with the prospect of buying the property in full in due time.

Such tech solutions have the ability to transform how people extract value from what is often their most valuable asset — their homes. Noah, for instance, is a consumer finance platform helping homeowners get liquidity for their home. As the California-based company views it, the U.S. has seen a generation of people who are asset-rich yet cash-poor. While the U.S. housing market sits on about $20 trillion in home equity, with home appreciation of 4-5% annually in the past ten years, wages have remained flat in that same time for most Americans. With this in mind, Noah enables people to access up to $350,000 in home equity — money which they can use to cover emergency expenses, pay off debts, or start a business. In return, Noah gets a fractional stake in the borrower's home. This can save customers hundreds of dollars every month in interest that would otherwise go to lenders. This expands options for financially distressed homeowners without burdening them with further debt, potentially leading to a healthier personal balance sheet, a lower debt to income ratio, and improved credit scores, according to Noah co-founder Sahil Gupta. While traditional lenders focus on individuals’ FICO scores and debt-to-income ratio, Noah cares solely about the asset itself and its potential to appreciate over time. This model of fractional ownership is still in early stages of adoption, but it’s picking up steam amidst current economic uncertainty.

“We wish to introduce the idea that you can leverage equity in a meaningful manner to improve housing affordability, access. We believe that can have a meaningful impact not just on homeowners but on the ability of people to buy homes and much more importantly make the housing market that much more liquid.”
Sahil Gupta, Co-Founder of Noah

Waiting For The Grail

Public awareness and understanding will come with time, but the industry still needs to mature both competitively and technologically speaking. The market is beginning to see consolidation, with VCs shifting their attention away from seed investments towards Series A, B, and C rounds, and ever-richer data is being unified among networks. But real estate tech must still build on a very analog, fragmented system. As Softbank Investment Director Justin Wilson said commented, the holy grail of the industry would be “an end-to-end software solution covering the full spectrum of everything that an investor or operator would need,” touching upon areas of geospatial intelligence, ConTech, leasing and asset management, investment and lending. While many tech providers are expanding their offerings to cover multiple facets of the real estate process, a fully streamlined process remains far off.

“Buying a home is not just through a brokerage. Mortgage, title and escrow, home insurance, home sellers’ services, you could add a whole bunch of verticals to it – you certainly have specialized services doing a really great job, but for the most part, having to go to like 60 different services is really hard for the customers. For customers, a big part is customer service and relations, the products themselves, and technology experience. We find that every [company] offers a different technology experience, different customer service levels. And customers really struggle with that.”
Tushar Garg, CEO of Flyhomes

Operational barriers to unification and mass adoption remain considerable. New systems must continue to integrate with existing legacy systems; one survey found about half of commercial real estate executives still use spreadsheets as their primary financial tool. Such bottlenecks, along with a lack of collaboration among real estate companies, hinders the progress made by big data aggregators fueling AI and machine learning. As the industry grows and develops, legal questions must also be clarified; smart contracts, which automate the movement of funds, data and agreements utilizing blockchain technology, do not yet actually have legal status in PropTech’s Western epicenter, the U.S.

Blockchain in real estate FinTech is representative of just how immature the space remains — yet how tantalizing the possibilities can be. So far, blockchain solutions have been limited primarily to the use of smart contracts. True blockchain provides five critical elements: distribution, encryption, immutability, tokenization and decentralization. Such elements would pave the way for a hypothetical “real estate singularity,” but even before the technological progress or regulatory regimes requisite to that vision are attained, data sets need to be unified and standardized across the board. Today, even digitization of documents remains a challenge. But initial steps are underway. Though in their infancy, tokenization schemes are being hatched, allowing properties to be split into smaller pieces as blockchain-based tokens. Contracts, assets, service agreements — all of these can be rapidly verified, transferred and completed in a blockchain-based solution. In March 2019, participants from a consortium of organizations took just 36 minutes from start to finish to complete the first blockchain-based real estate transaction - lightning-quick compared to the weeks or months of a traditional transaction. Mass adoption of such applications is, optimistically speaking, several years away — but a strong case can be made that Fintech-enabled real estate solutions will, if adopted, enable unprecedented liquidity, eliminate service and agent fees, and streamline contracts.

Although issues stemming from fragmentation and legacy institutions must be sorted out, the PropTech industry and its FinTech components will continue to mature and evolve as public awareness grows and the propagation of IoT, Smart Homes and 5G enable unprecedented data-derived insights. The technological solutions penetrating the market often originate in very specific and separate use cases. But with data as the foundation tying together these disparate branches of the PropTech world, the tech ecosystems are weaving themselves together in patchwork form. As an industry evolving alongside technology progressing at an exponential rate, how we think of real estate transactions and property in general will look radically different in the not-too-distant future. Transforming an industry that encompasses more than half of the world’s mainstream assets to yield economic efficiencies and dramatically improved transaction speeds will mean big money. In fact, it already does at the investment level; since 2017, real estate technology has spawned more unicorns than any other single industry sector in venture capital. And that's before most PropTech solutions have even approached mass adoption. Despite the hurdles in the way, PropTech solutions may ultimately prove the most lucrative of all fields borne of FinTech principles - and one with the potential to transform an essential aspect of life for billions across the globe.

“Data is the new X.” Oil, oxygen, even nuclear power - data’s relevance to the modern economy has led it to be compared to everything under the sun. While it’s true that data is fueling change across virtually every industry, a more apt comparison might capture the fact that data is in fact a byproduct of the larger, ongoing process of digitization, and that once collected, data is not in fact “spent”, but rather stored and transformed. But it’s not enough to merely collect data, and the monetization processes by which businesses turn data into revenue are themselves evolving. As the world continues to digitize, will the data tributaries flow in the direction of revenue for tech giants alone, or are others capable of building sufficiently sophisticated data operations? And as monetization becomes standard practice, which of the various strategies will stand out as worthwhile?

Solving For X

It’s no secret that data can be valuable. But its value must be unlocked via a strategic effort to first target an organizational goal, and then deploy data with the aim of meeting it (or, alternatively, following the steps in reverse by looking for business problems to solve using a particular dataset). But what types of business processes can be readily improved by leveraging data? And moreover, which data monetization strategies are feasible for non-tech firms like telcos or banks who nonetheless have access to plenty of user data?

Earlier this year, researchers at the Technical University of Munich conducted a review of case studies from which they assembled 12 generalized strategies for data monetization. The case studies included monetization efforts by the likes of IBM, Netflix, Walmart, and other notable firms. Not only were common strategies apparent among the case studies under review, but the strategies themselves may be further categorized according to a few basic metastrategies, as well as along more conventional data monetization fault lines like "direct" and "indirect".

Source: Julius Baecker; Martin Engert; Matthias Pfaff; Helmut Krcmar; Mondato Analysis

The strategies uncovered ranged from in-house leveraging of data to create new products or services (or improve existing ones) to outright packaging and selling of data, suggesting that cases do arise in which the best thing to do with your data is to get rid of it. Other strategies fall between the polar extremes of Asset Sale (in which you trade data for cash) and Product/Service Innovation (in which you use data to generate proprietary offerings). Every strategy, however, falls on the continuum between internal and external use. A special consideration for businesses in competitive spaces is how sensible it may be to externalize one’s data when it could be used by a competitor. In such cases, it may be useful to remember limited options, such as: selling some (but not all) of the available data; creating and selling non-reverse-engineerable insights from your data sets; or opening data strategically (via APIs, for example) for mutually beneficial partnerships.

Despite the multitude of ways that data can be put to work, there is always demand for more complete datasets, and firms are also developing new ways to acquire the right data. Amazon, for example, recently launched a “Shopper Panel” program to pay individual users for data on purchases made outside of the Amazon ecosystem. To a data-rich giant like Amazon, individual data is monetizable to the extent that a $10 monthly credit on their platform may be a small price for the data obtained via this novel program. This development comes on the heels of a story published earlier this year alleging that Amazon used data belonging to 3rd party sellers on its platforms for internal product development. Not only would this practice violate Amazon policy -- it would indicate that in the eyes of Amazon, data may be valuable enough to justify risking the company’s reputation for.

The Forest Versus the Trees

In addition to product development, there is one area that big tech firms thrive in when it comes to monetizing their data: advertising. According to the case study review by Baecker et al., the practice of data-driven advertising can be classified under individualization or contextualization.

Individualization is the practice of using data, which is linked to certain customer profiles, “to create value for customers and businesses on an individual basis”. In other words, data about a certain user’s (or account’s) behavior -- whether comprising purchase, browsing, search, or engagement history -- is collected and used to craft a profile of that user. The profile is then used to precisely target the user via individualized recommendations or personalized advertisements, and thereby increase sales.

Contextualization, on the other hand, increases sales by targeting users based on context-related data. Unlike individualization, which relies on individual profiling, contextualization focuses on certain circumstances and targets users based on those circumstances, regardless of individual characteristics. If, for example, a user adds a product to their cart, a contextual targeting service might recommend other products which were often bought alongside by other users.

Data-intensive advertising operations support a massive digital ad industry that represents billions in revenue for firms like Google, Facebook, and Amazon. Based on vast datasets collected from billions of users over years, these firms individually and contextually advertise products on their platforms and earn revenue from impressions, clicks, and sales. The three aforementioned companies comprise an advertising sector that doubled its revenue between Q1 2017 and Q1 2020, and despite COVID’s black swan effects is expected to surpass $70B USD in revenue in Q4 of this year:

Source: Quarterly Earnings, Mondato Analysis

In addition to overall sector growth, a comparative analysis reveals that Amazon’s revenue from advertising (though a small slice of its overall earnings) increased more than six-fold over 14 quarters, eclipsing Facebook’s 2.7x and Google’s 2x respective increases over the same period:

Source: Quarterly Earnings, Mondato Analysis

There are many reasons why Amazon would exhibit faster growth in this area relative to its peers. But nevertheless, the company has found a reliable way to monetize the data collected as a byproduct of its marketplace sales (which, incidentally, account for 4% of all U.S. retail sales). While advertising is not Amazon’s primary profit center, like the company’s cloud business, AWS, it represents a high-growth area that is complementary to the core business. As such, it may serve as a prime example of strategic data monetization at scale.

How The Magic Happens

Clearly, data is of value. Also clearly, businesses ought to at least consider various strategies for monetizing their data. But after determining a path forward to monetization, implementation presents its own set of challenges. First, a data platform able to act as a “single source of truth” (or SSOT) is critical, as data often exists in multiple formats and silos across an organization. Consolidating, standardizing, and creating interfaces for all of an organization’s data on a single platform is the first step toward a robust and holistic monetization operation.

An organization whose data is suitably standardized and centralized will also need an analytics layer to make sense of their data. This will likely include both descriptive and predictive analytic capabilities. Descriptive analytics refers to the ability to understand and summarize historical data, then transform it into a format that is interpretable by humans. Predictive analytics, on the other hand, refers to the ability to estimate likelihood of future outcomes based on probabilities. Together, these capabilities can extract patterns from mountains of data. Then, using prescriptive analytics, these patterns can in turn generate business insights and recommended courses of action.

However, the monetization journey is not as straightforward as it may sound. External considerations like governance, compliance, privacy, and cybersecurity add complexity at every level, with increasing public scrutiny being applied to data operations the world over. And in many cases, analytics capabilities are merely the starting point. The growing field of data visualization deals with the challenge of representing data and insights in accessible, compelling fashion. Even intra-organizationally, data does not stand on its own; business decisions must be argued for, and data-based arguments may fall flat if design and rhetorical considerations are not accounted for (particularly when non-technical personnel are involved in decision-making).

Data may not be the new X after all. Has any resource previously presented businesses with such a breadth of opportunity, while at the same time threatening to stratify the economy along the lines of savvy versus simple? The amount of data at the disposal of big tech, along with their unmatched analytical power, doesn’t exactly spell a level playing field. The good news, however, is that as data becomes more integral to the economy, tools for its monetization (along with other productive uses) are becoming more accessible. Soon, there will be no excuse not to base virtually every decision on some form of data, promising a more efficient use of resources and, ideally, a more prosperous and inclusive world.

When ride-hailing companies first hit the consumer landscape more than ten years ago, they were hailed as revolutionary for introducing user-friendly apps to share rides with complete strangers. Over time, users became accustomed to the embedded payment model employed by rideshare firms. Across emerging and developed markets alike, anybody can download an app, order a ride, and pay via the app. Embedded finance quickly became commonplace, and in the last few years, seamless payments have led to the birth of the “super app”, allowing users to perform (and pay for) a variety of functions from a central integrated hub. Given this context and today’s competitive landscape, are ride-hailing companies positioned to embark on the fintech-infused, all-in-one, super-app evolution journey? Or will they continue to focus on the transportation sector, which is evolving in its own right?

Transportation network companies (as ride-hail giants have come to be known) in the United States, Southeast Asia, and China have all expanded beyond ride-hailing services, and the pandemic has only encouraged aggressive pivots. For instance: early ride-hail pioneer Uber is focusing on food delivery service Uber Eats; In Southeast Asia, Grab in Singapore and Gojek in Indonesia have begun offering more financial services with their apps; and in China, Didi Chuxing, who currently controls 90% of the ride-sharing market, will soon face stiff competition as Alibaba and Tencent team up to create their own ride-sharing company to complement their already brimming portfolio of services.

Along For The Ride-Hail

Even before COVID ravaged the global economy, many ride-hailing companies were already pivoting. With mergers, acquisitions, and regulatory challenges presenting different challenges region by region, global economic forces are pressuring ride-hailing companies to take a hard look at how they can optimize their platforms.

Uber, which began as a car service, has expanded to bike and scooter rentals in the U.S. and Europe. In some areas, the Uber app also includes public transportation options to encourage users to be increasingly reliant on their app for everyday routines, even if the tech company isn’t profiting. The firm later added food delivery to its services as a separate platform, which has now been folded under the umbrella Uber app, promoting both rides and food delivery while enabling embedded payments for both.

In the past year, revenue for Uber Eats outpaced Uber rides, which plummeted as much as 85% in some areas, for the first time as people sheltered in place during the pandemic. Uber’s focus on food delivery has widened further with its purchase of Postmates for $2.65 million in July 2020. With the acquisition, Uber will control 35% of the U.S. food delivery market share, second to DoorDash which dominates 45% of market share. However, Uber Eats charges restaurants between 30% to 35% commission, which is higher than many competitors in other markets.

“Many of these mom-and-pop restaurants will be driven out of business if they have to pay such a high commission. So, they’re recreating their own network where mark ups are a lot less. The food delivery companies can make up the revenue in volume rather than taking huge cuts. It’s a pricing strategy that has worked in Asia and delivery companies can grow in that direction.”
David Hsu, Ph.D., Professor, The Wharton School of the University of Pennsylvania

Uber also has plans to expand its delivery options to include groceries, home goods, medications and pet supplies. The company is already delivering groceries with its acquisition of Cornershop, which is active in Mexico, Canada, Chile and Peru.

In spite of these efforts, Uber has yet to turn a profit. Uber’s CEO has said that by 2021, the firm is projected to be profitable (pandemic considerations pending). The passing of Proposition 22 in California in early November, which will allow drivers to remain independent contractors, also boosted Uber's prospects; along with competitor Lyft and DoorDash, Uber poured more than $200 million into passing the proposition, indicating its importance to the company's future:

“Proposition 22 will have material-lasting impact for Uber and rideshare companies. They will likely take this and be proactive about building this new flexible approach that offers more benefits to drivers in other states and possibly other countries as well.”
Ygal Arounian, Vice President, Equity Research, Wedbush Securities

In the U.S., these firms have been testing the waters with financial services by offering payment and insurance options to their own drivers. Uber offers auto insurance that only activates when drivers are actually on the job. Meanwhile, Lyft drivers receive free banking services so they can immediately access their wages as a way to retain drivers. Uber has also introduced Uber Cash, which allows customers to store credits and buy gift cards, encouraging customers to engage within the Uber ecosystem and bringing Uber closer to SuperApp status.

Grab & Go

At the same time, transportation network companies in Southeast Asia have successfully incorporated digital financial services, and in many cases have surpassed the U.S. companies in the number of services they offer.

A few factors play a role in the success of the region’s players in expanding their financial operations. A large percentage of Southeast Asia's population remains unbanked, and digital payments are considered safer than cash. The middle-class population totals over 600 million people with smartphones and widespread connectivity. Indonesia, in particular, has the fourth largest population in the world and is home to the largest internet economy in the region. Sheer population size and socioeconomical factors translate into a huge potential for digital financial services to take hold, which could be driving the region’s tech companies to endeavor to become SuperApps.

The two biggest players are Grab in Singapore and GoJek in Indonesia, both of which started as pure play ride-hail companies. They have both quickly branched out to offer multiple fintech services in their race to become SuperApps.

“As ride-sharing companies add features such as food and last-mile product delivery, providing payments capabilities is a next logical step in their push to integrate into customers’ lives. And, as often happens in fintech, once a company establishes itself in a portion of the value chain, they often expand into other financial service areas.”
Robert Siegel, Stanford University Graduate School of Business

In Singapore, Grab started as a taxi-hailing service but has expanded by partnering with other companies to provide travel services, video-on-demand, movie tickets, and many other offerings. Their digital wallet, GrabPay, has gone beyond the payments model and offers microloans, insurance, installment plans, and buy-now-pay-later plans. GrabPay has 100 million users and recently raised $850 million to expand its financial services.

Worth about $14 billion, Grab has a few notable backers include Alibaba, Microsoft, Toyota, Uber and SoftBank. In 2018, Uber sold its Southeast Asia business to Grab, which gave Uber a 27.5% stake in the company. The terms of that deal stipulate that Grab must IPO or give Uber $2 billion by 2023.

In Indonesia, GoJek started as a motorbike taxi-hailing service and now offers ride-share, as well as deliveries for food, groceries, medicine, and even massages. They also recently launched GoScreen, an advertising service with digital billboards on their motorcycles. The mobile billboards not only advertise for micro, small and medium-sized businesses, but they also provide location- and time-based measurement data for businesses and consumers so they can retarget consumers.

Their digital wallet, GoPay, has a majority market share of digital payments in Indonesia, handling 54% of the country’s e-wallet transactions. The fintech arm reached $6.3 billion in transaction volume with 240,000 online and offline merchants last year.

Recently, Grab and Gojek have been in merger talks, negotiating on-and-off over the past two years. One key sticking point is whether to combine operations, or for Grab to take over Gojek’s operations in Indonesia. SoftBank, which is Grab’s biggest investor, is in favor of the merger.

But Alibaba, not to be outdone, is considering investing $3 billion in Grab. The Chinese tech giant is also a majority stakeholder in Lazada, an e-commerce leader in Southeast Asia. A Grab-GoJek merger will pose more antitrust issues with Alibaba’s potential investment if the Chinese tech giant is a major stakeholder both in Grab and Lazada. With all of these complicating factors in play, it’s difficult to say whether the merger will go through as talks continue, and regulatory agencies in Singapore will likely push back.

Transportation network companies may see Alibaba and Tencent as models of SuperApp Success. Both tech giants used embedded finance models to successfully expand from nonfinancial models into digital financial services.

The firms are also major investors in China’s largest ride-hailing company, Didi Chuxing. Didi is in fact the world’s largest ride-hailing company, with 550 million users across Asia, Australia and Latin America. In China, Didi dominates 90% of the ride-sharing market. The company hasn’t expanded to financial services as of yet, but that may change in the future. In addition, Didi is expected to IPO on the Hong Kong stock exchange at a $60 billion valuation in 2021. However, if Ant's experience is any indicator, unexpected regulatory challenges could be in store.

“Regulators in China are very wary. They see the power of U.S. tech companies, like Facebook and Google. Alibaba and the Ant Group can be quite powerful, which contributed to regulators in China halting the IPO in the 11th hour.”
David Hsu, Ph.D., Professor, The Wharton School of the University of Pennsylvania

Embedded Value

As these transportation tech companies established themselves, they realized the intrinsic value of storing a payment method on a smartphone app. It allowed users to pay for their ride and tip their drivers without ever taking cash from a wallet or handing over a credit card. Transactions and payments were integrated seamlessly. This expedient model has naturally allowed for these transportation companies to easily pivot beyond ride-hailing.

“The phenomenon is similar to what we saw with smartphones themselves more than ten years ago, which were launched with a very specific purpose in mind, but have since grown to become a sort of Swiss army knife that can do many things. This also shows how important transportation is in society. Organizing personal transportation means organizing a good part of a consumer’s life.”
Sven A Beiker, Ph.D., Stanford University Graduate School of Business

The overall experience is a marriage of convenience for the customer, saving time and hassle. For many, the benefits outweigh the risks as long as firms can foster trust and maintain respect for privacy and boundaries. Given this trust, the possibilities are boundless; by eliminating interruptions to customer activities (from ride-hail to food delivery to P2P payments to e-commerce), technology companies can improve customers’ interactions with their software platforms, and thereby build a customer base and optimize pricing for the benefit of the customers. At the same time, the companies acquire data about a customers’ spending habits, buying preferences, potential for credit, loans, insurance, and many other financing options.

“You can have a super app, which can give companies a tremendous number of data points on your consumer behavior, which means they can predict your behavior about the books you buy, the movies you watch, groceries you buy, and your cash flow. Tech giants, like Alipay, can do a better job of figuring out what financial services fit your needs or wants because they can create a more complete profile of you as a consumer.”
David Hsu, Ph.D., Professor, The Wharton School of the University of Pennsylvania

Machine learning, automation and the Internet of Things can quickly leverage the information accumulated to open new revenue streams for tech companies. Loans, insurance, advertising streams, and product pricing are just a few of the customized financial offerings that will pop up on a consumer’s radar. Customer databases themselves will be extremely valuable, as avenues to monetization will only diversify with time.

“Owning the data and analyzing the data is a big part of the success here. Knowing what customers are doing on a day-to-day basis is an extremely valuable asset. There is a dark side though. On the one hand, a continuous and integrated chain of experiences is highly convenient for the customer. On the other hand, data privacy and data protection are a real concern. We need to make sure there is transparency, and users know what is happening to their data.”
Martin Ihrig, Associate Dean and Clinical Professor at New York University’s School of Professional Studies

When a consumer pays for goods and services through an app, it’s a natural transition to see offers for credit cards, loans, installment plans, buy-now-pay-later options, or line of credit. There are hidden ramifications though. These options can affect credit history and tempt consumers to buy more than they can realistically afford. In spite of these negatives, the embedded finance model, in concert with trusted brands, has the potential to make digital financial services accessible to many, including underserved populations.

Pivot Or Die

Transportation network companies in the U.S., Southeast Asia, and China are transforming themselves by leveraging their embedded finance models on multiple fronts. With profit hard to come by - pandemic or not - pivoting is not only smart, but necessary.

Southeast Asia may be home to the most successful examples of pivots from traditional ride-hailing into SuperApp territory. In China, Didi has turned a profit in ride-hailing, though regulatory boundaries loom. In the U.S., Uber is focusing on food delivery to supplement the ride-sharing business, while Lyft has yet to expand into the restaurant delivery business. All of these trusted ride-sharing companies have the potential to leverage their embedded finance platforms to expand even further.

The degree of success varies with the region, and with the tech companies themselves. Certainly, embedded finance and seamless payments have played a pivotal role in how transportation network companies have evolved from their original footprint. What the future holds for these global transportation network companies remains to be seen as potential mergers, regional market characteristics, and regulatory forces determine what will lie ahead. But make no mistake: everyone wants to be a SuperApp, and fintech may be the fastest way to get there.

Digitization catalyzed by the coronavirus pandemic has dominated the headlines and minds of business leaders for the past several months, delivering optimistic growth statistics and figures across markets and industries. Microsoft CEO Satya Nadella shared his view a few months ago that “we’ve seen two years’ worth of digital transformation in two months.” But as there has been a sharp increase in adoption and usage of digitally delivered services, a growing digital divide has emerged between those individuals and companies with the requisite resources to take advantage of digital transformation, and those without. As digitization swallows various market segments, the question begs: are those crossing the digital threshold representative of those who were already bound to naturally adopt digital services, and if so, what happens to those left even further behind?

As global lockdowns continue to compel digitization of diverse services, unconnected populations will find it increasingly challenging to survive the ‘new normal’ of our increasingly digital world. From education and healthcare to retail and finance, digital has been promoted to the preferred form of distribution and payment, forcing essential goods and services out of reach for the digitally excluded. This unique situation has put fintech on a pedestal across emerging and developed markets alike, with experts and governments pontificating that digital finance can democratize access to financial services, but little research has been done to assure that while some cross the digital divide, vulnerable populations those without the necessary resources do not fall further behind.

As discussed in a recent Mondato Insight, prior to Covid-19, the combination of mobile connectivity, identification and finance to bring the world’s poor into the financial system, but the pandemic may have presented additional, increasingly complex challenges for ‘analog’ segments. In light of Covid-19, are new tools and approaches required to appropriately address those excluded by an increasingly more digital world?

Foundations For Digitization

While digital transformation has the power to help businesses respond to the ‘new normal’ created by the pandemic and job creation and global economic output, it can also create new forms of digital divides, exacerbating the separation between ‘digital-ready’ and laggard markets. With connectivity as a fundamental prerequisite, more developed economies, as well as more urban segments of a given population, are better able to reap the benefits of digital services. And the issue applies to developed countries as well as emerging economies. The Commissioner of the FCC, the telecommunications regulator of the United States, admitted that the “pandemic has exposed really hard truths…and demonstrated that our digital divide is very real and very big…COVID has brought broadband from nice-to-have to need-to-have.”

One example of potentially damaging effects is the expansion of e-government services. The United Nations recently released a report that 22 percent of the 193 member states increased their e-government development, having leveraged the pandemic to advance their digital government policies and programs. Alongside these gains, governments must also find alternate forms of distribution and delivery of government services to ensure those without digital means can say informed and access these services.

Digital education services suffer similar challenges; while global school lockdowns require remote learning, those without proper access risk falling further behind. The phenomena coined the ‘homework gap’ is worsening learning inequities across the globe. With more than 154 million children without Internet access in Latin America alone, hundreds of millions of people globally risk falling further behind their peers in developing basic, as well as digital, skillsets.

And in line with government and educational services is the delicate situation of the financially included. An uptick in digital payments does not necessarily translate into previously excluded individuals gaining access. The Indian government tracked digital payment activity as part of their COVID response and found extreme contrast in the rate of digital payment adoption across states. Wealthier states like Telangana and Andhra Pradesh, characterized by higher income levels and better access to banking and Internet infrastructure, were mostly responsible for the nationwide rise in digital transactions. And while smaller, tier 2 and 3 towns did experience a notable rise in digital payments, data shows that rural states with limited connectivity and high rates of informal sector employment lagged behind even further, highlighting that spikes in activity were generally concentrated in already well-served areas.

COVID19 has clearly expedited digital transformation, most notably by digitizing services like education and healthcare, as well as payments. But studies have found that rapid digitization presents significant challenges for traditionally underserved and marginalized groups, particularly for those who lack the necessary skills and resources to successfully participate in the digital realm. With these shortcomings exacerbated by Covid-19, it is important to better identify the characteristics of those being pushed over the ‘digital threshold,’ as well as those who have not, in order to develop new initiatives that respond to their needs.

The Public, The Private, And Progress

Governments have been working to respond to the crisis, and approximately 340 cash transfer programs across 158 countries have delivered aid to 1.1 billion first-time recipients. Among the beneficiaries of these programs, which include around 140 million informal workers, the majority of these payouts were delivered via digital means. While this generates a significant opportunity for onboarding previously un/under-served individuals and may welcome first-time users through what is classified as a digital transaction, it does not necessarily translate into enduring financial inclusion for the recipients. Without digital training and literacy, digital delivery of cash programs may offer little to no lasting value. In order for these one-time payments to transition into more meaningful digitization of payments and inclusion, additional systemic initiatives must be undertaken.

The World Bank’s Global Findex estimated that 1.7 billion (or 31% of all) adults were ‘unbanked’ in 2017, nearly half of whom reside in just seven economies. According to the survey, the most commonly cited reason was lack of funds, while the second most common was affordability of banking services -- neither of which have been obviously eased by the pandemic.

One approach to addressing affordability witnessed during the pandemic was a combination of price cuts and fee waivers for connectivity and digital financial services. Mobile operator Vodafone, for example, has been offering free connectivity for vulnerable segments and health services for all, as well as free data for essential workers. Regulators across most of Sub-Saharan Africa and Asia Pacific enacted fee waivers for mobile money and other digital payment transactions. But many such initiatives have an end date, which will likely disincentivize new users to continue using digital tech services.

Temporary price cuts will not engender lasting usage, and so approaches to lower costs long-term will be required to ensure the longevity of newly found digitization, which is where public-private sector collaboration becomes essential. Governments can offer policies that ease financial burdens in the form of tax reductions for specific sectors, as well as use universal access funds to subsidize end-user costs, particularly for marginalized groups and small and medium-sized enterprises.

Beyond the need for devices and connectivity, a study recently found that another dimension driving the increasing digital divide is digital skills and literacy. In the American city of Philadelphia, in addition to providing devices and free Internet services, a program hired ‘digital navigators’ to help with digital literacy training and general questions. Another possible intervention is the creation of ‘digital equity offices,’ which are already popping up across the United States, that bear the responsibility of ascertaining and tracking the status of more localized digital divides in a coordinated approach.

Many regulators announced that the increased transaction and balance limits offered as a result of Covid-19 will remain permanent, with African regulators taking the lead among emerging markets in offering prompt reforms for mobile money services. The National Bank of Rwanda (BNR) cited “the need to ensure financial sustainability of digital payment services” as the justification, exhibiting recognition that enabling a digital finance ecosystem beyond the pandemic will require more long-term policies.

Cultivating The Underserved

Last month, Netflix released a letter to shareholders reporting a unsurprising, yet massive surge in net subscribers as the pandemic took flight. But between May and August, subscriber growth stagnated almost entirely. While Netflix shareholders have no need to worry, particularly since couch streaming will continue to be a safe activity amid ongoing virus concerns, perhaps the experience of Netflix is descriptive of a COVID-triggered phenomenon where the trajectory of digitization was expedited, as opposed to broadened.

If this theory holds true for related digital finance industries like e-commerce and digital payments, it is important to consider how much of the spike in growth we’ve seen this year is the start of something new, generating previously non-existent interest, versus a pull forward from a trend that was already set to take place, onboarding segments that held all of the prerequisites to digitize in the near term, and cultivating a need to continue to drive digitization for un/underserved consumers.

Meanwhile, global adoption of digital payments accelerated by between 5 and 10 percent during the course of the pandemic, taking digital payment penetration to 67 percent globally, according to a World Economic Forum report. Though many new players are adopting digital payment technologies, industries like payments and finance may not see a net gain from its impressive digital growth. Global payments revenue is expected to fall by 7 percent due to a restructuring of supply chains and cross-border trade. For remittances, though slightly less dramatic than initially expected, a 9 percent drop in cross-border payments globally is expected for 2020, though this includes a whopping 21 percent decline for remittance flows to Africa.

In some markets like Kenya where mobile money services are pervasive, transactions initially experienced an upward trajectory, but Central Bank data showed that the majority of transactions consisted of cash transfers and payments for loans, as distressed workers turn to mobile loans during this difficult time. Among adults in Kenya who have lost income due to the pandemic, 64 percent are borrowing money and/or using credit to make ends meet, and this has been primarily through digital means, marking the increased transactions as a temporary event rather than a continuous trend in usage. European-based online remittance provider Azimo also reported a 200 percent increase in new customers during the first few months of the pandemic, but the World Bank and other experts agree that this is a result of the diaspora sending money to family members who need it, and the adoption influx will flatten, if not decline, by the end of 2020.

For many companies, the pandemic revealed existing weaknesses. In the digital lending space, repayment moratoriums implemented by many governments have increased credit risks, putting strain on undercapitalized lending companies. Indian fintechs reported trying to help consumers and small businesses access funding, but they see a liquidity crisis coming, and a similar tale can be told in Indonesia. While fintechs leverage alternative credit mechanisms to extend loans to previously excluded borrowers, experimental determinants of credit worthiness may be dangerous to the economic situation of those borrowing. International organizations have warned against debt relief for borrowers, urging instead to maintain ‘credit discipline,’ but in practice, it will be difficult to keep in check.

As businesses readjust their business models and pricing, new customer segments may become more commercially viable as reforms make cross-border payments more efficient, accessible and affordable. In low-income countries, only 32 percent of the population is deemed as having basic digital skills, and even in developed countries this number only jumps to 62 percent. As many digital service providers may see their uptake experience a Netflix-esque flatline, those that can find strategies to address digital literacy deficits at fair prices can create a new segment of users.

Ready For Impact?

Needless to say, the recent shift towards digitization has certainly unearthed new opportunities for stakeholders of the digital technology sector. From operators that have seen high mobile subscriber rates and data usage to mobile money providers that reported upsurges in activity and customer segments. On the other hand, the digitization activity characterized as growth for many may also create a risk of substantially exposing the digital divide, which is set to increase by 47 percent, as the realities of the world’s most vulnerable are eclipsed from focus, worsening the implications and economic situations of those falling further behind.

COVID has sparked a dependency on technology that creates challenges for those without adequate access or skills required to appropriately leverage digital products, services or technology. While the digitalization ignited by the pandemic can bring many out of financial inclusion, it can also intensify inclusion discrimination for marginalized groups and present additional short-termism and market concentration.

Both private and public sector actors will need to take action through monitoring and investment in order to lower costs while promoting digitization across sectors, as well as segments. A combination of cross-sector collaboration, regulatory reform and shifting business models must be employed to deliver the necessary skills, financing and technology needed to serve the widening digital divide.

November 4th, 2020 was a decisive victory for the legal cannabis movement. 15 U.S. states have now legalized marijuana for recreational use, and nearly all U.S. states allow for at least some form of medical marijuana. But federal prohibition — and decades-old international anti-narcotics treaties brokered by the U.S. — have made banks wary of opening financial accounts for marijuana-related businesses legally operating under state law, and credit card companies refuse to process cannabis-related transactions. This has left cannabis-related businesses woefully underbanked and overly reliant on cash for transactions. If this sounds familiar, it should come as no surprise that fintech companies have swept in to repair the broken cannabis finance system -- and made some inroads into a ~$20B industry along the way.

Under these circumstances, cannabis startups were thrust in similar positions as small businesses in Sub-Saharan Africa prior to the Fintech revolution — financially excluded, and prone to cash theft. Like what happened then, tech companies are filling that market gap, broadening payment options for customers and facilitating banking options for cannabis-related businesses. Operating high-risk businesses under such a heavily scrutinized, complex, and evolving regulatory landscape has led to a unique digital ecosystem offering a variety of solutions wedding Regtech with Fintech to an unprecedented degree — legally facilitating transactions and maintaining compliance through completely digitized transparency every step of the way. Beneath federal prohibition’s shadow, the (regulatory) sunlight that tech partners facilitate has enabled the cannabis industry to grow and expand nevertheless.

Blazing A Regulatory Trail

The U.S. may not be the furthest ahead in the legalization movement — Uruguay and Canada have already legalized cannabis, with plenty of other countries decriminalizing cannabis and hosting medicinal programs — but as a leader in digital cannabis markets and a central element to the global banking system, its fight will be most instructive for how the cannabis industry and its application of digital finance tools might develop. The modern-day legalization movement started in the states in the 90’s with medical marijuana reform, and it broke through when Colorado became the first state to legalize marijuana for recreational use in 2012, with the first recreational stores opening up in 2014. In 2013, the Department of Justice under President Obama released the Cole Memorandum, which directed U.S. attorneys to not target cannabis markets in legalized states with strong regulatory and enforcement mechanisms. An accompanying Financial Crimes Enforcement Network directive in 2014 outlined how financial institutions can engage with cannabis-related businesses in legalized markets, requiring advanced customer due diligence and for financial institutions to file a suspicious activity report for all transactions they process for a cannabis-related business. However, the Cole Memo didn’t end prohibition, and the memo was rescinded by the U.S. Department of Justice in 2018.

Source: DISA Global

Even with a path to full legalization outlined and clear evidence of marijuana's medical value established, few banks opened their services up to cannabis-related businesses early on. Businesses were thus limited in payment options and forced to handle large amounts of cash — while simultaneously meeting strenuous regulations and compliance measures. When Colorado legalized marijuana in 2012, it set up a “seed-to-sale” track and trace regime, which mandates tracking all marijuana from the moment it is planted to it being harvested, transported, tested, distributed and sold, with accompanying verifying data. Metrc, an Agtech company with experience in similar technologies, stepped in to provide such services for the state government and cannabis-related businesses. As recreational and medical markets have expanded, track and trace has become standard practice across the industry, for which Metrc has become the leading technology supplier. Metrc’s data software ensures proper quality control, prevents aversion to the black market, and creates a completely transparent view of the entire chain of supply until it is sold. Metrc’s software is designed to meet the needs and requirements of the different state markets, all of which follow varying characteristics and laws.

“We want to be the single source of truth – whether it’s in terms of state government auditing, a [financial] institution that wants to minimize risks, we want to be there to solve that trust problem.”
Bronwyn Flores, Communications Manager, Metrc

Metrc’s software itself does not deal with payments or enterprise resource management, but as the foundation for most states’ regulatory apparatuses, Metrc’s open API is integrated with “about 1000” APIs from other companies doing such work — laying the groundwork for a digital ecosystem implementing Regtech alongside Fintech.

Utilizing Metrc’s open API, a variety of companies have stepped in to provide solutions to overcome the challenges of the tightly regulated yet ever-shifting industry. On the banking side of things, the earlier crisis has subsided somewhat, as credit unions and regional and community banks have stepped in to provide banking services. Companies like Dama Financial help connect cannabis-related businesses with banks — many of whom don’t advertise such work — willing to service them, along with other services particular to the industry.

Though credit card companies shy away, cannabis-related businesses manage to employ a variety of payment methods. While cash reigns onerously supreme, one popular tactic has been installing cashless ATMs at dispensaries which dispense vouchers as payment. Though popular, these ATMs often round up to the nearest $5 on top of fees, which requires cash reimbursement. Other companies like Flowhub integrate Metrc’s software to adhere to compliance measures while facilitating point of sale purchases through alternative measures like debit cards – which, as a bank-to-bank transfer, remains kosher.

Many cannabis-related businesses are taking a step further to allow for bank transfers utilizing third-party software. Such payment options like Hypur Pay and CanPay require customers to register through their system, download the mobile app, and check in at a dispensary through the app. If the point of sale mechanism is integrated, then the customer simply enters a four-digit code to check out.

Hypur, the leader in this niche, has worked for the past five years to find and recruit banks willing to do business with the industry. Hypur’s software platform audits a cannabis company in its entirety, sifting through documents and state licenses, financial statements, tax returns, property leases, and other company information. Such software, which can be integrated with other point of sale options, greatly reduces the compliance time needed for a bank — it can take up to 20 hours for a banker to do a single marijuana business's paperwork — to service a marijuana business. By accounting for every dollar made, apps like Hypur facilitate the trust needed for banks to work with cannabis-related businesses.

As these foundational applications ascend in earnest, the digital ecosystem taking shape mirrors other digital markets. Apps like Hypur integrate with cannabis ecommerce outlets like Jane and Dutchie, which also performs delivery services. These services work within the fragmented nature of the state markets, like Jane, which launched an “indirect-to-consumer” module that connects consumers to brands popular in their state, and then identifies nearby dispensaries offering said brands. By integrating with the API of payment processors like Hypur — which are integrated with the API of compliance software like Metrc’s — these digital marketplaces uphold compliance measures as the industry expands and diversifies.

Puff, Puff? Pass.

Digitization is certainly positive, but the industry still grapples with hurdles amidst federal prohibition. Even with the progress made, only 700 out of 10,000 banks and credit unions in the U.S. currently serve marijuana businesses, and banks typically charge $750-$1000 per month to service such high-risk businesses. The payments sector, though rapidly advancing, still faces issues. Eaze was initially a big player in the ecommerce and delivery space in California, and for a time it managed to construct a workaround to accept payments from Visa. But this soon resulted in a lawsuit, and that option vanished. The company elicited more controversy recently after two IT professionals were indicted this year for disguising cannabis purchases for other products to trick banks. And some cannabis-related businesses have even created shell companies to disguise the nature of their transactions to financial institutions.

Any market, legalized or otherwise, incorporating the American financial sector is impacted as long as federal prohibition continues as is. The cannabis industry in Canada was legalized two years ago, and although the industry has steadily seen digital advancements similar to the U.S. as American and homegrown companies enter the market, cannabis-related businesses in Canada have also struggled with payments because credit card companies with multinational links still fear running afoul of regulators in the U.S. and elsewhere. Stories in Canada percolated last year of banks suddenly closing cannabis business accounts out of fear. While there’s been positive changes recently — delivery giant Dutchie began processing Visa and Mastercard payments in Canada in April — the international prohibition regime renders the struggle an uphill battle even in legalized countries.

However, the COVID pandemic is accelerating the legal apparatus and cannabis’ digital ecosystems by necessity. Deemed essential by many U.S. states since March, cannabis businesses have faced the same pressures as other industries to go contactless despite the cash-heavy nature of the industry. In Los Angeles, tax authorities suspended collections by cash to maintain social distancing, leaving underbanked cannabis businesses out in the LA cold. The city ultimately partnered with Dama Financial and its “CashToTax” platform, which arranges for cash to be picked up at businesses by an armed courier and brought to tax collectors. On the customer side, while the stigma of marijuana has made cash as sticky as the industry’s product, recent surveys by Hypur revealed a likely pandemic-driven spike in enthusiasm for digital payments. The pandemic has also pushed states to relax regulations, like allowing cannabis delivery services or telehealth visits. Since the pandemic began, Metrc has implemented “hundreds” of system updates to incorporate changing regulations in various states, informing businesses of the latest updates in real-time.

Beware "Walmartization"

Although the digital space is accelerating during the pandemic, without federal and international resolutions to prohibition, the regulatory landscape will likely remain as fragmented and precarious as the market itself.

“Those nuts and bolts aren’t yet totally there. We would love to see something that speaks to how these markets will truly operate. If it’s not the federal government setting their own rules, then at least a clear outline of how they will allow US states to continue as before, similar to the Cole Memo. Even if it would be just like a full recognition allowing states to do the good work they’re doing — none of that has really been addressed.”
Bronwyn Flores, Communications Manager, Metrc

In the states, there are two proposed pieces of legislation to improve the situation. The MORE Act would decriminalize marijuana, impose a 5% tax on cannabis products, make Small Business Administration loans and services available to cannabis-related entities, and establish a process to expunge marijuana convictions. Another piece of legislation, the SAFE Banking Act, would create a safe harbor for regulated cannabis-related businesses to engage with financial institutions.

Such legislation, which has languished in the Senate, would enable the cannabis industry to mainstream digital payment options and better access needed financial services, clearing the way for further investment and expansion. The election of Joe Biden portends a friendlier Department of Justice than had been under the Trump Administration, with the restoration of the Cole Memo or similar measures likely. However, if Republicans maintain the Senate, passing legislation will be difficult even with broad public support. The possibility remains that expanding cannabis markets to red states will encourage their politicians to support local industries. Cory Gardner, the recently defeated Republican Senator from Colorado, originally came out against his state’s legalization initiative, but as the industry developed over the years, Gardner became a key Republican advocate for the industry in Washington, D.C., co-introducing the SAFE Banking Act.

Those in the industry still see federal legalization as somewhat far off, however, and until then, state markets will continue to develop and evolve. While European countries like Spain and the Netherlands have decriminalized cannabis and allow for “cannabis clubs” to accompany a burgeoning MedTech startup scene, the lack of a fully regulated market limits the development of digital ecosystems even in places like the Netherlands, giving North American start-ups a significant advantage. Consolidation is noted in the U.S. industry, with advocates fearing a “Walmartization” of the industry especially once federal legalization does pass and mainstream companies aggressively enter the space. But as seen in the turbulent paths of once-industry behemoths like Eaze, the picture on the ground is messy. To advocates, that isn’t necessarily bad in the industry’s early stages.

“I do think there’s certainly some consolidation. But there’s an equal resistance to the movement towards Brand X. That could be one of the silver linings of [legalization] happening state-by-state — it gives the local operators more of a chance to carve up their niche.”
Nick Zettell, Cannabis Advocate and Consultant

Budget shortfalls and a slumping economy during the pandemic are encouraging states and countries to open up their cannabis laws, setting up 2021 as a potentially significant legislative year in the legalization movement. But no matter the trajectory or legal status of any cannabis market, digital technologies will play a role. In Israel — which may legalize cannabis next year — Telegram channels are famously used as a conduit for connecting consumers with illicit weed dealers, a network referred to simply as “Telegrass.” Even after the arrest of Telegrass’ founder last year, the digital marketplace continues to thrive during the pandemic, essentially on software autopilot. Whether facilitating illicit transactions or enabling complete transparency and compliance under legal markets, digital solutions will undergird the 21st century cannabis industry. It’s now up to lawmakers to decide how these digital solutions will be used — in the shadows, or in broad daylight.

What’s in a price? This deceptively simple question quickly unfolds into a question of “value” — a much more protean concept, as elusive as it is omnipresent in everything from startups’ pitch decks to CEOs’ quarterly earnings reports. Between the concept of price and value lies a vast body of knowledge and experience attempting to characterize (and influence) the relationship between buyer and seller. The science and art of price-setting, however, has in recent decades been structurally altered both by the digitization of money and the digitization of business in general. As organizations the world over emerge from the initial shock of the global pandemic to rethink their core value propositions, the question of how a price is born remains essential.

A Price Is Born

“Dynamic pricing” — where prices change as a function of supply and demand in real-time — may be best known for its modern, online platform iteration (airline tickets or Uber’s surge pricing). From a certain perspective, however, this used to be the only way to do business. After all, throughout most of the history of commerce, prices were determined on the basis of a negotiation — typically a haggling process between buyer and seller, often in the context of an ongoing relationship, mediated through the exchange of bartered goods, and later, the exchange of money.

Fast-forward to the beginning of the Industrial Revolution. With the emergence of mass-production techniques, buyers increasingly purchased their goods not from individuals but from corporate organizations fixated on profits through the efficiencies of standardization. The price tag was reportedly invented in the 1870s, ushering in the dominance of the ‘take-it-or-leave-it’ basis of market prices set by the seller. Though, arguably, this shift represented a shift in the balance of power in favor of sellers, it has its origins in the Quaker concept of fairness: one price for all customers, after all, has a certain ‘fairness’ to it.

But what, after all, makes a price ‘fair,’ and does it matter? Beyond the ethical implications of such a question, managerial sciences have decisively shown how important fairness (or at least, the perception of fairness) is for businesses to successfully and sustainably keep existing customers and acquire new ones. In essence, price is the dividing line between the value captured in a transaction by a buyer and the value “appropriated” by the seller. Where these lines lie, of course, is rarely transparent, obscuring the picture of who got the lion’s share of the value between buyer and seller — and begging the question of how to turn profit politely.’

But in a world where more and more of the ‘products’ we consume are digital-only ‘experience goods’ and most everything else is digitally mediated at some point or another in its lifecycle , do these rules still apply? After all, beyond their initial development, digital products have marginal production costs, since they can be replicated near infinitely. In a moment where even what was traditionally analog has become digital thanks to the global pandemic, how should businesses take the opportunity to realign their pricing strategy with their value proposition? And as digital finance and commerce expands in emerging markets, do these same processes translate across diverse contexts and cultures?

Pricing Goes Digital

To answer these questions, it is necessary to take a detour through Silicon Valley from 1990 to today. The rise of the digital-born economy was preceded by the early tech giants — the likes of Xerox, Microsoft, and Oracle – some of whom are entering a second act even after decades of profitability. In our cloud-dominated world, it is worth recalling that Big Tech was undeniably hardware-focused in its early days. Need data processing services to manage your client information? Better make room for data center facilities on your premises, not to mention office space for the IT staff you’ll need to hire for troubleshooting, and engineers to maintain the power and cooling systems required to keep the servers humming.

As a company, the price of ‘acquiring’ such capabilities was substantially CapEx-dependent. As the internet matured, however, the dominance of up-front installation costs plus significant one-time, life-time user licenses began to give way to more flexible offerings. Today, a company adding technical capabilities to its core business, whether products or services, is often an on-demand and fairly customizable phenomenon. Subscription-based models offer scaled-down or up versions of the core digital capability on a time-bound (yearly or bi-yearly) or even pay-as-you-use basis. This pricing innovation makes capabilities previously available only to billion-dollar corporations equally available to startups or individuals, plus the inherent flexibility means that a solution can scale with a firm’s services, transforming the vendor-buyer relationship into something more like a partnership.

This new paradigm promotes transparency to such a degree that much of the sales cycle is in fact automated. Instead of dealing with sales reps or consultants, buyers can use tools like Oracle’s Cloud Cost Estimator to build-a-business; they pick what they need and how much they need of it, then receive an estimate instantly. The rub is that the innovation in pricing that the digital revolution has wrought has subsequently changed business strategies, up to and including product design itself — one could say that the line between the product and the pricing has blurred. Hence, the rise of “anything as a service.”

Price Rediscovery

The ‘anything as a service’ model has in fact become ubiquitous in recent years, diffusing outward from Silicon Valley toward emerging markets and the inventive offerings unique thereto. Consider Hazina, a pre-seed startup solving a characteristically African problem in Lagos — the lack of quality user research. Hazina targets this gap for consumer packaged goods (CPG), one of the largest consumer segments on the continent. Where huge multinationals like Nestle or Unilever in developed markets have fine-tuned metrics on user preferences that drive marketing and pricing strategy, in most emerging markets the user research process is often carried out through one-off customer trial campaigns in supermarkets, observing shoppers’ behaviors, or even pitching them free offers on the spot. Hazina plans to solve this problem by aggregating free samples of products, packaging them into boxes, and delivering them to hundreds of thousands of vetted ‘samplers’ to collect granular and quality feedback that can inform not only CPG’s product and marketing efforts, but also their e-commerce sales channel.

Sam Darko, one of the firm’s co-founders, reflects on the big picture of Hazina’s “as a Service business model,” focusing firstly on sampling as a service with a few big accounts before building off traction into B2C groceries as a service, B2B & B2C e-commerce as a service (supporting brands develop an end-to-end direct to consumer sales channel) and distribution as a service (leveraging competencies in delivery and logistics from the first three.)

“CPG is the largest consumer sector, but shows extremely slow uptake for e-commerce. And the reason is trust. If you get past the first trust hurdle by delivering products for free, then you can start offering them e-commerce.”
Sam Darko, Co-Founder, Hazina

In essence, start by serving a need, then pivot as needed to improve profitable monetization. With the inherent ‘intangibility’ of digital products, and the mind-shift that is needed before the “X as a Service” model becomes widely understood, proving traction is the surest way to convince investors the opportunities for monetization, for their part, are tangible.

When any given product can be packaged as a service, the pricing possibilities feel near endless. Recent research on best practices on digital born firms shows that successful pricing managers must act as ‘integrating forces’ on two levels: by applying a structured and disciplined price-setting process with regular reviews, and by mediating between corporate financial goals and the local market reality. For digital financial services -- a sector in which adoption can be mystifying at the best of times – pricing is among the most important things to get right. Michel Neubert, a researcher at the International School of Management in Paris, lays out a framework to conceptualize the complexities of price-setting by fintech firms with three basic interlocking elements: pricing strategy, pricing practices, and pricing models.

Source: Michael Neubert, ISM International School of Management

Based on the particularities of a firm’s situation, a combination of price setting strategy and practices result in the appropriate model for a customer segment. For example, a “skimming” strategy focuses on early adopters of new products, testing the upper limits of a market’s willingness to pay and working downwards. Conversely, a “penetration” strategy right off the bat aims to capture market share through low - or even free - pricing.

This last model has been the approach undertaken by Nala - a fintech whose first product offering automates USSD mobile money transactions across SIMs through a smartphone app, enabling seamless & data-free mobile money operations as well as transparency over inter-account usage at no cost. Benjamin Fernandes, Nala’s founder, explains the niche Nala is looking to carve out for itself. Like Hazina, however, a pivot is always right around the corner, aiming to convert trusted relationships into additional, profitable use-cases:

“In Africa, collecting payments is a nightmare, even with a baseline mobile money layer. At least 5 more layers need to be built for doing digital business to be seamless. That’s why you see so many fintechs - so many startups begin in education or health, but then there’s just a huge need from fintech just to collect payments. So you evolve from healthtech to fintech very quickly.”
Benjamin Fernandes, Founder, Nala

Price setting practices aim to drill down to a number. Value informed pricing aims to line up the price with the perceived value of customers — but in new markets or where little data exists, engenders significant over- or under-pricing risk. Competition-informed pricing works where similar products are sold and price can be adjusted up or down based on quality, convenience, or other factors, while cost-informed pricing builds a price from production costs up and tacks on a profit margin.

Finally, what results is a pricing model, which fundamentally determines whether the consumer is buying a product or a service. In some senses, the entirety of pricing models can be summarized as a trade-off between selling consumers a product up-front and renting consumers the product, with an option to own (aka lease-to-own, or if no transfer of ownership, then subscription).

If the broad trends in SaaS spill into digital services in general, then we should expect a massive shift from up-front ‘purchase’ to on-going ‘subscriptions’ — a trend we are already seeing take hold in emerging markets. Per-user, per-feature, and freemium models are ubiquitous, to name just a few, but PAYG is perhaps a standout model in emerging markets specifically, starting with telco airtime purchases, evolving into energy, and now spilling into everything from biodigesters to laptops. For existing or aspiring fintechs, riding the “anything as a service” wave is certainly one of the most widely anticipated disruptions to the way we consume financial services, particularly as tech companies continue to make inroads into ‘traditional’ financial services.

Dynamic KYC

Two key insights from empirical literature evaluating the pricing practices of digital services companies are particularly germane to fintech and digital financial services. The first is that pricing models should be grounded in customer centricity, and should be frequently reevaluated as an iterative process.

Customer centricity is a business model that companies follow where the customer experience is its main product. In a 2017 empirical study comprising 63 fintech startups principally from Southeast Asia and Africa operating in payments, money transfer and lending space, the degree of a company’s customer centricity emerged as the single most significant variable on company success: “all else being equal, a 1-unit increase in Customer Centricity Score leads to a 31% increase in Active Customers — and a 7% increase in Annual Revenue.” As the ‘anything as a service’ model continues to proliferate and competition in the financial services space intensifies across most markets, the importance of this element is becoming clearer.

Customer centricity is particularly important for early stage startups with ‘disruptive’ — aka untested — ideas, since the most common reason that startups fail is simply that the market doesn’t exist for the product they are offering.

Source: WE4F

This is a piece of advice well-adopted by the Nala founding team, who invest significant time in developing a sense of community among their users, inspired by Fernandes’ IDEO user-research practicum at Stanford Business School:

“When we learn, what do we think users like. So for example we enable other features — save money on bills — requests are sourced from customers. Folks feel like they are cofounders with us in building this product. That’s a huge variant, especially important in Africa.”
Benjamin Fernandes, Founder, Nala

Secondly, the pricing process itself needs to be iterative and revisited frequently. For early stage companies or new products in particular, a user journey may have to begin with a freemium version where value is proven and traction is built before finding a suitable monetization practice aligned with the use-case. Once value is established, a whole slew of pricing techniques and levers can be employed to learn more about customers’ usage patterns in such a way as to make transactions frictionless and grow market share.

Furthermore, value drivers change over time, so it’s important to revisit the price-to-value proposition and keep fine-tuning the product, removing features that are irrelevant and introducing new options to accommodate customers’ changing and evolving needs. Indeed, when enough granularity on user intelligence has been built, a whole new pricing scheme may be appropriate, and only through a combination of customer centricity and willingness to continually reimagine how to monetize their product can companies develop the flexibility to evolve with their customers. To borrow an always-relevant turn of phrase:

“The key to success is realizing that price is not an end in itself, but an instrument to balance perceptions of value and fairness in an ongoing relationship.”
Journal of Revenue and Pricing Management

Because of the inherent dynamism, there are few magical formulas for determining the right price for a digital product. A rule of thumb among successful fintechs leveraging customer centricity offers some guiding principles for making the numbers work on paper: aim to maximize ‘customer lifetime value’ by minimizing ‘customer acquisition costs.’ For the latter, it comes down to executing a strategy as efficiently as possible. For the former, it’s that, as well as a return to the fundamentals: whether you package your offerings as a product or a service, keep them coming back.

The United Nations has officially considered the internet to be a human right since 2016. According to The Universal Declaration of Human Rights, we must recognize “the global and open nature of the Internet as a driving force in accelerating progress towards development in its various forms.” From a certain perspective, the internet and access thereto have become democratized, with an estimated 53.6% of the world’s population online as of 2019 - about twice as many as ten years prior. Meanwhile, the internet as a channel for the delivery of financial services - like payments, banking, credit, advisory, and insurance - has also grown, and by some measures at a faster rate still. But as the internet and its potential to create inclusion have grown, institutions haven’t treated access as a right, and even in developed countries, citizens are seeing their online rights curtailed. If the internet is indeed a human right, when will governments begin to treat it as such? And what does the current restrictive behavior of many world governments imply for the world’s newly-online?

Can't Live Without It

There are many reasons to consider the internet a fundamental human right. Firstly, it is a uniquely democratic medium, according to Dr. Merten Reglitz, Lecturer in Global Ethics at the University of Birmingham. The internet gives individuals the ability to both send and receive information, and to participate in organized efforts to influence institutions. Second, the internet has permeated society to the point that the rights to free expression and assembly cannot be fully exercised by citizens who aren’t online. Insofar as political participation is productive for underserved populations, a lack of internet access can keep individuals from adequately expressing their point of view or organizing for a cause. And finally, the internet can act as a safeguard for other human rights; wherever individuals can use the internet to hold institutions accountable (whether by providing direct evidence of malfeasance or organizing for collective action), other fundamental rights like life, liberty and bodily integrity are thereby upheld. For Dr. Reglitz, the internet is a human right precisely because we’ve made it such a central pillar of modern life:

"The upshot of these considerations is that we have weighty reasons to accept the idea that free Internet access should be considered a human right because it is necessary for ensuring minimal decent lives in the digital age. The current and potential benefits of such universal Internet access are important enough to create a moral obligation for states and the international community to create laws to ensure that everyone can ‘go online’."
Dr. Merten Reglitz, Lecturer in Global Ethics, University of Birmingham

With so many aspects of life (including, increasingly, financial services) now mediated via an internet connection, to lack such a connection excludes individuals from services that might improve both their immediate circumstances and future potential for prosperity. The digital financial services industry is home to multiple examples - from payments to savings to credit and more - of internet-enabled services which improve outcomes for underserved populations, and it is rare for any ambitious endeavor in the sector to neglect to mention the world’s 1.7 billion unbanked. However, the COVID-19 pandemic also forced healthcare, education, and government services online, making the internet the only channel for some of society’s most essential functions. Without network access, individuals are at risk of being left untreated, uneducated, and unassisted as well as unbanked - making the internet (and all associated preconditions to full, free access to the internet) a must-have for any inclusive society.

Free Is Fair

As the pandemic has persisted and societies across the world have come to rely on the internet to a greater degree, the internet has concurrently become less free. Freedom House, a non-profit that has been studying freedom online for 10+ years, noted in their 2020 report that the COVID-19 pandemic “is accelerating a dramatic decline in global internet freedom”. The report tracks obstacles to access, limits on content, and violations of user rights to measure and compare internet freedom in 60+ countries.

When a country’s government interferes with internet freedoms, Freedom House tracks the incident and accounts for it in the country’s score. So when 22 governments (including those of large nations like China, India, Russia, Ethiopia, and Indonesia) deliberately disrupted ICT networks within their respective borders this year, those countries were observed to be less free, as deliberate disruptions are not considered to be a feature of free and fair internet management at the country level. Likewise, Freedom House observed various cases of overreach by governments in response to (or under the pretext of) the pandemic, and noted these cases as detrimental to freedom for the countries in question. In Egypt, for example, the Supreme Council for Media Regulation barred several opposition news outlets online after accusing them of spreading false information. And in Bangladesh, the government took down a news site where leaked information had been shared which illuminated the country’s rising case numbers. Each such incident constitutes a loss of freedom for the citizens in a given country, and taken in aggregate, they paint a picture of a global internet that is less free, less fair, and under ever-stricter institutional control.

More specifically, Freedom House found that in 2020, the web is either “Not Free” or “Partly Free” for 67% of the world’s internet users, with only 20% of users living in “Free” internet countries (and 13% falling outside the study’s remit). These figures represent a 3-4% global shift relative to the same group’s findings from 2016, when 64% of the world’s internet users were “Not/Partly Free” and 24% were “Free”.

Source: Freedom House

If the 2016-2020 period has indeed brought a swing toward less free internet access for the world’s citizens, then it has coincided with a period of steady growth in the number of global users. ITU estimates suggest that from 2016 through 2019, 3% of the world’s population (or roughly 225 million individuals) became internet users each year. If this growth rate can be sustained, then individuals in the world’s least-developed countries would likely see considerable gains in access, as the regions of Africa, Asia Pacific, and Arab States (at 28.2%, 48.4%, and 51.6% internet penetration, respectively) lag behind the global average. However, governments in many of these regions are not in favor of a free and open internet, and the persistent gender gap observed in internet penetration in many regions is a burdensome impediment in its own right.

On The Right Side

While internet freedoms have eroded over the past handful of years, that does not necessarily indicate that this trend will continue. As institutions have taken increasingly concerning steps, activists have in turn rallied around causes like net neutrality, online privacy and encryption, and censorship. Institutions are not immune to such pressure. In Belarus, when the government imposed a nationwide shutdown of mobile and internet services amid the country’s controversial presidential election, protests in the capital of Minsk intensified, straining relations between the ruling Lukashenko administration and Moscow.

Meanwhile, in the private sector, tech giants Facebook and Twitter have faced fierce criticism from across the political spectrum in response to their handling of so-called “fake news” as the presidential election approaches. In response, U.S. lawmakers are taking a close look at Section 230 of the communications act, which grants online platforms immunity from liability for content published by users. If section 230 were to be repealed or reinterpreted (as President Trump has called for), tech companies might lose the legal grounds to censor content on their platforms.

However, as Dr. Reglitz argues, there are reasonable and necessary restrictions on online activity. Absolute, unregulated online freedom is neither realistic nor desirable. He notes, however, that a distinction must be drawn between internet use and access:

"Few rights are absolute and the right to access and use the Internet is no exception… Cyber-bullying, the spreading of false (‘fake’) news, the use of social bots to manipulate voters, and the mass surveillance on the online activities of unsuspicious citizens - even by democratic states, all call for regulation. The precise legal nature of these restrictions are yet to be determined, yet the harms of current Internet use do not undermine the arguments for access."
Dr. Merten Reglitz, Lecturer in Global Ethics, University of Birmingham

Restrictions on internet use, in other words, should have no bearing on our collective need for universal, free internet access. Just as there are restrictions (e.g., anti-money laundering measures) on financial activities which should not interfere with individuals’ right to access financial services, so should restrictions on what citizens do and say online not interfere with the right to be online in the first place.

A free, widely-accessible internet is increasingly essential to living an included, prosperous life, and as more and more essential services go online, we must ensure that the channel via which these services are delivered does not itself become overly restricted - or worse yet, an instrument of control. For every community that may benefit from digital services - whether they be financial, healthcare, education, or of another type - a single human right first undergirds the provisioning of these services. To fully deliver on the promise of inclusion, the internet must be on the side of the people who need it, with as few restrictions and as much accessibility as can responsibly be managed.

Nestled in the center of the world’s fastest-growing continent, the region of Central Africa is at a juncture between a fractured past and a potentially integrated future. The Central African Economic and Monetary Community, otherwise known as CEMAC, comprises six countries - Cameroon, Chad, Equatorial Guinea, the Republic of Congo, Gabon, and the Central African Republic - and is home to a population of over 50 million. The region’s economy is dominated by the oil sector, which makes up 80 percent of exports and 75 percent of its income, leaving the region quite vulnerable to fluctuations in international oil prices. The recent downgrade of all CEMAC member countries made the region’s economic outlook relatively delicate. It’s against this backdrop that digitization could prove game-changing – for inclusion, entrepreneurship, and regional coherence -- to the potential benefit of millions of Central Africans.

By the end of 2019, overall growth across the region was a steady 2.5 percent; the IMF concluded that the economic and financial situation of CEMAC had marginally improved, but not fully recovered from the oil price collapse in 2014. Prior to the COVID pandemic, 2020 projections of GDP growth were promising, if the region was able to successfully implement macroeconomic reforms and diversify its exports. But both historically and today, Central Africa is one of the least integrated economic regions and suffers from high poverty rates, political instability and a governance and infrastructural deficit.

The increased use of technology in the region has resulted in an increase in digital services, particularly in the financial sector, introducing an opportunity for fintech innovation in the region. Regional integration, however, has been seen as a necessary step to reduce the fragility of its member states. The Africa Continental Free Trade Agreement was expected to achieve this by offering cross-border trade opportunities to promote digital transformation and economic diversification, but since its recent postponement as a result of COVID, CEMAC is left to its own devices to take steps toward regional harmonization. With sufficient backing, could increased digitization support regional integration, and thereby provide an alternative pathway to growth?

Continent, Region, And Country

Central Africa falls far behind other African Regional Economic Communities (RECs) in terms of both regional integration and economic development. CEMAC has long received strong recommendations from international institutions and investors to further integrate its financial services sector in order to drive innovation and growth.

If growth is the goal, financial inclusion could hold the key. Studies show that financial openness and inclusivity are directly correlated with economic growth. Regional financial integration can potentially address challenges that smaller, more fragmented African countries, like those that make up CEMAC, face. For example, consolidating financial systems tend to boost competition and innovation, improve financial infrastructure, and reduce technological and operational inefficiencies that often plague emerging market financial institutions. When the European Union was created, the resulting expansion of financial flows across borders and financial services integration were essential drivers for European member states’ monetary growth, resulting in positive contributions to GDP across the board, as well as other economic metrics. As explored in a previous Mondato Insight on the West African Eco Currency, the model of regional monetary integration has become increasingly popular, and has been replicated in West Africa as well, though the effort was recently delayed up to five years due to the pandemic.

Regional collaboration and harmonization of regulatory frameworks, particularly for fintech, is an essential component in attracting competition in the financial services sector and innovation among its service providers. And though there is consensus that lifting trade and regulatory barriers leads to healthier systems and economics, there is continued debate on the best approach to regional integration. Both West and Southern African RECs have experienced strong trade expansion and above-average performance as a result of regional cross-border financial integration. And like its neighboring blocs, CEMAC is in the process of advancing its efforts towards market liberalization, particularly in its financial services sector.

Though financial services liberalization leads to cost and other efficiencies, in the case of emerging markets, and Africa in particular, total market liberalization is not categorically believed to be the most successful approach. While critics of regional blocs believe that preferential regional trade may be encouraged at the expense of global trade, some level of protectionism can mitigate foreign exchange constraints suffered by smaller economies by fostering and protecting local ecosystems and their businesses.

Potential Upsides

Like other trade blocs, CEMAC countries utilize a single currency. The CFA Franc, sometimes referred to as XAF, is regulated by an independent monetary authority, the Bank of Central African States (BEAC). But as of 2018, CEMAC’s financial integration was still classified as underdeveloped, with its bank-led financial sector only scratching the surface of its potential. But according to the IMF, there has been significant progress in the region’s banking regulation like supportive policies to build regional reserves and ensure financial sector stability, as well as welcoming a stronger, more risk-based supervision of banks.

CEMAC’s financial ecosystem is dominated by mostly foreign-owned banks. The depth of this banking sector is limited, accounting for only 26.3 percent of GDP. Lack of financial infrastructure makes it difficult to deepen access to services. Density of branches in the region is approximately a hundred times lower than developed countries like Germany or Canada, and when it comes to financial inclusion, CEMAC’s figures are particularly low, even compared with the rest of Sub-Saharan Africa. Less than 15 percent of the adult population in CEMAC countries has a bank account. As part of the regional integration agenda, BEAC introduced a regional switch called the Interbank Electronic Banking Group of Central Africa (GIMAC) in 2015 to enable bank transfers within CEMAC. In 2018, GIMAC was comprised of 56 companies across CEMAC; membership, until recently, was limited to traditional banks and micro-finance institutions (MFIs).

The telecoms sector, like its financial services brethren, is also dominated by foreign firms (MTN, Orange, Airtel), but has enjoyed more extensive penetration. 41 percent of the region’s inhabitants subscribed to a mobile account in 2019, and smartphone adoption reached 39 percent, making it ripe territory for mobile money. So it’s no surprise that mobile money has been on the rise with the region, representing 10 percent of registered mobile money accounts across Sub-Saharan, primarily led by Cameroon and Congo, and the number of accounts growing by 100 percent since 2016. In 2018, electronic transactions doubled, 99 percent of which were sent via mobile money.

Source: GSMA State of the Mobile Money Industry in Africa, 2019

Perhaps in recognition of the need to introduce a structured regulatory framework for mobile money transactions, BEAC announced its intention in 2018 to extend cross-border transaction permission to mobile money providers, alongside financial institutions and MFIs, through the existing GIMAC platform. Transactions between a bank and a mobile money wallet will now be authorized, though still blocked outside of CEMAC. The move is intended to introduce an element of regional interoperability, as well as lower transactions fees between countries to encourage trade. Abbas Mahamat Tolli, Governor of BEAC, announced in April that “mobile money interoperability was now effective within CEMAC”, and that it will “revolutionize the payment system in the region.”

GIMAC’s new platform is seen as a major step forward, since studies show that interoperable payments systems are a cornerstone to supporting digital financial transformation. Prior to the regulation, cross-border transactions required significant participation and formal partnerships. By inviting new players to participate in the digital finance ecosystem, independent from a traditional financial institution, there is hope for greater digital transformation and economic opportunities. But beyond person-to-person (P2P) transactions, banks still own the market on advanced financial services like credit and savings, potentially limiting the avenues of industry digitization.

Currently past its pilot phase and beginning commercial phase, the GIMAC interoperable platform confirmed participation from over fourteen financial institutions and mobile money operators within CEMAC, and has been continually welcoming new participants each month, all of whom will be required to use the GIMAC rails for transfers. While the headline of regional liberalization may hold true within CEMAC, transactions from outside continue to be closely controlled and restricted, with routine business and P2P transactions subject to increasingly restrictive regulations, even with neighboring African countries. In March, BEAC published new regulations further limiting transactions and account opening of residents outside the CEMAC zone, citing foreign exchange shortages as the culprit. This presents meaningful trade barriers between neighboring countries with larger economies, like Nigeria and the Democratic Republic of Congo.

In conjunction with the launch of GIMAC’s interoperable platform, a new regulation was issued introducing a Payment Service Provider (PSP) license that permits non-financial institutions to tap into GIMAC’s system for P2P transactions, in hopes of driving digital payment growth and lowering transaction fees for regional remittances.

But the number of potential participants may be limited to bigger businesses since the PSP license comes with a hefty capital requirement of US$850,000, though stakeholders believe smaller players will still benefit from GIMAC’s system. “Allowing payment aggregators and other smaller fintechs to leverage telco and bank distribution networks through GIMAC, without individual integrations with multiple players, will be a gamechanger,” according to Marcel Tchoulegheu, a Project Manager for ICT, Digital & Mobile Financial Services at MTN Cameroon.

It appears that CEMAC is flirting with a mixed-model approach to inclusive finance and regulatory reforms. On the one hand, inviting mobile money into the financial services infrastructure, and on the other, keeping those outside of CEMAC at arm’s length. It is yet to be seen whether this will successfully, or adequately, encourage digitization and innovation. And the potential gains that are found may potentially be unevenly distributed. Cameroon, CEMAC’s leading economy, already represents the majority of GIMAC members, as well as digital finance activity.

Cameroon Leading The Way

Home to more than half of CEMAC’s population, with the largest GDP in the region, Cameroon is often viewed as the economic leader of Central Africa. With the highest literacy rates in Africa, at 77 percent, it may hold the most regional promise for meaningful digital financial services penetration.

Compared to the rest of CEMAC, and even relative to other markets in Sub-Saharan Africa, Cameroon has enjoyed impressive mobile money penetration. Joseph Abena, Head of Marketing, Communication and Innovation at Orange Money said Cameroon has the highest rate of mobile money subscribers compared to mobile subscribers across its African markets. He attributes this to the strict, long-standing Know Your Customer (KYC) requirements in the country, which made mobile money sign-ups and onboarding easier. Additionally, early partnerships with the main electricity utility provider, ENEO, the state rail company, CAMRAIL, and Total’s fuel stations drove significant growth by quickly and visibly plotting a nationwide distribution network. Other common use cases aside from airtime top-up include bill payments and subscriptions, school fees and rent payments.

Last year, Minette Libom Li Likeng, the Minister of Posts and Telecommunications (Minpostel), announced the government’s goal to increase digitization and access to financial services across Cameroon. The Cameroonian government has been busy trying to support its digital economy, and in February created a start-up incubator for ICT-focused projects. Just following the ICT center announcement, the Ministry also announced the inauguration of a national payment switch. And the country’s various digitization were only expedited by COVID. The Minister launched a virtual hackathon, as well as a digital training course, to encourage Cameroonians to “propose ideas and concrete digital solutions that can enable Cameroon to manage the crisis caused by COVID.” She has also been quite vocal about the importance of producing domestic digital solutions to integrate into health practices. Though some initiatives implemented by Minpostel under the umbrella of ‘innovation’ have been met with criticism. One such effort is the recent introduction of an import tax on phones and tablets, aimed at optimizing customs revenue, but in turn, creating additional barriers to digitization.

Cameroon is investing in its digital skills significantly more than other markets, which is helping to build tech businesses within the country. Few of the existing payment service providers and aggregators in Cameroon are currently active in other CEMAC markets, with the exception of money transfer operators (MTOs) like WorldRemit, Western Union and MoneyGram. Imminent financial integration into the rest of CEMAC may incentivize companies to explore market expansion, or perhaps attract new players to invest in Cameroon, where access to CEMAC markets that may not justify their own business case is now more fluid.

Future Moves

CEMAC is employing a hybrid model of regulatory reform and protectionism, putting its economic liberalization on a tight leash. Public sector stakeholders, both in local governments and among regional representation, recognize that digital transformation and some element of openness are required to achieve more sustainable economic growth and diversification, or at minimum, in order to not fall far behind. But the borders beyond CEMAC are still closed off, with little to no chance of that changing in the near future. The approach is a managed effort, and an experimental case study for regulatory reform across a group of small, underdeveloped economies joining together.

Meanwhile, payments technology companies and MNOs alike wait with bated breath for GIMAC’s formal launch, as well as easing of extra-zone restrictions. As we have said elsewhere, technology often runs several moves ahead of central bankers’ plans. CEMAC and Cameroon are no exceptions. With a high level of mobile penetration and strong flows of regional trade, connecting CEMAC countries to their neighbors should be an obvious priority. And while GIMAC was being crafted, companies like MFS Africa have been integrating to mobile wallet systems in the region and enabling cross-border digital payments for years. In both East Africa and in the BCEAO (XOF) zone, MFS Africa has enabled cross border payments within and between regional economic zones.

“We actually connected MTN Cameroon to MTN Congo (Brazzaville) in 2017. Since then, we’ve integrated to so many other partners in the region, from banks to money transfer operators to MNOs. We are connected to mobile networks and banks in DRC and Nigeria alike - in an hour we could easily switch on these corridors. The technology is simple.”
Dare Okoudjou, Founder and CEO, MFS Africa

Regulators must balance the risk of continuing cash and other informal channels for these large cross border corridors, or adopting current digital payment channels that capture less information than traditional banks require.

It is yet to be seen what potential implications and risks may come from this petri-dish of regional interoperability bound by protectionism. The balancing act of encouraging development through integration while still guarding a domestic digital finance ecosystem, even if that domestic ecosystem is predominantly representative of foreign players, may prove challenging. And with a majority of digital finance activity originating from Cameroon, it is difficult to predict whether the benefits will be evenly distributed across CEMAC markets or concentrated in those with the most participation.

With many factors at play, like the COVID crisis and unstable oil prices, the region’s economic future is all but certain. But, if an alternative approach to digital finance integration can reap some fundamental benefits and ignite digital innovation, there is significant opportunity to be had, both for CEMAC and across Africa.

In development circles, there’s the popular notion that in order to improve economic and social inequities among the poor and marginalized in developing countries, a “trinity” of characteristics must be attained: mobile connectivity, access to the financial system, and possession of a digital ID. These three components in theory have a synergistic relationship with each other, leading to better conditions for the underserved. But a closer look at each of these three and their interdependencies reveals a more complex picture, where other factors like adoption, local considerations, and market forces can make or break even the best-intentioned initiatives.

The concept is most directly exhibited in the case of India and its government’s JAM trinity, short for Jan Dhan accounts, the Aadhaar system providing biometric IDs to all of India’s citizens, and Mobile connectivity. The JAM trinity endeavor has provided financial accounts to over 350 million Indians previously excluded from the financial system. These accounts, linked to Indians’ mobile phones verified by their Aadhaar digital ID, have become the conduit for the government’s vast subsidy system. Although India’s case is the most direct example of this digital trinity in action — leading accompanying literature to label digital trinities elsewhere the “JAM model” — variations of the concept are being implemented in countries around the world. But whether looking at cases ranging from South Asia to South America, simply employing this “JAM model” is insufficient to enacting real change if it ignores local conditions and a state’s pre-existing digital capacity and knowhow — or if the quality of its separate components is lacking. Potential issues like digital literacy and market incentives on the supply and demand side must be properly remedied in order for the concept to reach its full potential. The digital trinity, or JAM model, is not the end all be all of digitally-oriented development initiatives — it is simply the foundation upon which governments must adapt to pre-existing strengths and weaknesses in order to effect ambitious behavioral changes.

More Than The Sum Of Their Parts

It’s difficult to describe the benefits of the JAM trinity’s three components as standalone entities. The first component, mobile connectivity, has served as the bedrock for much of the fintech revolution creating digital financial ecosystems in developing countries. Vast mobile ownership in developing countries has produced the right conditions for innovative solutions like mobile money to be adopted by the previously financially excluded. Sub-Saharan Africa of course is the leading example, as people switched to mobile money services like Kenya’s famed M-Pesa due to a lack of formal banking in rural areas and rampant cash theft. By providing the means for poor and rural populations to access financial services like savings, credit, and even more sophisticated tools like insurance for the first time, the results have been at times stunning. Studies have suggested that Kenya’s M-Pesa revolution managed to lift 2% of Kenyan households out of poverty, increasing the financial resilience and savings capabilities of the country’s poor.

Source: Center for Global Development

The advent of digital identity has proven to be a vital resource in making such progress happen. Lack of proper documentation necessary to satisfy Know Your Customer (KYC) regulations has often made it impossible for the marginalized to participate in the financial system, and analog ID systems are inefficient and vulnerable to corruption and fraud. Digital identity, a broad concept encompassing biometric data but also digitized biographic or personal data, helps marginalized groups overcome these identity barriers to the financial system. India’s Aadhaar program, which created biometric IDs for over a billion Indians, managed to reduce the costs of KYC efforts per user in India from $15 to $.50, improving the conditions for financial service providers to target hard-to-reach populations. A McKinsey report estimated that digital ID could increase access to digital financial services for more than one billion financially excluded individuals across the world.

An exhaustive report by the Center for Global Development (CGD) published in late March looks further into how these three factors actually interact with one another to produce government reforms and initiatives to improve people’s lives. CGD found that owning a mobile phone emerges as the most important contributor to bridging (or widening without such attributes) the gender gap in financial inclusion followed by having a national ID, with exaggerated effects among low-income countries. Globally, when socioeconomic conditions are favorable, CGD estimated the probability that an individual will have a financial account is as high as 84%, and when condition are not favorable, financial inclusion drops to only about 7%. But having an ID and a mobile device boosts the probability of financial inclusion to 34% for that same demographic. While cash transfers have no positive impact on financial inclusion, receiving a digital transfer boosts the probability of financial inclusion by 31%.

The digitization of government-to-person (G2P) transfers — which all but requires a state-mandated digital ID, a mobile phone for remote transfers, and accounts to receive and utilize such transfers — has been the greatest means by which underserved populations have been included. In the CGD report’s 99-country sample, 44% of people in low-income countries who had received a government transfer reported that the first account that they opened was to receive this transfer. The effect was stronger in lower middle-income countries where transfer payments were more frequently made though financial accounts rather than cash.

Source: Center for Global Development

This G2P-led model of the JAM trinity manifests most clearly in India’s digital transformation of its vast subsidy programs. India’s fuel subsidies system was long rife with corruption and inefficiency, and in 2014, only about half of India’s households had access to clean LPG cooking gas. The subsidy, disproportionately going towards higher-income and urban groups, was billions of dollars more expensive than necessary, and vast amounts were diverted to the black market. The PAHAL program reformed the system to deliver the subsidy directly into civilians’ Jan Dhan accounts as a voucher. Customers could track their deliveries, rate their distributors, and change them if dissatisfied. The program removed some 25 million false and inactive recipients, and dealers could no longer divert the subsidies. The carryover effects were significant. Finally obtaining the full subsidy owed, wait times decreased and millions of households switched away from the use of harmful biomass fuels, which accounted for nearly 500,000 deaths per year in India.

That the Indian government could now effectively target populations and fully deliver benefits greatly expanded the government’s capacity to enact intersectional social change. India’s Ujjwala program provides qualifying rural households with a 50% subsidy to purchase a gas connection and stove — but only women in households are eligible, and the program requires them to sign up for a bank account. So far, approximately 75 million women have benefitted. A randomized control trial of different Indian social benefit programs found that when women received payments directly into their own accounts and were trained on how to use them, they worked more and earned more, and their husbands were more comfortable with their wives working outside the home.

By centralizing and digitizing subsidy distribution, a JAM model also creates the ability — though subject to capacity and design — for real-time response mechanisms. In India, government officials in 640 Indian districts receive daily progress reports on PAHAL, allowing for tweaks to the system and effective response mechanisms to issues and complaints. With such supporting infrastructure, a digitized system can foment the trust and repeat usage necessary to effect behavioral change towards digital means.

Down To Earth

The JAM model has enabled digitized G2P payments — and thus greater levels of financial inclusion — in other countries like Pakistan, Bangladesh, Kenya and Togo. But two critical questions remain: what people actually do with these tools suddenly at the disposal, and how effectively the systems are designed and implemented.

On the first question, digitized G2P initiatives have done wonders in expanding financial accounts to the underserved, but digital finance professionals are still often flummoxed over how to create the proper incentives and market conditions for financial behavior to change in broader terms. The CGD report described how in Bangladesh, the government moved to transfer stipends for nearly 13 million children directly to mobile banking accounts for their nearly 10 million mothers. The program had substantial effects on the financial inclusion of these mothers, only 31% of whom had any other mobile money account. But 90% of the recipients only used the accounts to cash out these stipends. Without an interoperable and robust digital ecosystem catering to their needs, the impact of this successful-on-paper initiative was limited in real terms.

“With digital identity, mobile phones and access to mobile money, people are able to send and receive money with a few clicks on their phones and they’re able to receive money from governments. But after that, it kind of plateaued. If you look at digital financial inclusion, digital payments account for most of the digital transactions. Other tools such as savings or insurance or even online lending haven’t really taken off. So I think that JAM has made great progress, but it’s not time to rest on its laurels.”
Audrey Misquith, Digital Financial Services Professional, Asia

Anit Mukherjee, one of the authors of the CGD report who also helped design the Aadhaar system for the Indian government, points out that following India’s demonetization initiative several years ago, many reverted back to old habits once the cash crunch eased. Simply forcing people to use digitized systems didn’t assuage lingering trust concerns and preference for cash among heard-to-reach segments like rural and older civilians. When looking at the JAM system as a whole, the model’s impact on financial inclusion when factoring mobile connectivity and digital identity still falls short of its potential. The CGD report gave dozens of countries a so-called “JAM score” out of 300 points, with countries scored from 0 to 100 based on the three respective categories. What was most striking was how they consistently found countries’ scores in digital identity and mobile connectivity to be well above their financial inclusion score.

Source: Center for Global Development

The JAM-like model implemented in Peru serves as one notable example of results falling short of conceptual promise. Peru linked its digital ID to a new service known as BiM, launched in February 2016, which provides services such as cash in/cash out at agents, the ability to check balances, conduct P2P payments and top-up airtime credit. Though high mobile ownership rates and widespread digital identity possession would suggest the conditions for increased financial inclusion, adoption of the mobile money service has been slow. Unlike the JAM system in India targeting the inefficient subsidies system, the BiM system has lacked the same incentives for adoption. A consortium-based system comprised of dozens of mobile money providers, Peru’s system allows for interoperability, but it failed to correctly align the development objectives with the financial interests of mobile money providers, discouraging expansion to marginalized groups, and it failed to adequately protect against cases of cyber theft, which damaged the program’s ability to build trust.

This gets to core issues any JAM model must address in order to be successful: reforming and improving underlying infrastructure to ensure high quality in the three components, and for the design of the system to be responsive to the needs and characteristics of the given population. In India, the top-down approach to the JAM model meant that significant resources were devoted to guaranteeing the program’s success. But implementation at the state level elicited varying results depending on the state government’s capacity and approach. The CGD report compares the implementation of the digitized public distribution system (PDS) in three different states: Jharkhand, Rajasthan, and Andhra Pradesh. Compared to Andhra Pradesh, which possesses a more digitally savvy population and government, Jharkhand is poorer, with less digital capacity and knowhow in its government. The digitized PDS reforms in Jharkhand focused primarily on saving public resources; unlike in Rajasthan and Andhra Pradesh, there was no effort to widen the low dealer margins to compensate for the effect of tightening controls on dealers’ ability to divert rations to the market. By failing to account for this, the market failed to transition properly as corruption continued. The state also faced issues in biometric authentication, and there weren’t proper response mechanisms put in place to address such issues, leading to instances of greater exclusion from the Aadhaar-based system, not less. Without a clear vision for benefits to civilians or appropriate design and risk-based response mechanisms, the digitized system failed to deliver the results found in Andhra Pradesh, whose government took a beneficiary-centered approach to reforms.

The Jharhkand case is one where linking digital ID to financial or social services actually excluded those who still don’t possess an ID. In this sense, when infused with a discriminatory agenda, digital identity reforms can be disastrous for marginalized groups. In Kenya — renowned for its mobile money-led inclusion efforts and noted by CGD for its high JAM score of 258 — controversy ensued when the government sought to implement its own digital identity initiative last year. In order to obtain a digital ID, the scheme requires a proof of identity, with a discriminatory vetting system for marginalized groups in the country. The government’s own data revealed 10% of applicants were turned away for lack of documents — creating a chicken and egg conundrum for the already excluded. Mukherjee stressed the importance of designing such digital identity initiatives as a functional ID, as was the case in India, and not a national ID.

Pre-Existing Conditions

Even under the best-designed JAM model programs, however, marginalized groups need to actually be ready and able to adopt these tools. Low digital and financial literacy for women in places like Pakistan and Bangladesh are barriers for the systemic progress JAM-led programs seek. Such barriers can’t be remedied with JAM alone; supporting infrastructure and training programs are necessary. At the micro level, there may be issues like in South Asia where a woman’s digital identity — and the benefits connected to it — are often linked to the family’s sole mobile phone, which is controlled by the patriarch. These local characteristics have to be addressed to reap the intended results.

The best JAM model is one responsive to the natural strengths and weaknesses of a country’s three components. India’s JAM model, building on and reforming its legacy subsidy systems, is driven by its Aadhaar system and ubiquitous mobile use. In Sub-Saharan Africa, where mobile money rules the roost, the private sector-led efforts of companies like M-Pesa fundamentally impacts how its JAM comes to shape, with its identity aspects still catching up.

“Any digital system is built off an analog base system. I live in a 100-year-old house. If I put another story up there, I would be scared it would fall. It’s the same idea. If you simply move [populations] to a digital system, nothing changes. You replicate barriers and maybe make it worse by increasing surveillance. But if you are designing digital systems to take into account the problems you see in the base system, then you are moving towards a better system.”
Anit Mukherjee, Policy Fellow, Center for Global Development

As the disparity in CGD’s JAM scores between mobile ownership/ digital identity and financial inclusion makes clear, these changes will not come overnight, even with a focused vision, proper design corresponding to local conditions, and sufficient resources and political will. But as one of the co-architects for one of the most successful examples in India, Mukherjee views this disparity as a mere snapshot of the early stages of the burgeoning digital financial revolution. Dramatic behavioral change takes time and requires a careful realigning of market incentives with consumer need. Since COVID-19 hit, countries like Togo and Bangladesh have unexpectedly stepped up to employ a JAM-like model to deliver social benefits remotely, as people who may not have seen much use for these tools previously now find it a critical asset in these unprecedented circumstances. It’s opportunity finally aligning with capacity.

The path to reaching JAM’s desired ends won’t look the same in two different places, and it certainly won’t require the same time and resources. Any JAM model without the proper political will, resources, response mechanisms, complementary development initiatives and synchronization of supply and demand features of the given market will fall short of its promise. But in spite of its hurdles and risks, the JAM model will undergird any country’s efforts to bring positive intersectional change for its poor and marginalized groups through digital means.

Telehealth, telemedicine, digital health, high-tech healthcare, health tech, medtech - there is a plethora of names for the increasingly ubiquitous convergence of healthcare and technology. Existing technology has been leveraged to meet the needs of the coronavirus pandemic, and adoption of virtual health services has subsequently accelerated faster than many experts anticipated.

Telehealth was steadily growing before COVID, but the sector has skyrocketed in recent months, making virtual healthcare a virtual necessity. Worldwide, the telemedicine market is projected to grow by $43.9 billion by 2028, with an expected annual growth rate of 13.3 percent. Prior to the pandemic, the total annual revenue for U.S. telehealth companies was $3 billion, but it's estimated that as much as $250 billion of the country’s health spending could be redirected to the digital health sector.

Unlocking the full potential of this technology will require reliable connectivity and more closely-integrated digital services, including digital ID, and fintech solutions. With the core use case of telehealth now established, is innovation in healthcare ready to run free?

Healthy From Home

“There’s no question that necessity is the mother of change. The transition to telehealth has been truly transformational,” said Dr. Karen Rheuban, co-founder and head of the University of Virginia’s Karen S. Rheuban Center for Telehealth. Their own health system saw a 9,000 percent increase in virtual visits from February to May when the pandemic began. An early pioneer in the field, UVA was well equipped to handle the spike since the institution has been practicing telemedicine for 25 years.
As the pandemic has hastened the adoption of telehealth, a few areas of opportunity have become more apparent. Key bottlenecks include broadband connectivity, fine-tuning of technical innovations, and financial payment models -- but these challenges may be addressable.

“In the past, patients have always liked virtual visits. It’s the providers’ attitudes that have had to change following the COVID disaster. They’re much more positive about telemedicine now. People have had to take on digital healthcare for their own safety and now it’s here to stay.”

Dr. Peter Yellowlees, Chief Wellness Officer, UC Davis Health

Chronic care, dermatology, and telestroke care are just a few of the specialties that can be done remotely. In fact, nearly 80 percent of cardiologists, gastroenterologists, pulmonologists and respiratory physicians increased their use of telehealth technology during the pandemic.

Source: McKinsey

Mental health care may have experienced the easiest transition from in-person to virtual care. Dr. Yellowlees described how UC Davis Health converted their psychiatric clinic from 3% video visits to 100% video visits within three business days, and all visits remained virtual for six months. Patients can conveniently speak with therapists from their home or car, or continue care with their providers no matter where they live or travel to.

Elderly people, who during the pandemic have accounted for 80 percent of COVID deaths in the U.S., can have a virtual visit with their doctor without risking coronavirus. Neonatal ICUs allow families to watch their babies in the hospitals from home with video cameras, or infants can go home with hospital equipment to be remotely monitored by healthcare workers.

“The COVID-19 pandemic has abruptly changed the landscape. The essential limitations on physical contact have resulted in digital solutions taking a central role in tackling the pandemic. We've seen many barriers being instantly removed, and new ideas deemed too radical a few months ago, becoming our ‘new normal.’”

Dr. Ana Luisa Neves, Research Fellow in Clinical Analytics & Patient Safety, Institute of Global Health Innovation, Imperial College London

Efficiency By Way Of Necessity

When the pandemic forced patients to use telemedicine for the first time, people realized that it was a convenient way to see a doctor from the comfort of their own home while saving travel time to see providers. Healthcare software apps, like Teledoc, ZocDoc and PocketDoc, are being used for virtual providers’ visits for diagnosis, prescriptions and routine wellness visits to comply with stay-at-home orders, as well as economize on precious personal protective equipment.

Remote patient monitoring allows healthcare professionals to check on patients in real-time, which may ultimately reduce a patient’s stay in a hospital and use fewer emergency services. Healthcare innovations, like pulse oximeters, heart rate monitors, blood pressure monitors, smartwatches, and even inhalers for asthmatics, can all be fitted with sensors to automatically send data to care providers. Patients can also wear patches so providers can make sure they’re taking their medication.

Consumer wearables, like the Apple Watch, can also monitor and send health data to a healthcare team with reasonable accuracy. TytoCare, a health tech company, can send audio sounds of the heart and lungs as well as visual images of ears, throats, and skin for doctors to diagnose. The company has partnered with Amwell, a Google-backed telehealth company that recently went public, to provide a seamless remote health examination experience by integrating TytoCare’s devices with Amwell’s software platform for virtual diagnosis.

Patients who are sent home from the hospital may also be given monitoring equipment and tablets in a “hospital-at-home” model. Fewer days in the hospitals saves money for patients and insurance companies, not to mention improving patient outcomes and freeing up beds for critical cases.

Even within hospital walls, telemedicine can be deployed by having a patient in an isolation unit monitored by medical equipment and video-enabled solutions, decreasing the number of times providers must enter the isolation unit (thereby reducing the risk of exposure while conserving personal protective equipment).

The data collected from constant patient monitoring can then be analyzed with the help of artificial intelligence, which can help healthcare workers make faster decisions and determine treatment plans. Patient information from sensors and radio-frequency identification (RFID) can be streamed into an integrated command center, which can send patient data to specialists, free hospital beds, and optimize staffing, thereby ensuring continuity in patient care. Integrated command centers are used to constantly monitor patients and send data to specialists when needed.

Dr. Yellowlees predicts that asynchronous data sharing will become the norm as doctors and patients communicate through secure messaging systems. Patients will have increased autonomy over their own care by having access to their own records, while hospital systems will finalize notes in a timely manner. But privacy protection, especially of health records, will remain essential. HIPAA rules were relaxed during the height of the pandemic so that people could receive care as quickly as possible, but as providers and patients settle into a new normal, these restrictions are likely to be reestablished.

In rural communities, the obstacles in getting access to high-quality healthcare may be significantly reduced if a robust telecommunications infrastructure and telehealth services are in place. There is a significant cost savings when every remote location does not need its own health facility, or when patients can receive treatment without having to commute great distances.

“If we can reign in digital health without exposing patients to additional risks and give time back to the patients, that would accomplish a great deal in terms of patient care.”

Dr. Joseph Sanford, Director, University of Arkansas for Medical Sciences Institute for Digital Health and Innovation

The initial impetus for UVA’s telehealth program was to service rural areas in Virginia, but the program expanded to support international telehealth programs in Tanzania, Rwanda, Congo, Uganda, Guatemala and other developing nations where access to global specialists is only be via telehealth services. When Dr. Rheuban first began working with the Swinfen Telemedecine, the longest-running telemedicine nonprofit, one of her first consults was for a family with a severely anemic baby. The family canoed for a day and a half to see a doctor in Papua New Guinea who then reached out to Dr. Rheuban, a pediatric cardiologist, for a diagnosis.

“The only bright light of this pandemic is how it’s become abundantly clear that telemedicine could absolutely scale up in the U.S. and across the world,” said Dr. Rheuban.

What Happens Next?

There are a few lessons we can take away from our current real-world experiment in telehealth.

“The COVID-19 outbreak has exposed some of the current weaknesses, and opportunities for improvement - the need to scale up digital-first solutions, improve technical infrastructure, provide training and support, and adjust regulations. These aspects need to be considered in strategies to ensure that digital care is efficiently reaching as many people as possible.”

Dr. Ana Luisa Neves, Research Fellow in Clinical Analytics & Patient Safety, Institute of Global Health Innovation, Imperial College London

One barrier to adapting virtual health for more services is ensuring a high level of provider care during a remote visit. Two-way communication is key for patients to be able to share visual and verbal cues -- an important component diagnostic process. For example, a dermatologist would need a sharp visual image to spot the irregular shape of a potentially cancerous mole. And in an ideal world, the virtual experience should be as effective as an in-person visit.

“Medicine is based on incredibly personal visits. Facial expressions and micro expressions can be seen in a patient exam room. When you’re conducting virtual visits, we prefer high-quality audio and video conferencing so there’s no awkward lag time. This is why upload speed is critical. It used to be enough to have fast download speeds for video-on-demand but now when you’re conducting a virtual visit, the existing bandwidth is not sufficient.”

Dr. Joseph Sanford, Director, University of Arkansas for Medical Sciences Institute for Digital Health and Innovation

One of the initial challenges many health professionals faced was understanding how to conduct a telehealth session. Only a few institutions had established telehealth education programs, and demand for such programs saw an enormous jump in demand as coronavirus roiled across the country. Jefferson Health, a 14-hospital program in Pennsylvania and New Jersey, had more participants in their telehealth education program on a weekly basis than during all of last year, according to Dr. Judd Hollander, Senior Vice President for Healthcare Delivery Innovation at Thomas Jefferson Hospital.

“The University of Kansas Medical Center’s Center for Telemedicine and Telehealth experienced a significant increase in telehealth education inquiries, increased website activity and attendance in just-in-time telehealth training sessions focused on COVID-related telehealth.”

Ryan Spaulding, Acting Director, University of Kansas Center for Telemedicine and Telehealth

As patients and providers encounter these limitations, the tide is slightly turning for telehealth visits. From May to June, the number of virtual care claims dropped 21 percent. People are slowing returning to doctors’ offices and receiving non-emergency medical care again as shelter-in-place orders have eased up.
Even after the pandemic is behind us, technical infrastructure will be strategically important to the future of healthcare. Once a COVID vaccine becomes widely available, the virus will most likely not disappear completely. And according to a recent Gallup poll, one in three Americans say they will not take the vaccine, even if it’s free and FDA approved. In addition, Dr. Anthony Fauci, the chief of the National Institute of Health and Infectious Disease, has said the efficacy of various vaccines in development could range from 50 to 75 percent.

To complicate matters further, virtual visits have been billed to insurance companies for the same cost as in-person visits. At the height of the pandemic in March 2020, federal and state policy changes enabled Medicare and Medicaid, along with private insurance firms, to expand coverage for telehealth services to provide more patient services remotely. However, it remains to be seen if the broad array of telehealth services offered and reimbursed by these payers will be made permanent. And importantly, patients must perceive sufficient value in telehealth services if they are to fully embrace them. Particularly in light of the economic hardships brought on by the pandemic, care must be taken to ensure that the cost of telehealth services is aligned with perceived quality of care.

Opportunity Follows

Despite these real and potential barriers, opportunities remain. Digital healthcare is a burgeoning sector and identifying areas of growth will benefit investors, given telehealth's proven value over the last few months. Other players in the digital space may also stand to benefit from adoption of telehealth, as integrated services that improve patient and provider experiences will no doubt be in high demand.

At the policy level, advanced connectivity can reduce the costs to the healthcare industry and the financial savings can be invested in other segments of the industry. McKinsey estimates that productivity improvements will add $250 billion to $420 billion to global GDP by 2030.

Investors are newly excited for the opportunities in the telehealth sector, and may want to scope out the vast number of health tech startups to see how fintech companies can partner. Global healthcare funding to private companies reached an all-time high of $18.1 billion in the second quarter of 2020, according to CB Insights. There were 46 healthcare unicorns, worth $116.8 billion, worldwide. Healthcare funding in Asia nearly doubled as digital health in China expanded enormously. Telehealth deals jumped 23% in the second quarter of 2020. This is all to say that the investment climate is appealing, with a relatively open field and substantial demand from providers, patients, and health systems.

With the meteoric rise and rapid adoption of virtual healthcare, telemedicine is clearly an important and permanent part of the new healthcare paradigm. It is also a growing area where digital services are proving valuable and cost-effective in the real world. However, there are areas for improvement where technology can facilitate a seamless healthcare experience and expand the array of telehealth services offered. When digital technology catches up to meet the needs, telehealth will become more robust, creating new, exciting digital opportunities and paving the way for the future of healthcare.

Across the world’s developed metropolises, COVID is causing unexpected spatial redistributions of economic activities - and consequently, changing the decisions of the people who perform them. In a word, it’s "deurbanization": more people are leaving cities than before. "Deurbanization," in the context of COVID, refers to the exodus from cities that erstwhile urbanites are making for a variety of reasons ranging from health concerns to the reshuffled deck of work-from-home and life under the pandemic. A huge question for the future of global cities is how significant this shift is - as well as whether and how far its impacts will outlast the lockdowns. Will urban centers in emerging markets - host to the fastest urbanizing populations on the planet - follow the lead of developed markets, and disperse in response to the digital revolution? Or does the future hold growth - end of story?

To Digitize Is To Deurbanize?

Across Europe and the United States, the pandemic’s impacts are creating a noticeable reshuffling of the demographic deck. From New Yorkers flocking to Connecticut and New Jersey to Parisians fleeing the capital (a reported 1.2 million in March), few citadins haven’t had to re-examine earlier decisions made of ‘where to be.’

Immediate impacts are estimated to be significant. The New York Times reports that less than 10% of that metropolis’s workers had returned to the office last month; in addition, only a quarter of major employers expect to bring people back by the end of year, with barely half planning a return by summer 2021. With quality of life indicators and economic incentives tied to commuting times rendered moot, it should perhaps come as no surprise that many urban dwellers are looking for a lifestyle change — and indeed, real estate data points to the conclusion that far more urban dwellers are looking to move than suburban and rural residents during the interminable freeze-frame that 2020 has thrust on the world’s rich and poor, rural and urban.

Source: SparkRental

In such uncertain times, the humble analyst might do well to keep crystal ball prognostications to a minimum. On the other hand, global stay-at-home orders have created a verifiable spike in digital media consumption across channels and countries. Some visionaries have attempted to map the pandemic’s long-term impacts across various sectors of society, describing a post-globalizing world where urbanization trends are structurally altered for as long as crowds retain a toxic association. Others are more sanguine; given the development of widely available and effective vaccines, all will return to normal and 2020 will plot like a blip in human history.

So which might it be? Against the backdrop of an emerging narrative around the recognition of planetary urbanization, how has the pandemic created levers for long-term shifts in demographic patterns of mobility and spatial distribution? How well do we even understand these patterns, and who might benefit from a better understanding of any deviations from the status quo forecast?

Work Is Where The WiFi Is

It would be trite to point out we are in unchartered territory with respect to the magnitude of the intersection between global urbanization trends and a once-in-a-century pandemic. To add to the complexity, our current moment offers never-before-seen technological tools for responding to the current challenge. Geospatial technologies, in particular, have prompted discussion on just how much societies should trust corporations — or their governments — with such private information as our locations.

Geospatial technologies are not the only ones in the spotlight as a result of the pandemic. Co-working, once universally hailed as a liberating force for entrepreneurs and small businesses able to leap-frog high rent and other CAPEX investments through the cost innovations of the sharing economy, cheaper and better computing processing power and internet connectivity, is experiencing a significant reckoning. WeWork, which has risen to become one of the largest tenants in some of the world’s largest cities, is in dire economic straits (though their struggles predated the pandemic); at the same time, if the new normal sees modified co-working resume at more distributed points across a city, it’s peripheries, or even at its more distributed aggregation points for commuters, the model could come rearing back stronger than ever. Similarly - the fates of tomorrow’s resurgent coffeeshops, bookshops, and other purveyors of indoor or outdoor service are being written by new ‘flows of people’, running through new channels unexpectedly carved.

Fundamentally, then, it becomes clear that at the heart of the intersection of urbanization and Corona questions lie the challenges and opportunities of the future of work.

Of course, economic incentives are only one amongst a myriad of variables that determine where people go, work, and live. But for any business managing the impacts of the pandemic, it should be clear that the real estate adage about the three most important variables for success (“Location, Location, Location”) are unavoidable. What does this mean when, for example in the US, 37% of jobs can be performed entirely at home? Indeed, with 5-10% of developed countries’ workforce working remotely before the pandemic (with, interestingly, Sweden an outlier at ~30%) some analysts anticipate a percentage closer to 40-50% post-pandemic.

One obvious implication is that businesses who manage to do remote-work or hybrid-work well will emerge stronger than their competition. After all, you don’t have to outrun the bear — just the next guy or gal. At the risk of seeing opportunity in crisis, it shouldn’t be lost on anyone in the knowledge economy through the pandemic that telework, for all its significant drawbacks, also offer innumerable productivity boosts, from lowered commuting times to the explosion in ‘asychronous workflow.’

It should also be noted that the pandemic’s impacts affect different groups differently; in developed markets, the millennial cohort’s behavioral distinctiveness with respect to urban-migration had raised questions even before the pandemic about the universal appeal of mega-cities for those entering the workforce, while the well-documented collapse of certain urban centers, like Detroit, make it clear that urban primacy was never a monolithic phenomenon to begin with. Indeed, recent research using US census data indicates that the urban growth narrative that most of us have been taking for granted may deserve closer scrutiny; it would appear that the second half of the last decade actually saw declining growth rates in major urban centers, offering even greater question marks for the new decade’s yet-to-be determined demo-spatial distribution.

Source: Brookings

Given the labor-intensive process of traditional methods of demographic analysis, it may take years to actually understand what the aggregate effect of hundreds of millions of individuals’ collective choices are on a landscape, city, economy or society. One recurring trend, however, quietly pre-dating the pandemic and cutting across economies developed and emerging, is the dynamism of the humbler urban centers growing in the shadows of the world’s megacities.

Small Cities, Grand Potential

The phenomenon of the rise of the small city is perhaps most illuminating in the world’s fastest urbanizing continent: Africa. In contrast to years of humanitarian and aid focus on either urban slums or rural hinterlands, recent research indicates that much of the breadth of Africa’s unfolding demographic transition story takes place not in the Lagoses, Cairos, Johannesburgs or Nairobis, but in thousands of settlements beyond the capital that, collectively, are creating new urban forms. These are urban grey areas that defy the simple rural/urban binary which to this day tend to dominate our imaginations and discourses - and which shape the very statistics that give us a sense of where people are living and how.

Africapolis, a collaboration between the Sahel-West Africa Club within the OECD secretariat, in collaboration with several European space agencies, released a ground-breaking report in February that constitutes the first continent-wide comparable dataset on urbanization in the world. This approach brings novel eyes to the fundamental challenge of comparability among different countries’ urbanization figures. As it turns out, countries define and measure "rural" and "urban" according to drastically different metrics and thresholds that should give pause to any reliance on such data. For example, while most countries historically calculate rural populations as a ‘residual’ of what is not urban, the threshold for defining the urban varies tremendously (for example, 2,000 individuals in a given administrative boundary in Kenya to 20,000 in Nigeria). Ex-French colonies’ history adds a political dimension to what is urban, while countries like Ethiopia and India factor in the presence and proximity to public infrastructure as part of their definitions.

The Africapolis approach, which incorporates satellite imagery of built-up areas visible from space, increasingly sophisticated machine learning techniques, and a deep historical sweep, offers much-needed nuance to any discussion about urbanization in Africa, and helps to fill in the gaps on global questions of migration and mobility.

When speaking of urbanization, we may be too quick to focus on megacities without understanding how or why people get there. For example, while the urban population in Africa increased by more than 1,000% over the 1960-2015 period, the average size of urban agglomerations increased by only 63%, from 46,000 to 74,000 inhabitants. This phenomenon can be explained in large part through the rapid emergence of villages and settlements rapidly surpassing a lower threshold. Setting thresholds at a level more sensitive to the urban characteristics caused by actual densification of humans - like the threshold of 10,000 people that the Africapolis methodology sets - may prove more useful in characterizing demographic shifts across the continent.

Source: Cities Alliance

What this reveals, additionally, is that in the calculus between migrant in-and-out-flows, it is often the absence of migration - otherwise known as endogenous, in-situ growth - that drives new urban formations, moreso than the village-to-urban slum story that occupies so much of the “Africa Urbanizing” narrative. Perhaps counter-intuitively, COVID has a greater chance of accelerating urbanization - or, otherwise framed, decentralizing it. The cost of a square meter of real estate may depend more than ever on the quality of its internet connection rather than the footfall around it.

Viewed from this perspective, a whole new landscape of opportunities and futures emerge for ‘urban development’ that links the well-trodden questions of the rural and remote to the distinct challenges of ‘capital in the capital.’

As African governments flex and relax their internal and international borders in response to the pandemic, players must use the present wisely, the better to read markets rearing to reopen - anticipating the local version of timber demand surge during a pandemic construction frenzy, for instance, requires both insight and intuition. Where roads are built to link rapidly forming small, urban centers, agriculturalists meet agro-processors; a tire and mechanic economy is likely to spring unprompted; and a cash economy begins to supplant traditional transaction modalities. It is in these places that mobile money actors and their ‘digital frontier’ peers may encounter and first develop relationships with tomorrow’s more traditionally understood ‘urbanites.’ As we know, crisis breeds opportunity - with 30% of food produce perishing due to restrictions, where are the COVID-borne agro-entrepreneurs testing their mettle to meet the moment?

Decolonizing The Effort

One thing is clear - whatever spatial redistributions of people and work may be taking place in the developed West, the growing importance of cities shows no real signs of slowing. In fact, it may become necessary to reconceptualize our definition of the city to better define what outcomes may be envisageable or desirable in any given, specific locale. Indeed, grappling with seemingly simple questions of location is fraught by both the magnitudes of analysis required as well as the political and ethical dimensions associated therewith. Maren Larsen, a lecturer and researcher at the University of Basel Switzerland, emphasizes in particular the challenges inherent with generalizing insights about urban formations & migratory patterns, in Africa as elsewhere.

“We’ve talked about African urbanization in a fatalistic way - but if we’re going to generalize, we must not just recognize the horrible - climate change, conflict outcomes. We must also be cognizant of the immense potential of African youth, immense creativity, immense wealth of knowledge about alternative ways to do things. Not just in a survivalist sense, not just in a capitalistic way, but across the board.”
- Maren Larsen, Lecturer & Researcher in Urban Studies, University of Basel Switzerland

For techno-optimists and social entrepreneurs, no further encouragement may be needed. In an increasingly urbanized world, how to solve issues of ‘urban drudgery’ - like the fact that many migrants living in the cheaper outskirts of town spend upwards of 50 percent of their household income on commuting alone?

Source: SE4All

And when such tools are developed, who owns them? For many justice-oriented observers, therein lay the real challenge in applying new lenses to questions of “access.” In the sense that COVID, or any other exogenous shock, shifts structural dynamics around who gets to be where, there are inevitably winners and losers, with power dynamics determining the spread. The possibilities afforded by the emerging recognition of decentralized urbanization — perhaps a more apt description of what the pandemic has wrought in many parts of the Global South as in the Global North — will become accessible to all only if the enormous power afforded by global observation (and surveillance) technologies manage to be radically democratized as they mature ever-rapidly in precision and predictive power.

As our world becomes more digitized amid the global Covid-19 pandemic, central bank digital currency, a concept that was somewhat vague and speculative to most until just a year ago, has become a focus of conversation. Central bank digital currencies are fiat currency issued by central banks in digital form, and function as legal tender of a country. While various forms of digital currencies have existed for years, Facebook’s announcement of libra cryptocurrency in 2019 is often cited as a major “tipping point” that signaled an evolution in the development of digital currencies around the world.

According to observers, China currently leads the global digital currency race, as officials there prepare to launch the digital yuan no later than 2021. While a prevailing view in Western media is that China is trying to challenge the dominance of the U.S. Dollar by being the first to launch their digital currency, some experts believe this is not the full picture. First, there are many reasons to believe that China’s commitment to digital currency is primarily in pursuit of economic rather than political goals. Also, various forms of legal challenges await, making it unlikely that cross-border digital currency transactions can be implemented smoothly or in short order. Finally, China is not alone: many countries in Europe, Asia, and South America have already successfully launched pilot programs of their own digital currencies. Therefore, central bank digital currencies may be a global economic force, rather than simply a geopolitical tool. And if COVID-19 does inspire more and more nations to begin work on their own versions of this technology, the world may find itself in a digital cash environment sooner than anyone thought possible.

Leader Of The Pack

Over the past few months, news has circulated about China’s plans to become the world’s first major country to issue a central bank digital currency. While China has been developing its digital yuan over the past five years, it was earlier this year that People’s Bank of China launched a pilot program for the digital yuan, dubbed as DCEP (Digital Currency Electronic Payment), in the cities of Shenzhen, Suzhou, Chengdu and Xiong’an. Then, in August, the pilot program was extended to cover several additional regions, including Beijing and Hong Kong. Four major state-owned commercial banks, China’s ride-hailing giant Didi, and 20 other entities across various sectors are participating in the pilot program. People’s Bank of China has hinted that the DCEP could be launched as early as mid-2021.

One dominant narrative in the West regarding these latest developments in China has been that China is beating the U.S. in the digital currency race, and that China using the new digital currency as a revenue to challenge the U.S. dollar’s supremacy as the de facto global reserve currency. According to Bank of America analysts, “China seems likely to have a clear first-mover advantage in its adoption of CBDCs, both in terms of timing and usage.” Yet, it is worth noting that the Chinese currency represents just 2 percent of global foreign reserves, while the U.S. dollar represents just over 60 percent. Besides, People’s Bank of China has revealed that the pilot program will focus on small domestic retail transactions, making it seem unlikely that challenging U.S. dollar’s dominance is the main goal of China’s plans for DCEP.

Experts familiar with China’s efforts believe that, the Chinese government’s motivations for developing the digital yuan are likely to be much more economically-focused than politically-motivated. First, digital currency can act as a powerful macroeconomic tool. “Digital currencies can empower central banks with very direct and flexible monetary and fiscal tools during times of economic challenges,” said the economist familiar with the matters at the Harvard Kennedy School. “In today’s global pandemic-struck economic environment, having this ability is more important than ever, as governments across the world look for the most effective ways to stimulate their economies.”

According to the same source, boosting financial inclusion and preventing money laundering and fraud are also important reasons for central banks to develop their own digital currencies. “Especially in developing countries, where there’s huge unbanked population without access to physical banks, I can see why digital currency would make a big difference. Digital currencies can be issued by a central bank directly to people without going through the traditional banks.” He added, “In addition, digital currencies can help countries fight crimes and frauds that involve money laundering and tax avoidance. That’s because while cash is anonymous, the central banks can trace and monitor the movement of digital currencies they issue.”

A Global Proposition

China is hardly alone in actively researching and testing a national digital currency. Based on a recent survey by the Bank of International Settlements in 2019, more than 80 percent of 66 central banks around the world are working on digital currencies. In fact, at least one in ten central banks are expected to offer digital currency within the next three years. Similar to China, each nation is actively pursuing digital currencies to upgrade their economies in manners consistent with their broader national policy agendas. We can find examples from Europe, Latin America, and Asia.

In Europe, countries like Sweden and Ukraine have already begun researching or testing their own digital currencies. Sweden began testing its digital currency, e-krona, in February 2020, and the pilot program will be in operation for one year, until February 2021. Sweden is already one of the world’s least-cash dependent countries, making it an ideal candidate for transitioning into a digital currency economy. Similarly, Ukraine has announced that is has completed a pilot scheme for national digital currency, e-hryvnia, in February. Finally, the European Central Bank has also officially confirmed that it is working on developing the digital euro.

Meanwhile in Latin America, Central Bank of Bahamas has confirmed its plans to adopt a national digital currency no later than 2020. Bahamas’s digital currency project is called, “Sand Dollar” and in fact, its prototype has been initiated in districts such as Exuma and Abaco Islands. The Bahamas may be an ideal country for the adoption of national digital currency due to its geographical characteristics: opening bank branches on remote islands is not cost-efficient for banks, therefore leaving many citizens unbanked or underbanked. Hence, an important goal of the Sand dollar is to make banking and payments more smooth and efficient for everyone, including populations without easy access to physical banks.

In Asia, Japan, Korea, Thailand, and Philippines, among others, have all been actively researching or testing the digital currencies. Bank of Japan announced proof-of-concept tests for the digital yen in early July, and Bank of Korea is now working on a 22 month pilot scheme to build and test its own digital currency in 2021. It is worth noting that South Korea had not been planning to launch a pilot test so soon, but has changed its stance radically due to the pandemic and announcements of neighboring countries moving forward with their digital currency plans. Bank of Korea officials, however, remain concerned that digital currency could destabilize Korea’s financial system. Meanwhile, Bank of Thailand has already completed two phases of a pilot project to test its digital currency, and Philippines has also created a committee to look into the feasibility of developing its own digital currency.

A Pandora's Box?

The timing of the ongoing central bank digital currency developments around the world coincide with the timing of the global Covid-19 pandemic, perhaps hastening the research as global consumers increasing look into digital payments to replace potentially “dirty” cash transactions. But while it is understandable why many central banks are keeping their priority on digital currency development amid the pandemic, nonetheless, many challenges await. According to Mondato’s interview with a regulatory expert based in South Korea, legal hurdles can prevent digital currency from being implemented in a timely manner , even after a pilot program is successfully completed.

“Since digital currency allows an issuing government or central bank to trace every moves by its users, it may be viewed by some people as a threat to their privacy – a big government tool to monitor and control its citizens closely,” said JaeMyung Park, managing partner at law-firm based in South Korea with expertise in fintech regulations. “If enough people view that digital currency oversteps the boundaries of their privacy rights, it may not lead to adoption. So the key challenge is to balance people’s privacy concerns with the need for transparency in order for the digital currency to function efficiency.” This concern is relevant for any nation, but it could be particularly relevant for countries with privacy conscious cultures.

In addition, Park noted that legal matters become more complicated when it comes to the use of digital currency for cross-border and cross-currency payments. “Every central banks are developing their own versions of digital currencies, and different national rules and regulations will dictate how they will be used in each country.” Therefore, Park believes that even if digital currencies were adopted in the near future, it is likely that the “uses will remain limited to domestic transactions, at least, during the early years, while the regulators try to figure out how to manage the cross-border transactions.” That said, some countries like Canada and Singapore have jointly conducted an experiment of cross-border payments using their blockchain technology , demonstrating that such research is well on its way to pave the way for the eventual norm of cross-border digital currency transactions around the world.

The CBDC model is not necessarily a well-designed political scheme by the Chinese government to leapfrog the West. Rather, it is a global economic trend triggered by each nations’ desire to strengthen their economies through innovation. On every continent, there are countries leading the digital currency revolution, and the Covid-19 pandemic has provided further reasons for hastening development. Yet due to privacy concerns and other legal challenges that await, it is to be seen how smoothly the adoptions will come along in years to come. All in all, it is still too early to predict how digitalized world’s currencies would be in even five years, but one thing is clear: it is going to be more about how well each country adopts it, and not how fast, that determines the ultimate success of their digital currencies. If done right, digital currencies can potentially serve as powerful tools for correcting economic downturns, for fighting crimes, and encouraging more financial inclusiveness around the world.

Consumers have been weathering uncertainty since long before COVID-19. Today, many are being judicious about how they spend, but merchants need shoppers to spend, and shoppers need ways to stretch their budgets. One e-commerce solution has quickly accelerated during the economic downturn, and is making inroads in retail as well: Buy Now Pay Later (BNPL). In broad terms, BNPL solutions provide up-front purchases for customers who pay the BNPL provider the remaining balance over a fixed period of time — in many cases, fee- and interest-free (at least initially)

Essentially, these are loans. But how money is generated from that loan makes all the difference. Far more than credit cards and traditional loans, BNPL models tend to disproportionately rely on merchant fees for revenue, not user-generated fees; if everything is paid on time, there are typically no fees or interest. Attracted to BNPL’s massive benefits to conversion rates and sales, merchants don’t mind the fees — especially during an economic downturn with less money in people’s pockets. Yet BNPL’s core mechanic — breaking down purchases into smaller amounts to be paid over time — presents a double-edged psychological sword. At its best, BNPL offers the opportunity for meaningful flexibility and access for financially distressed people wary of or unable to access traditional credit. So far, the emerging digital BNPL ecosystem has veered in that general direction. But as with any loan scheme, improper design or risk assessment of BNPL services can warp a promising financial tool towards sinister ends.

COVID Now, Recovery Later

Even before COVID-19, the BNPL space was seeing impressive growth, in large part from millennial and Gen Z shoppers wishing to steer clear of debt. But the rapid integration of BNPL options into ecommerce sites has quickly made emerging behemoths out of leading BNPL startups. Melbourne-based Afterpay saw its value increase from $100 million four years ago to over $12.55 billion, signing up more than 1.6 million new active users since March in the U.S. alone. Quarterly revenues are lapping pre-COVID earnings. And considering the numerous benefits of BNPL offerings to merchant sales, it makes sense. Data from Klarna, a leading Swedish BNPL company, suggests increases in online conversion can exceed more than 30% and average order size can increase by more than 45%. Major ecommerce and retail players are quickly adopting these services to keep revenue flowing.

BNPL’s acceleration comes at a profound time for consumers credit-wise. A July survey said 62% of those with credit card debt wouldn’t be able to make minimum payments in the next three months if the pandemic continued. The same survey revealed credit card spending to be down compared to last year, with the employed using the opportunity to improve their debt situation while the unemployed are likewise spending less. In this time of economic uncertainty, credit card companies are also pulling back themselves, lowering many customers’ credit limits.

Re-emerging today as a fintech descendent of in-store credit, Buy Now Pay Later has been around in various iterations for decades. But as online shopping hit its stride during the pandemic, so did digital BNPL options,. Leading BNPL options usually allow customers to pay for purchases in several installments, typically four, without interest or fees, and automated payments — the deferred debit model, a customer-friendly version of BNPL which has emerged in recent years.

Relief Now, Repercussions Later

The uncertain terrain has made BNPL an attractive option for consumers and merchants alike. One July survey found over a third of U.S. consumers have used a BNPL service. Australia in particular has seen BNPL usage surge as other measures of payment have fallen. One survey found that spending on BNPL apps grew by 22% in the first week of May compared to February — at the same time that ATM withdrawals fell by 32%. 36% of surveyed consumers in May said they had used BNPL for the first time during the pandemic.

It was only a couple years ago that established credit players were doubting BNPL apps would continue to succeed during an economic downturn. At least so far, these prophecies have proven quite wrong. Companies have reported slightly rising defaults since the crisis began, though typically remaining lower than 2%.

A slight rise in defaults can make a difference in an industry relying on thin revenue margins, but it has been more than supported by the massive influx of new users wary of credit cards. A July survey revealed that BNPL growth is spurred in large part by those who can’t or don’t want to use credit cards. Among those surveyed, nearly 40% used BNPL services to avoid paying credit card interest — with nearly 39% using BNPL to buy things not in their budget. A quarter of those surveyed wished to borrow without a credit check, 16% didn’t like to use credit cards 14% couldn’t get approved for a credit card — and 14% were maxed out on their credit cards.

Veronica Katz, the Chief Revenue Officer for the U.S.-based BNPL company Sezzle, estimated about half of the company’s customers have an aversion to using credit, while the other half have difficulties accessing credit. The cautionary tale of digital loans would suggest that extending credit to people with little to no credit check would be a recipe for debt disaster. But along with no interest fees, leading BNPL services tend to cap late fees; whereas the average credit card debt is around $3,500, the average outstanding Afterpay balance in Australia is around $200.

Thanks to the short-term payment windows of many of these BNPL services, providers can be nimbler to market changes. Some leading competitors like Klarna have tightened their risk portfolio during the economic downturn, performing credit checks and rejecting more applicants to ensure applicants will repay their debts. As BNPL providers carry much of the risk of delinquent payments, this risk-tightening is understandable, especially as the crisis prolongs. But Sezzle’s Katz celebrated its BNPL products as offering a critical aid to financially distressed customers during these times.

“We are not going to give you more money than you are prepared to pay back. And if you don’t pay back, then we are not going to continue lending you money. We have incredibly high loyalty and repeat usage, and people want to use our system, so that is really the penalty if you use our system; we are not hurting your credit. And we are not charging you interest, right? So I think there’s a really good value proposition for the consumers.”
Veronica Katz, CRO, Sezzle

By not relying on the credit scoring system without conspicuous interest terms, such BNPL products offer the financial access that digital credit promises — without the runaway debt that can follow. Alternatively, Sezzle is also piloting a new program called Sezzle Up, which allows customers to use Sezzle’s program to slowly build their credit score “with training wheels,” as Katz puts it. Sezzle and other competitors have worked with financially distressed customers during the crisis, such as implementing repayment holidays.

To Buy Is To Pay

Like several competitors, Sezzle performs no credit check to allow smaller purchases on its simpler plans, slowly increasing customer limits once a purchasing history is established. But as an industry tailoring to many who have run afoul of credit bureaus in the past, the potential for consumer harm remains. According to a July survey, U.S. consumers used BNPL to buy electronics 44% of the time, followed by clothing and fashion items at 37%, furniture or appliances 33% of the time, household essentials 31%, and groceries 22.5% of the time. It’s a mixed bag for why people opt for BNPL solutions. Those using BNPL to buy groceries, pay utilities or household essentials reinforce just how critical of a tool flexible payment options can be for financially distressed customers. But obviously, they’re not always used that way. That can certainly be fine for financially stable shoppers wishing to space out bigger purchases, but if exploiting customers’ present bias to surgical ends, the possibility remains for irresponsibly crafted BNPL services to facilitate impulse buys beyond someone’s means. One survey last month suggested 20% of Buy Now Pay Later users view the service as a way to “buy now, worry about it later.”

While some issues persist, the current numbers overall suggest the model does generally work in avoiding skyrocketing debt and encouraging more responsible spending. As with any evolving fintech solution operating under little to no regulations, consumer education and company transparency is critical if the model is to continue to work towards positive financial ends. In Australia, where BNPL has arguably accelerated the most of anywhere, lawmakers have been debating for several years now how to regulate the BNPL market. In 2018, The Australian Securities and Investments Commission found that one in six BNPL users had either become overdrawn, delayed bill payments or borrowed additional money because of BNPL arrangements. Not all BNPL services are interest-free and fee-free, and late fees can mount if they are not capped by providers. Medicine for the financially distressed can evolve into a dangerous drug.

Source: fool.com

In the July survey of U.S. consumers, 43% of those who used BNPL understood the terms completely. While frequently automated payment systems make repayment a surer thing, companies like Klarna and Sezzle emphasize the importance of continuing to educate consumers of the terms and expectations of these delayed loans. Without extensive regulations in markets like Australia and the U.S., the opportunity presents itself for BNPL companies with more predatory terms to emerge. So far, the leading competitors have largely steered clear of interest or crippling late fees. Leading BNPL company Affirm, for instance, makes 15% of its revenues from late fees, and such a figure is actually reportedly down from the 25% of its revenue that came from late fees two years ago; the company credited relying more on repeat customers with a demonstrated payment history.

Credit Where Credit Is Due

As such a potent tool, the Buy Now Pay Later model continues to grow and expand. Recently, Pay Pal recently threw itself
right in the thick of the BNPL market with its new “Pay in 4” installment plans, which allows customers to pay for products over four separate payments. In May, Chinese tech giant Tencent bought a 5% stake in BNPL provider Afterpay for $300 million, seizing the partnership as a vehicle to expand BNPL services into East Asia. Tencent also released this year its “Fenfu” credit feature, which allows its 1.1 billion WeChat users to buy now pay later on items ranging from fashion to meals to entertainment. Variants of BNPL providers are popping up in places ranging from Kenya to Indonesia, with its flexible payment options serving as a kind of cheap microcredit. The UAE has also started seeing its own BNPL products, as has the Indian market through companies like Simpl. But in these emerging markets, the business model has not as frequently adapted the consumer-friendly deferred debit model relying on merchant-generated fees.

Nevertheless, the potential use cases for such payment flexibility are vast, ranging from flights to soccer matches.In the UK, Flava, allows customers to purchase groceries on fixed payment plans. Zero-interest, no-fee flexible payment options can be a godsend for struggling families anywhere in the world to potentially pay utilities, groceries, or other essentials at no additional cost. As digital BNPL branches out to new markets in the world, the question remains whether such customer-friendly terms and transparency will continue to define the applications of this powerful fintech tool. For any BNPL service to consider itself truly financially accessible and healthy, it should strive to offer zero percent interest and no fees, with responsibly capped late fees — following the deferred debit model, essentially.

While brisk competition has so far kept Western competitors’ terms consumer-friendly, this may not always be the case when BNPL companies, unable or less eager to extract merchant fees, target consumers less aware or prepared for the terms of BNPL products. A largely unregulated market that may not administer credit checks of prospective borrowers can become a risky proposition leading to escalating debt and default rates which threaten the customer and merchant alike. Through greed or recklessness or both, things can go wrong.

For now, the consumer-friendly yet responsible terms of leading BNPL competitors present a promising transaction route for consumers who are either struggling financially or wish to avoid traditional credit. If done right, industry revenues can grow on the backs of merchants’ success — not people’s misfortune. But until the space fully matures, there still remains the element of “if.”

In just 55 days, the people of the United States will go to the polls. Technology will no doubt be a major factor in this election with respect to the role of social media, the dissemination of information (whether true or false), and matters of identity and verification at polling places. But the results of this election will also influence the future of technology, as more and more aspects of daily life become digitized and many consumers settle into a digital-first lifestyle thanks to the COVID-19 pandemic. Moreover, technology-driven issues relating to privacy, data management, physical and financial well-being, and even national security have ascended into the public consciousness over the past four years, putting tech on a collision course with policy. Perhaps more than ever before, the electoral choice faced by voters in the world’s third most populous country carries implications for the development, adoption, and regulation of tech across the world. And with fintech positioned squarely between tech and the ever-important financial services industry, the potential for long-term consequences in our space to result from this presidential election is high. What will we know, come November 3rd (or later), that we don’t know now? And what should members of the fintech and digital finance community across the world expect, given one outcome or the other?

On Data And Big Tech

Data collection has been in practice for as long as the internet has existed, but the primacy of data as a tool for business, political, and other insights has exploded over the last ten years. This is in part due to how much data users create on the modern internet. Each day, around 300 billion emails are sent; 65 billion messages are sent over WhatsApp; 5 billion search queries are logged; and 500 million tweets are tweeted. These figures increase each year, and amount to an ever-larger data pool. In addition, increasingly sophisticated tools are always being developed to store, analyze, and deploy this data more effectively.

But sheer data quantities are only one facet of the growing role of data. The number of internet users has also climbed steadily; sources suggest that the number of internet users worldwide has more than doubled in the last ten years, from around 2 billion in 2010 to more than 4 billion today. More than half of these users are on Facebook, and almost as many use Youtube. Furthermore, giants like Facebook and Alphabet (Google) have expanded their reach since the last U.S. election. Both firms are making more of their revenue in the APAC region relative to four years ago, while North American revenues continue to grow (albeit more slowly). This signifies a maturation of their respective business models, but with revenue comes responsibility; as more users adopt these services, the risk of breach, mismanagement, or deliberate mischief is magnified. It also signifies an expansion of the U.S. government’s responsibility to regulate these firms.

U.S. tech giants have often found themselves at odds with the Trump administration. From executive orders suspending visas for guest workers to outright threats of increased oversight, big tech has found little common ground with the current administration. Whether these disagreements can be aggregated into a coherent regulatory approach, or amount to no more than superficial political antagonism, is unclear. A Biden administration, on the other hand, could prove friendlier. According to reporting by the New York Times, the Biden campaign has enlisted advisers with close ties to Amazon, Google, Facebook, Apple, and others. Biden’s transition team even includes a former consultant for Palantir, the controversial data-mining firm that has drawn fire for enabling police surveillance operations in Los Angeles and elsewhere. Although the candidate has made official statements to the contrary, a Biden administration may in practice prove more elastic on tech policy, particularly when it comes to the lucrative area that is data collection. For the digital finance space, this may embolden big tech to make more aggressive strides into financial services (for better or worse). But at the very least, Biden is likely to apply a consistent approach, possibly allowing for a new normal to emerge sooner as the world emerges from the pandemic.

On Financial Health

The COVID-19 pandemic has imperiled the financial health of people across the globe. In the U.S., outcomes have been mixed: while the stock market has rebounded, the country suffered its worst quarterly GDP decline ever in Q2, shrinking at an annualized rate of 32.9%. The pandemic presents a bona fide crisis for the next presidential administration, as the country will require a productive economic policy to spark recovery.

The U.S. government will also be responsible for ensuring that its citizens are able to weather the storm while the economy stabilizes. But U.S. consumers were already in deep debt before the pandemic. Total non-housing debt held by U.S. households in Q4 2019 was $4.2 trillion, an all-time high. Additionally, housing debt at this time was close to $10 trillion, around the levels observed just before the 2008 financial crisis.

Perhaps counterintuitively, the pandemic arguably improved matters with respect to debt. The sharp decline in consumer spending during Q2’s lockdown reportedly led to a decrease in credit card balances of $76 billion -- the steepest drop on record -- while housing debt leveled off. However, the overall economic situation within the U.S. may be more dire than it appears at first glance. Unemployment, though improving, is still at its highest level in eight years, and may in fact be worse than official figures indicate. The enhanced unemployment benefits effected by congress at the beginning of the pandemic expired in July, with no renewal on the horizon. Likewise, a rumored second direct stimulus payment has yet to materialize. And to make matters worse, evictions could surge across the country in coming months despite a federal order barring them.

For some, fintechs could hold an answer. According to reporting by The Intercept and Type Investigations, “fintech firms have eclipsed banks and other traditional credit suppliers to become the nation’s No. 1 source of personal loans - the kinds of loans people take out when they need extra cash to stay afloat, or when they have already amassed large amounts of debt and are looking to refinance.” The report goes on to ask however, whether the loans being issued by these fintechs are serving the interests of borrowers, citing irresponsible incentive structures, inadequate legal protections, and conspicuously close ties between lenders and regulators. Much of this leeway for lenders is said to be the work of regulators appointed by Barack Obama and later President Trump. While a second Trump term would likely continue a laissez-faire trajectory for fintech lenders, it’s possible that a Biden administration would chart a similar path, given the presence of famous deregulator Larry Summers on Biden’s team of advisers and the candidate’s record of advocating for credit card companies on matters of bankruptcy policy. But if the personal loan market does in fact lead to poor economic outcomes on a mass scale, the fintech sector could find itself under closer scrutiny by a Biden administration, as prominent voices within the Democratic party have called for stricter regulation in the tech sector specifically.

On National Security

Finally, the incoming administration will have its hands full with an increasingly tech-infused foreign policy landscape, complete with national security worries ranging from infrastructure concerns to industrial espionage and intellectual property theft. The Trump administration has launched a high-profile campaign against China in particular, taking steps such as levying new tariffs and threatening to ban Chinese firms from operating in the U.S. Additionally, the administration’s stance toward other nations has consistently followed an “America First” doctrine, which has in effect isolated the U.S. and alienated would-be partners. The administration has been unpredictable in which countries it favors, and which it shuns; for foreign firms looking to enter the U.S. market or foreign entrepreneurs looking to start operations stateside, the particular country of origin will likely be a significant factor in ease of access.

A Biden administration would likely be less isolationist, though President Trump’s toughness on China has earned bipartisan support over time. On China, a President Biden could find his hands tied. A recent survey indicated that public opinion in the U.S. has taken a sharp anti-China turn, with net favorability dropping from -3 to around -50 during the span of the Trump administration, and an overwhelming majority of respondents holding the Chinese government at least partially responsible for the outbreak of COVID-19.

No matter the outcome of November’s election, it will be tough sledding for Chinese firms trying to expand operations within the U.S. The Trump administration has also set a significant precedent by threatening companies like TikTok and WeChat with banishment. If the U.S. president can halt Chinese firms from operating within U.S. borders by arbitrarily invoking national security, what is to stop future administrations from taking similar actions toward other countries? And if the whims of the sitting president can dictate how foreign actors do business in the U.S. with few (if any) checks, then a new risk has been introduced into the global tech and investment landscape, no matter who occupies the White House. Who that will be is as of yet uncertain. But the answer is contained in the next 55 days.