Digital Transformation
Fintech opportunities and risks
Implementing the Bali Fintech Agenda
Intervention of Mr. Abdellatif Jouahri
Governor of Bank Al-Maghrib
Rabat, 13 March 2019
Dear colleagues and friends,
Ladies and Gentlemen,
It gives me real pleasure to be addressing you in this opening session of the
Regional Conference for Africa and the Middle East, held by Bank Al-
Maghrib and the International Monetary Fund, on the digital transformation
and the implementation of the Bali Fintech Agenda. I would like to start by
thanking you all for your presence today, and wish a pleasant stay in Morocco
to those of you attending from abroad.
I would also like to thank the International Monetary Fund, particularly the
entire staff of the Monetary and Capital Market Department, for having
accompanied us for months in preparing this conference. My warmest
thanks go to the Department Head, Mr. Adrian Tobias, and to his deputy Mr.
Ghiath Shabsigh, with whom we have worked closely.
I am also delighted by the strong participation of central banks and regional
and international institutions; I am confident that many colleagues here had to
adjust their schedules to take part in this conference witch shows the
importance they attach to the issue we are addressing today.
The idea of this meeting emerged two years earlier, in our quest for expertise
and experience with regard to the approaches and policies to cope with digital
revolution. For this purpose, we interacted with the IMF, which had already
begun reflecting on the issue, and had ended setting up, in collaboration with
the World Bank, the Bali Fintech Agenda, presented during the last annual
meetings held in October, in Indonesia.
It was then an opportunity to converse with the staff of the department
headed by Mr. Tobias, with whom I agreed to organize a regional meeting to
follow up implementation of this agenda, which the Fund had initiated in
Vienna early this year. Today, this agenda has become a reference used to
address the problem in a structured and standardized way.
I will not go through the details of this agenda, first because I think that Mr.
Tobias is better placed than me for this, and second because the issue will be
discussed thoroughly in the different sessions of this conference. Rather, my
aim is to focus on the technological revolution, particularly its impact on the
financial sector, then to discuss the challenges it poses for public authorities
in general and for central banks in particular.
Ladies and Gentlemen,
In the aftermath of the 2008 crisis, while public authorities and international
institutions, including the IMF, were concerned about the repercussions of
the crisis, a different evolution was taking place and began to gradually
transform the economic, financial and social landscape. This transformation
was particularly reflected in the massive use of smartphones and social
networks, the emergence of digital finance and Big Data, the development of
online platforms as well as in the uberization of services.
With its frantic pace of evolution and its emergence as a new must, this
revolution is now influencing the way we produce, share, consume and
interact, and its impact is felt on all sectors, including of course the financial
one.
Despite the multiple studies and evaluations carried out, the impact of this
revolution is not yet well identified. However, its impact will probably be felt
negatively in the labor market. In fact, one of the most important studies,
conducted in 2013 by two Oxford researchers on the case of the United
States, revealed that 47 percent of jobs are at risk of extinction. In emerging
and developing countries, this proportion would be higher. According to the
same researchers estimates in 2016, it reaches 69 percent in India, 77 percent
in China and 85 percent in Ethiopia.
As for growth, the effects of this transformation have not been clearly
demonstrated, and economists even talk of a "productivity paradox", to refer
to the relative slowdown of productivity observed in some advanced
countries since the mid-2000s, despite the technological innovations.
Even more, GDP measurement is also affected, and statistical institutes find
it challenging to take into account certain technology-driven activities such as
self-services made through online platforms. Also, inflation levels would be
overestimated because of the improved quality of goods and services, not
taken into consideration in their calculation.
Another field where major changes are induced by this revolution is data
production and use. Big data generated by new technologies are at the heart
of the strategies of economic and social actors, both public and private. Their
exploitation takes many forms such as customizing services and targeting
messages to guide the behavior of the consumers or of the public opinion in
general... The case of Facebook-Cambridge Analytica during the last US
presidential elections offers an uplifting illustration in this regard.
Conversely, the impact of this revolution turns out to be rather positive on
the administrative procedures, such as tax payment. In fact, benefits are
multiple: reduced costs, increased transparency, and the fight against tax
evasion and corruption reinforced.
To sum up, I will recall one of the main conclusions of the 2016 World
Bank's World Development Report on "the digital dividend". Digital
technologies and innovations have undoubtedly helped improve growth and
services supply by substantially reducing the costs of economic and financial
transactions, but the aggregate impact is still limited and unevenly distributed.
Ladies and Gentlemen,
I think that we all agree that one of the areas where technological innovation
is growing rapidly is the financial sector, with a new term being even
dedicated to it, the Fintech. The latter is revolutionizing the financial
landscape, by expanding products and services, improving their quality, and
making them more accessible and less expensive. Fintech is transforming the
relation with customers, the means of payment, as well as the modes of
financing and transfers. On this particular last point, the potential gains are
enormous for developing countries receiving large flows of their nationals
abroad. In 2018, according to the World Bank, these transfers may have
totaled 689 billion dollars, more than three-quarters of which were intended
to developing countries.
Traditional business models of banks are now challenged by the new
financing methods, thus putting more pressure on their profitability and
pushing them, in some cases, to greater risk-taking, which would eventually
impact financial stability.
In emerging and developing countries, with internet and mobile
telecommunications penetration, Fintech now offers tremendous
opportunities to strengthen financial inclusion and economic and social
development. According to a statement issued last November by the United
Nations Secretary General, within a period of six years, 1.2 billion people
have accessed financial services through technology.
In a report issued in 2016, the Mckinsey Institute estimated the potential of
Fintech in emerging economies by 2025 to an additional 6 percent of GDP,
i.e. 3.7 trillion Dollars, and 95 million new jobs. The same report also revealed
that two billion people and 200 million of very small, small and medium
enterprises in emerging countries do not have access to credit, while those
who have are still facing high costs.
Here again, estimates vary from one study to the other, and all agree on the
same finding: a huge potential is still there to exploit.
This being said, risks in the financial sector are the most varied and most
important, especially in terms of money laundering, financing terrorism, cyber
security, as well as protecting customers and personal data. Such risks have
become major concerns both at the national and international level.
For us, central banks in particular, the changes brought by the Fintech
challenge us in several aspects, namely in our core functions. Now, even the
monopoly of issuing currency is exposed, leading some central banks to
consider the option of issuing a digital currency, and therefore reduce the
costs related to conventional banknotes' production and use, and minimize
the insecurity risks involved.
Among the other fields concerned is financial supervision. This area is now
gradually expanding as new actors and financial products have emerged,
which can certainly affect monetary policy transmission.
Ladies and gentlemen,
The digital transformation we are facing today is primarily driven by operators
and private companies that continue to invest heavily in this area and seize
the opportunities and the potential it offers. Considering the important
economic, financial and social implications of such a revolution, public
authorities are compelled to set an adequate legal framework and provide an
environment conducive to technological innovations and Fintech
development.
One of the priorities defined in this regard is to invest in education and
human resources' training, while taking account of the changes occurring in
the job markets due to technological innovations. The challenge is huge,
considering the now strong need for a digital skilled labor.
Many countries, more particularly emerging and developing ones, are now
faced with the additional issue, besides having to meet their needs, of dealing
with the "brain drain" phenomenon, which seems to record an upsurge in
recent years. Against this backdrop, strengthening regional and international
cooperation, with a view to pooling efforts and exchanging experiences, will
essentially avoid worsening the digital divide between these countries and
advanced ones.
That being said, the actual benefit of those policies and the efforts required
depends on the responsiveness of the population, the economic and financial
operators as well as of the politicians, to the adoption of digital technologies.
After all, it is an issue of a real change of culture.
It is true that during last years, initiatives have increased, reflecting a raising
awareness about the challenges posed by this revolution. Several countries
have developed cross-cutting or sectoral strategies to promote the
development of digital technologies and their use.
By way of illustration, I will first give the example of my country which has
set up a digital development strategy, and created an agency dedicated to this
area. Another example is the European commission which has established,
last May, a panel of highly qualified experts to study the impact of digital
technology on the job market. Similarly, G20 countries agreed in 2017 to
elaborate a roadmap for digitalization named "Policies for a Digital Future".
Finally, the United Nations launched, last November, a Task force charged
with recommending strategies to harness financial technologies in support of
the Sustainable Development Goals. It should be reminded here that to meet
these goals, low-income developing countries should spend an additional
yearly amount of about 520 billion dollars by 2030, according to a study
published last January by the IMF.
Several institutions attending today have taken important initiatives in this
field and I am confident that the exchanges of views scheduled in the
different panels will be highly informative in this respect.
For central banks, the stakes are high, considering their position as core
actors in the financial sector, which constitutes one of the main arenas of
technological innovation.
First, we need to seize the opportunities offered by the Fintech to narrow, in
collaboration with the stakeholders, the deficits and gaps in financial
inclusion, mainly for youth, rural population and women. This measure is all
the more important as gender inequalities are particularly high in our regions.
According to the 2019 World Bank Report on "Women, Business and the
Law", women in the Middle East and North Africa are granted only half of
the rights of their male counterparts. Here in Morocco, we have just
completed our national strategy for financial inclusion, which will be
discussed in the appropriate panel.
As for regulation, we are now called to leave room for creativity and Fintech
development, but at the same time, preserve and strengthen resilience of our
financial systems, and protect consumers and enterprises, particularly smaller
ones. To guarantee such a difficult equilibrium, risks shall be identified and
classified, and the potential impacts of innovation and of the new financial
activities shall be foreseen.
Sometimes, central banks are required to resort to interim solutions in the
absence of statutory powers, as is the case for crypto-assets. In fact, to deal
with this issue, which arose in Morocco in 2017, we chose to approach it
from the consumer protection angle to attract attention to the risks involved.
Still, it should be made clear that we have not taken a final position on the
issue.
Moreover, as enterprises, we are also called to adapt ourselves to this digital
transformation, starting with strengthening the capacity of our human
resources in this field and reinforcing our infrastructures, mainly the
information systems whose resilience to cyber criminality has become a daily
concern.
In this regard, and as part of our 2019-2023 strategic plan, we conducted a
thorough reflection in Bank Al-Maghrib and have just drawn up a roadmap
for our own digital transformation. Our target is not only to adapt our
business lines and redesign our processes, but also to play a role in the
development and support of our ecosystem, through a participatory
approach.
Ladies and gentlemen,
To conclude, I would say that we may have taken some time to grasp the
scale of the digital revolution, but the numerous initiatives and interactions,
such as this meeting, leave us with the hope that the backlog will be quickly
cleared and that this revolution will effectively contribute to sustainable and
inclusive development in our countries.
In this respect, we are pleased to note the willingness of international
organizations, including the IMF, main interlocutor of central banks, to
upgrade their means and human resources with a view to providing support
to their member countries.
As such, I suggest, if you deem it suitable, that we request the Fund to
institutionalize such a meeting in our region, at the frequency most
appropriate to us. Hence, we would be able to continue the debates and
exchanges, assess the progress made, ultimately unite our efforts, and
capitalize on our mutual experiences in order to better address the current
and future challenges of digital transformation.
Thank you.