You are all aware that recourse to technological innovations worldwide has been critical in navigating through the hurdles conditioned on the financial sector by the Covid-19 pandemic.
Financial institutions have also had to re-engineer their business models and adopt new and more efficient business operational frameworks in order to ensure not only the seamless accessibility of financial services, but also their continued sustainability.
All this is because the 4th Industrial Revolution (4IR) is set to fundamentally alter the financial sector landscape due to the fact that there is no clear knowledge yet about how far these technological innovations will unfold.
The changing financial ecosystem has however introduced both opportunities and risks. In particular, the digital revolution has offered opportunities for financial inclusion and for the provision of a wider suite of financial products and services, regardless of income and location.
This digital revolution has also led to a dramatic reduction in the operational costs and improved efficiency in the provision and delivery of financial services. Because of these innovations, customers are able to transact and interact in a flexible, seamless and in a real-time manner. At the same time, it has improved the financial service providers’ understanding of customer behavior and needs, allowing for personalization of financial services.
It therefore my sincere hope that after the recovery of the initial sunk capital costs in the form of investments in technological innovations, these developments will translate into a reduction in the cost of financial services, which although declining have remained relatively high.
Notwithstanding the aforementioned benefits, there are also challenges that the financial industry has to contend with.
First, the digital transformation may polarize the market by excluding those segments with low levels of digital and financial literacy. Non- equitable access to technology-enabled user devices may also increase the already significant digital divide. In addition, access to efficient, reliable and secure infrastructure may itself be a constraint to seamless consumption of financial services.
Secondly, the growing use of technology to capture, store and analyze data, consistent with the 4IR, increases the risk of data misuse and privacy violations. In addition there is an increasing reliance on technology solutions and third party service providers which increases operational risks, including cyber-security and Money Laundering risks.
Thirdly, the pace and dynamism of fintechs presents regulatory challenges. The fundamental question for any regulator is: How do we encourage financial innovation without compromising the safety of consumers in the marketplace? With the majority of the providers for these technologies not domiciled in the domestic jurisdiction, there are issues relating to enforcement of domestic regulatory frameworks. However, the key question for policy makers, therefore, is how to position their economies to benefit from the 4IR while managing the challenges that it presents.
I propose an integral strategy that should answer the following questions:
One: Given the labour market dynamics, how should the education program be structured in order to fix the labour-skill mismatch while ensuring that technology supplements instead of replacing labour, which is in abundance?
Two: What are the strategies necessary for the provision of an affordable, secure, reliable and efficient infrastructure?
Three: What governance, regulatory and cybersecurity framework is necessary for the adoption of the 4IR technologies?
In Uganda, a number of initiatives are being implemented to provide an enabling and regulatory environment for digital transformation, including fintechs. The National Payments Act and implementing Regulations which provides a regulatory environment for payments services, have been enacted. In addition, the Government set up the National Taskforce on the 4IR, which has formulated a draft strategy on Policy interventions on 4IR, which if adopted will guide the implementation of various 4IR related technologies.
I hope discussions from this conference will provide a useful input to our on-going efforts to reap the benefits of the 4IR, while managing the associated risks.
About the Author: Prof. Tumusiime- Mutebile is the Governor Bank of UgandaEDITOR’S NOTE:This Op-Ed was adopted from Bank of Uganda Governor Prof. Tumusiime-Mutebile’s presentation at the 4th Annual Bankers’ Conference 2021 in Kampala on Tuesday July 26th, 2021. The theme was: Bend but Don’t Break: How Players in the Financial Services Sector can thrive in the Era of the 4th Industrial Revolution.