Introduction
1. Mergermarket, mergermarket.com.
2. Although scaling back risks can lead to lower returns, a reduction in profits does not automatically mean there has been a corresponding reduction in financial services firms’ activity, such as when loans have increased over the period. Thomas Philippon, “On the Theory and Measurement of Financial Intermediation,” American Economic Review 105, no. 4 (April 2015): 1408–1438.
3. Mergermarket, mergermarket.com.
4. It is worth noting that there are important variations between countries. In developing markets—in India, for example—financial inclusion has been dramatically improving.
5. Thomas Piketty, Capital and Ideology (Cambridge, MA: Harvard University Press, 2020).
6. Anthony Atkinson, Thomas Piketty, and Emmanuel Saez, “Top Incomes in the Long Run of History,” Journal of Economic Literature 49, no. 1 (2011): 3–71.
7. World Bank, “Financial Inclusion,” October 2, 2018, https://
1. Marion Laboure and Juergen Braunstein, “The Great Stagnation,” Global Policy opinion, October 11, 2016, https://
2. Richard Dobbs et al., “Poorer than Their Parents? Flat or Falling Incomes in Advanced Economies,” McKinsey Global Institute, July 13, 2016, https://
3. According to Harvard economists Carmen Reinhardt and Kenneth Rogoff, public debt greater than 90 percent of GDP could hinder future economic growth in advanced economies and is thus of primary policy concern. Higher debt could slow growth through various channels, including rising interest rates, lower public investment, and confidence crises. Carmen Reinhardt and Kenneth Rogoff, “Growth in a Time of Debt,” American Economic Review, Papers & Proceedings 100 (2010): 573–578.
4. Robert J. Shiller, Irrational Exuberance (Princeton: Princeton University Press, 2000).
5. Shiller, Irrational Exuberance.
6. According to this survey, the most expensive cities have become even less affordable in recent years. The survey used the median multiple (median house price divided by median household income) to compare observations in cities globally. Demographia, “Demographia International Housing Affordability Survey: 2021,” http://
7. According to Realtors.com, the average age for first-time buyers is thirty-two in the United States. The average household income of first-time buyers $75,000. The average home purchased by this group cost $190,000. These buyers usually offered a 5 percent down payment. National Association of Realtors, “2019 Profile of Home Buyers and Sellers,” https://
8. Ministry of Housing, “Communities & Local Government, English Housing Survey, First-Time Buyers,” https://
9. Dollar amounts have not been adjusted for inflation. However, tuition and fees at four-year national universities are significantly outpacing inflation. The total consumer price index inflation increased by 52.7 percent from August 1997 to August 2017, according to the US Bureau of Labor Statistics. Briana Boyington, “See 20 Years of Tuition Growth at National Universities,” U.S. News & World Report, September 13, 2018.
10. The perimeter of some definitions is larger, including additional forms of employment—even a couple of hours—whereas other definitions are more restrictive. McKinsey research reveals that 20 to 30 percent of the working-age population in the United States and the EU-15, or up to 162 million individuals, engage in independent work. James Manyika et al., “Independent Work: Choice, Necessity, and the Gig Economy: Executive Summary,” McKinsey Global Institute, October 2016, https://
11. Richard L. Hills, “William Lee and His Knitting Machine,” Journal of the Textile Institute 80, no. 2 (1989): 169–184.
12. Karl Marx, Capital: A Critique of Political Economy, vol. 3: The Process of Capitalist Production as a Whole, ed. Frederick Engels, trans. of first German edition, 1894, by Ernest Untermann (Chicago: Charles H. Kerr, 1909). Karl Marx, Grundrisse: Foundations of the Critique of Political Economy (Rough Draft) (1858; orig. pub. 1939), trans. Martin Nicolaus (New York: Penguin, 1973; repr. 1993); James Sacra Albus, Peoples’ Capitalism: The Economics of the Robot Revolution (Kensington, MD: New World Books, 1976); Jeremy Rifkin, The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era (New York: Putnam, 1995).
13. Berthold Herrendorf, Richard Rogerson, and Ákos Valentinyi, “Growth and Structural Transformation,” in Handbook of Economic Growth, vol. 2, ed. Philippe Aghion and Steven N. Durlauf, 855–941 (Amsterdam: Elsevier, 2014); Benjamin N. Dennis and Talan B. İşcan, “Engel versus Baumol: Accounting for Structural Change Using Two Centuries of US Data,” Explorations in Economic History 46, no. 2 (April 2009).
14. Daron Acemoglu and Pascual Restrepo, “Robots and Jobs: Evidence from US Labor Markets,” NBER Working Paper 23285, National Bureau of Economic Research, Cambridge, MA, March 2017.
15. However, the minicomputers released in the 1960s could already be considered personal computers, as was the first Olivetti Programma 101 desktop computer marketed in 1965.
16. Customer service call centers barely existed before personal computers.
17. Perhaps not, but with the assistance of AI, tasks that might have taken two or three assistants in the past will take only one. There are already apps that can help with advice, mood, etc. These are rudimentary, for sure, but we are still in early days.
18. Daron Acemoglu and David Autor, “Skills, Tasks, and Technologies: Implications for Employment and Earnings,” in Handbook of Labor Economics, vol. 4B, ed. David Card and Orley Ashenfelter, 1043–1171 (Amsterdam: Elsevier, 2011).
19. United Nations, Department of Economic and Social Affairs, Population Division, “World Population Ageing 2017—Highlights,” 2017, https://
20. The researchers say that there is a higher likelihood of automation for jobs that rely on “predictable physical activities”—such as food preparation, data processing, and data collection.
21. Federal Deposit Insurance Corporation, “How America Banks: Household Use of Banking and Financial Services,” 2019 FDIC Survey, October 19, 2020, https://
22. Financially excluded persons are those who are currently not able or willing to fully participate in the banking services offered in their country. MasterCard, “The Road to Inclusion: MasterCard Financial Inclusion Survey, Key Learnings Report,” December 5, 2016, https://
1. For example, Daniela Gabor and Sally Brooks examine the importance of digital-based financial inclusion. They demonstrate that the “digital revolution adds new layers to the material cultures of financial(ised) inclusion, offering the state new ways of expanding the inclusion of the ‘legible’ and global finance new forms of ‘profiling’ poor households into generators of financial assets.” Daniela Gabor and Sally Brooks, “The Digital Revolution in Financial Inclusion: International Development in the Fintech Era,” New Political Economy 22, no. 4 (2017): 423–436.
2. Arvind Krishnamurthy, “How Debt Markets Have Malfunctioned in the Crisis,” Journal of Economic Perspectives 24, no. 1 (2010): 3–28. Markus K. Brunnermeier, “Deciphering the Liquidity and Credit Crunch 2007–2008,” Journal of Economic Perspectives 23, no. 1 (2009): 77–100. Gary Gorton, Slapped by the Invisible Hand (Oxford: Oxford University Press, 2010). Mervyn King’s reformed proposal centers around a new form of constraint for banks. It aims to force banks to insure the liquidity risks with central banks when they issue short-term liabilities. The central banks would then determine the “price” of this insurance by setting haircuts for all the bank’s assets. In turn, the central bank would stand ready to provide liquidity by using the bank’s assets as collateral. Mervyn King, The End of Alchemy: Money, Banking and the Future of the Global Economy (New York: W. W. Norton, 2016).
3. Tencent and other Chinese firms have massive centralized platforms that give them an edge in AI research and development by allowing them to collect huge stores of data that can be used to train machine-learning algorithms. Moreover, Chinese firms benefit from Chinese culture, which values privacy less.
4. The National Development and Reform Commission requires private enterprises to invest in overseas deals that are genuine and not meant to be used for transferring assets abroad or for money laundering. Private firms are required to report investment plans to the government, and to seek approval if the investments involve sensitive countries or industries. Investment in projects that fit within the scope of the One Belt One Road endeavor is strongly encouraged.
5. Juergen Braunstein, Marion Laboure, and Clara Volintiru, “Will Digital Currencies Become the Next (Broadly Accepted) Currencies?,” Global Policy, January 25, 2018, https://
6. Marion Laboure, Haiyang Zhang, and Juergen Braunstein, “The Rise of Silicon China,” Project Syndicate, April 3, 3018, https://
7. Alt, Beck, and Smits showed that businesses are experiencing three levels of transformation: (1) Internal: Fintech drives businesses to change focus from internal processes toward a customer-centric perspective; (2) Business Network: Businesses in the fintech era become more networked with specialized external partners while competition intensifies with lower margins; (3) External: “Regulation shifts away from low-equity requirements, low levels of supervision, and high protection from national legislation toward stricter rules for held equity, more supervision on an international level, and less protection offered by national laws.” R. Alt, R. Beck, and M. T. Smits, “FinTech and the Transformation of the Financial Industry,” Electron Markets 28 (2018): 235–243.
8. KPMG, “Digital Payments—Analyzing the Cyber Landscape,” April 2017, https://
9. Citigroup, “Digital Disruption Revisited: What Fintech VC Investments Tells Us about a Changing Industry,” January 2017, https://
10. Rob Walker, “The Trivialities and Transcendence of Kickstarter,” New York Times, August 7, 2011; Harry McKracken, “Kickstarter,” Time, August 16, 2011; Steven Snyder, “Kickstarter,” Time, November 11, 2010.
11. Kickstarter, Kickstarter Official Stats, https://
12. Murray Newlands, “Why CommonBond Will Make You Forget Everything You Thought You Knew about Student Loans,” Forbes, November 4, 2015.
13. Lending Club, “Why Lending Club?,” 2018, https://
14. Peter Gomber and his colleagues showed that (1) “it will be difficult for larger incumbent firms to match small entrepreneurial start-up firms at producing value-creating fintech applications with high innovation, without major spending to acquire knowledgeable human capital that is in such short supply in the market place”; and that (2) “the fintech sector is likely to experience significant adjustment and evolution a time passes and it matures into a typical industry sector.” Peter Gomber et al., “On the Fintech Revolution: Interpreting the Forces of Innovation, Disruption, and Transformation in Financial Services,” Journal of Management Information Systems 35 (2018): 220–265.
15. Brett King, Bank 4.0: Banking Everywhere, Never at a Bank (Singapore: Marshall Cavendish Business, 2018).
16. Alex Tapscott and Don Tapscott, “How Blockchain Is Changing Finance,” Harvard Business Review, March 3, 2017, https://
1. Kathleen Shaputis, The Crowded Nest Syndrome: Surviving the Return of Adult Children (Olympia, WA: Clutter Fairy, 2003).
2. International Monetary Fund, “The Challenge of Public Pension Reform in Advanced and Emerging Economies,” December 28, 2011, https://
3. Seth D. Harris and Alan B. Krueger, “A Proposal for Modernizing Labor Laws for Twenty-First Century Work: The ‘Independent Worker,’ ” The Hamilton Project, December 7, 2015, https://
4. For independent contractors, companies are not responsible for health care, unemployment insurance benefits, workers’ compensation, overtime, or minimum wages. This also means that workers are on the hook for both the employer and the employee share of Social Security and Medicare taxes.
5. Marco della Cava, “Uber to Offer Drivers Retirement Plan Help,” USA Today, August 24, 2016; Betterment, “Understanding Betterment for Business 401(k) Accounts,” 2018, https://www.betterment.com/resources/understanding-betterment-for-business-401k-accounts/.
6. Claudia Goldin and Lawrence F. Katz, The Race between Education and Technology (Cambridge, MA: Harvard University Press, 2010).
7. Goldin and Katz, The Race.
8. Emmie Martin, “Here’s How Much More Expensive It Is for You to Go to College than It Was for Your Parents,” CNBC, November 29, 2017, https://
9. Phil Izzo, “Congratulations to Class of 2014, Most Indebted Ever,” Wall Street Journal, May 16, 2014, https://
10. As we explained in Chapter 2, three main factors drive long-term economic growth: accumulation of capital stock, increases in labor inputs (such as workers or the number of hours worked), and technological advancement. Theoretically and empirically, economists have shown that technological progress is the main driver of long-run economic growth. This is explained by the concept of diminishing returns and can be traced back to the concerns of early economists such as Johann Heinrich von Thünen, Jacques Turgot, Adam Smith (The Wealth of Nations), James Steuart, Thomas Robert Malthus, and David Ricardo. The law of returns stipulates that, holding other input factors constant, the additional output obtained by adding one extra input unit of capital or labor will eventually decline. As a result, a country cannot maintain its long-run growth simply by accumulating more capital or labor. This means that technological progress is the main driver of long-run growth.
11. The few key determinants of private savings include disposable income, growth of income, stage of life, uncertainty about the future, public policies, availability of credit, and the interest rate level. Countries that saw strong economic growth over the last few decades are now seeing an even faster increase in income than in spending. It is time for people to readjust their expectations of future income and adapt their consumption patterns. Consequently, these countries are seeing high levels of net household savings. China, for instance, has net household savings of 37 percent of total household disposable income. On the other end of the spectrum, Greece, which has faced economic difficulties since 2008, is suffering from dissaving (spending more than earnings) estimated at 16 percent of disposable income in 2016, according to the OECD. Not surprisingly, countries that experienced a recent crisis (such as Greece, Italy, Portugal, or Spain) have a level of private savings close to or below 0 percent.
12. Private savings, also referred to as net household savings, are defined by the OECD as “the subtraction of household consumption expenditure from household disposable income, plus the change in net equity of households in pension funds.” This definition seems odd because it excludes the change in net equity in stocks and bonds outside of pension funds, and in housing. In other words, this corresponds to gross disposable income, which has not been spent. Dimitris Christelis, Michael Ehrmann, and Dimitris Georgarakos, “Exploring Differences in Household Debt across Euro Area Countries and the United States,” Bank of Canada, 2015, https://
13. Bank of America, “2018 Better Money Habits Millennial Report,” Winter 2018, https://
14. Bank of America, “2018 Better Money Habits.”
15. Fisch and her colleagues emphasize that many people lack basic financial literacy and thus are more prone to make poor financial decisions. Mitchell and Lusardi emphasize that the safest bet in that specific context is to let professional advisors manage the money. Jill Fisch, Tess Wilkinson-Ryan, and Kristin Firth, “The Knowledge Gap in Workplace Retirement Investing and the Role of Professional Advisors,” Duke Law Journal 66, no. 3 (2016): 633–672; Olivia S. Mitchell and Annamaria Lusardi, Financial Literacy: Implications for Retirement Security and the Financial Marketplace (Oxford: Oxford University Press, 2011).
16. Statista, “Development of Assets of Global Exchange Traded Funds (ETFs) from 2003 to 2020,” accessed February 18, 2021, https://
17. According to S&P Dow Jones Indices and SPIVA® US Scorecard, “84.23 percent of large-cap managers, 85.06 percent of mid-cap managers, and 91.17 percent of small-cap managers lagged behind their respective benchmarks.” S&P Dow Jones Indices, “SPIVA U.S. Scorecard,” 2018, https://
18. Jill Fisch, Marion Laboure, and John Turner, “The Emergence of the Robo-Advisor,” in The Disruptive Impact of Fintech on Retirement Systems, ed. Julie Agnew and Olivia S. Mitchell (Oxford: Oxford University Press, 2019).
19. Thomas Philippon, “On Fintech and Financial Inclusion,” NBER Working Paper No. 26330, September 2019, http://
20. Organisation for Economic Cooperation and Development (OECD), “Technology and Pensions: The Potential for FinTech to Transform the Way Pensions Operate and How Governments Are Supporting Its Development,” 2017, http://
21. Wealthfront, “How Does Tax-Loss Harvesting Relate to Rebalancing?,” June 18, 2018, https://
22. Government Accountability Office, “401(k) Plans: Improved Regulation Could Better Protect Participants from Conflicts of Interest,” January 28, 2011, http://
23. Ernst & Young, “Global FinTech Adoption Index 2019,” https://
24. Larry Ludwig, “The Rise of the Robo-Advisors: Should You Use One?,” Investor Junkie, March 13, 2018, https://
25. Jill Fisch, Marion Laboure, and John Turner, “The Emergence of the Robo-Advisor,” in The Disruptive Impact of Fintech on Retirement Systems, ed. Julie Agnew and Olivia S. Mitchell (Oxford: Oxford University Press, 2019).
26. This may also be true for human advisors to some extent.
27. Michael Kitces, “Adopting a Two-Dimensional Risk Tolerance Assessment Process,” Kitces blog, January 25, 2017, https://
28. Oisin Breen, “The New Class of Robos Lay Siege to ‘Antiquated’ Target-Date-Funds (TDF) Market,” RIABiz, October 7, 2019, https://
29. Anthony Atkinson, Thomas Piketty, and Emmanuel Saez, “Top Incomes in the Long Run of History,” Journal of Economic Literature 49, no. 1 (2011): 3–71; Thomas Piketty, Capital in the Twenty-First Century (Cambridge, MA: Harvard University Press, 2014).
30. International Monetary Fund, “IMF Annual Report 2017: Promoting Inclusive Growth,” 2017, https://
31. Jesse Bricker et al., “Changes in US Family Finances from 2010–2013: Evidence from the Survey of Consumer Finances,” Federal Reserve Bulletin 100, no. 4 (2014): 1–41, https://
32. James Choi, David Laibson, and Brigitte Madrian, “Why Does the Law of One Price Fail: An Experiment on Index Mutual Funds,” Review of Financial Studies 23, no. 4 (2010): 1405–1432; Justine S. Hastings, Olivia S. Mitchell, and Eric T. Chyn, “Fees, Framing, and Financial Literacy in the Choice of Pension Manager,” Pension Research Council WP2010-09, November 26, 2011, https://
33. Sandro Ambuehl, B. Douglas Bernheim, and Annamaria Lusardi, “The Effect of Financial Education on the Quality of Decision Making,” Global Financial Literacy Excellence Center, Working Paper 2015-4, 2015, https://
34. Michael Kitces, “How ‘Robo’ Technology Tools Are Causing Fee Deflation but Not Fee Compression,” 2018, https://www.kitces.com/blog/fee-compression-fee-deflation-robo-advisor-cost-savings-productivity-efficiency/?utm_source=Nerd%E2%80%99s+Eye+View+%7C+Kitces.com&utm_campaign=7267c0cd54-NEV_MAILCHIMP_LIST&utm_medium=email&utm_term=0_4c81298299-7267c0cd54-57149837.
35. Alicia H. Munnell, Jean-Pierre Aubrey, and Caroline V. Crawford, “Investment Returns: Defined Benefit vs. Defined Contribution Plans,” Center for Retirement Research, December 2015, http://
36. US Department of Labor, Employee Benefits Security Administration, “A Look at 401(k) Plan Fees,” 2016, http://
37. Juergen Braunstein and Marion Laboure, “Democratizing Finance: The Digital Wealth Management Revolution,” VOX CEPR Policy Portal, 2017, https://
38. Braunstein and Laboure, “Democratizing Finance.”
39. Nathaniel Lee “Why Robo-Advisors Are Striving toward a ‘Hybrid Model,’ as the Industry Passes the $460 Billion Mark,” CNBC.com, April 12, 2021, https://
1. Republic of Estonia, “The New Digital Nation,” https://
2. Sten Tamkivi, “Lessons from the World’s Most Tech-Savvy Government,” Atlantic, January 24, 2014, https://
3. The value-added tax, or VAT, is also known in some countries as a goods and services tax (GST).
4. The number of cryptocurrency users has been estimated by Garrick Hileman and Michel Rauchs in “Global Cryptocurrency Benchmarking Study,” Cambridge Centre for Alternative Finance, 2017. https://
5. International Monetary Fund, “Public Finance Goes Digital,” March 2018, http://
6. In terms like “e-administration” and “e-government,” the prefix e- means “electronic.”
7. Like banks, governments could automate processes. Banks have enhanced many customer-facing, front-end operations with digital solutions. Online banking, for example, offers consumers enormous convenience, and the rise of mobile payments is slowly eliminating the need for cash. More information on Pay By Plate MA in Boston can be found at Commonwealth of Massachusetts, Department of Transportation, https://
8. United Nations, “E-Government Survey 2020,” 2021, https://
9. Emirates 24 / 7, “Sheikh Mohammed Directs Government Departments to Place Dubai 10 Years Ahead of All Other Cities,” February 15, 2017, https://
10. Jamye Harrison and Amos Cheong, “Commentary: Singapore’s New Headache of Fewer Public Transport Commuters,” October 21, 2020, https://
11. Satoshi Nakamoto invented the blockchain in 2008 as a public transaction ledger for the cryptocurrency Bitcoin. Whereas commercial banks typically charge fees for transactions and services, blockchain technology is relatively cheaper. Blockchain could address current issues and help low- and middle-income individuals engage in more transactions. Satoshi Nakamoto, “Bitcoin: A Peer-to-Peer Electronic Cash System,” https://
12. Tapscott and Tapscott (2016) describe various applications of blockchain technology. Blockchain has the potential to “record virtually everything of value to humankind, from birth and death certificates to insurance claims, land titles, and even votes.” Quoted from Amazon.com, description of Don Tapscott and Alex Tapscott, Blockchain Revolution: How the Technology behind Bitcoin Is Changing Money, Business, and the World (New York: Penguin Random House, 2016), https://
13. Some governments may be reluctant to adopt blockchain. In contrast to the decentralized nature of blockchain, a centrally controlled platform also offers benefits. According to Mattila (2016), most firms realize that a single or centralized platform is “undoubtedly” easier to construct and popularize. However, firms are often scared of decentralized platforms because they are inherently hard to control. In this case, companies may opt to create their own platforms despite the drawbacks of having suboptimal performance. Juri Mattila, “The Blockchain Phenomenon—The Disruptive Potential of Distributed Consensus Architectures,” ETLA Working Papers 38, The Research Institute of the Finnish Economy, 2016, https://
14. International Monetary Fund, “Money, Transformed: The Future of Currency in a Digital World,” Finance and Development, June 2018, https://
15. The Conversation, “Why a Blockchain Startup Called Govcoin Wants to ‘Disrupt’ the UK’s Welfare State,” November 27, 2017, https://
16. Suparna Dutt D’Cunha, “Dubai Sets Its Sights on Becoming the World’s First Blockchain-Powered Government,” Forbes, December 18, 2017, https://
17. Aaron Smith, “Shared, Collaborative and On Demand: The New Digital Economy,” Pew Research Center, May 2016, https://
18. Typically, high-net-worth individuals are defined as holding financial assets (excluding their primary residence) with a value greater than $1 million. Wealthy individuals pay, on average, lower taxes because they can optimize and benefit from more favorable treatment. Moreover, not all countries have taxes on non-inventory assets; there are significant variations among those countries that do. The tax on financial gains may be lower in some countries than the tax on work income. Low taxation on capital is usually justified as a measure to incentivize investments. However, because the capital gains mostly come from the wealthiest individuals, this can contribute to an increased gap between the top income earners and the rest of the population.
19. IMF, “Corruption, Taxes and Compliance,” IMF Working Paper WP/17/255, 2017, https://
20. The International Criminal Police Organization, more commonly known as Interpol, is an international organization that facilitates international police cooperation among 194 countries (as of 2021).
21. OECD, “Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy,” 2021, https://
22. Small, open economies such as Luxembourg, Ireland, and the Cayman Islands are particularly favored for their tax allegiance toward multinationals and wealthy individuals. Ireland and Luxembourg benefit from attractive corporate tax business models. Once a company has set up its headquarters in one of the EU countries, this company can access the whole EU market. To compensate for the EU’s rules on digital products in 2015, the Luxembourg standard VAT rose from 15 percent to 17 percent on January 1, 2015. The reduced VAT rates also rose from 12 percent to 14 percent, and from 6 percent to 8 percent, respectively. The third reduced VAT rate of 3 percent remained unchanged. Luxembourg’s prime minister, Xavier Bettel, announced that the measure would help raise €350 million. For more details, refer to: European Union, “Directives,” Journal Officiel de l’Union Européenne (February 20, 2008), http://
1. The share of employees in manufacturing relative to total employment has steadily declined since the 1960s. Employment growth in industries such as construction, finance, insurance, real estate, and service industries have played a significant role in reducing manufacturing’s overall share of US employment.
2. Homi Kharas, “The Unprecedented Expansion of the Global Middle Class,” Global Economy and Development at Brookings Working Papers 100, 2017, https://
3. Diego Alejo Vázquez Pimentel et al., “Reward Work, Not Wealth,” Oxfam International, January 2018, https://
4. Mara Hvistendahl, “While Emerging Economies Boom, Equality Goes Bust,” Science 23, no. 344 (2014): 832–835.
5. For more details on the distinguishing constraints on financial inclusion and their impacts on GDP, TFP, and inequality, see: Era Dabla-Norris et al., “Causes and Consequences of Income Inequality: A Global Perspective,” IMF Staff Discussion Notes 15, no. 13 (2015): 1; Era Dabla-Norris et al., “Distinguishing Constraints on Financial Inclusion and Their Impact on GDP, TFP, and the Distribution of Income,” NBER Working Paper No. 20821, 2019, https://
6. Martin P. Andersson and Andrés F. Palacio Chaverra, “Structural Change and Income Inequality: Agricultural Development and Inter-Sectoral Dualism in the Developing World, 1960–2010,” OASIS, no. 23 (2016): 99.
7. Unlike South Africa, which has less than a 10 percent share of employment in agriculture, Columbia and China have close to 20 percent and India has over 40 percent. Andersson and Chavera, in “Structural Change” (2016), examined structural changes to see the effect of sectoral workforce shifts on income inequality. After looking at fifty years of data for twenty-seven countries in Asia, Africa, and Latin America, they concluded that the gap between the productivities of agriculture and non-agriculture is positively associated with income inequality. The Food and Agriculture Organization of the United Nations, in its 2017 report titled “The State of Food and Agriculture: Leveraging Food Systems for Inclusive Rural Transformation,” mentioned that the agricultural sector employs more than 1.3 billion people, 97 percent of whom live in developing countries.
8. Andersson and Chaverra, “Structural Change,” 99.
9. Castaneda Aguilar et al., “Who Are the Poor in the Developing World?,” Policy Research Working Paper No. WPS 7844, 2016, http://
10. Hanan G. Jacoby, “Access to Markets and the Benefits of Rural Roads,” Economic Journal 110, no. 465 (2000): 713–737.
11. Christine Zhen-Wei Quiang et al., “Economic Impacts of Broadband” (World Bank, 2009), https://
12. Timo Henckel and Warwick Mckibbon, “The Economics of Infrastructure in a Globalized World: Issues, Lessons, and Future Challenges,” Brookings Institute, 2010, https://
13. In Asia, when per capita GDP rises above $3,000 there is a logarithmic increase, with education expenditures converging toward 5 percent in high-income countries. In Latin America, educational spending is relatively stable between 3 percent and 5 percent of GDP, and then rises toward 6 percent and above as per capita GDP increases above $6,000 (following a logarithmic trend). Education expenditure varies most in Africa, particularly between low-income countries. Following a logarithmic trend with respect to the country’s GDP per capita, the proportion of public expenditure spent on education starts at around 2 percent of GDP in countries such as Congo, Ethiopia, and Gambia, and reaches around 10 percent of GDP or more in countries such as Lesotho and Zimbabwe. Marion Laboure and Emmanuelle Taugourdeau, “Does Government Expenditure Matter for Economic Growth?,” Global Policy 9, no. 2 (2018): 203–215.
14. Financial deepening can influence the economic situation of both individuals and societies, including producing lower rates of income inequality. George R. Clarke, Lixin Colin Xu, and Heng-Fu Zou, “Finance and Income Inequality: What Do the Data Tell Us?,” Southern Economic Journal 72, no. 3 (2006): 578; Thorsten Beck, Asli Demirgüç-Kunt, and Ross Levine, “Finance, Inequality and the Poor,” Journal of Economic Growth 12, no. 1 (2007): 27–49.
15. Chakravarty and Pal suggest that economic development, as measured by a nation’s per capita income, is positively associated with that state’s level of financial inclusion. Mohammed and Uraguchi suggest that low rates of financial inclusion have direct negative impacts on health, education, and gender equality. Satya R. Chakravarty and Rupayan Pal, “Financial Inclusion in India: An Axiomatic Approach,” Journal of Policy Modeling 35, no. 5 (2013): 813–837; Essam Yassin Mohammed and Zenebe Bashaw Uraguchi, Financial Inclusion for Poverty Alleviation: Issues and Case Studies for Sustainable Development (United Kingdom: Routledge, 2017), 12.
16. Asian Development Bank Institute, “Accelerating Financial Inclusion in South-East Asia with Digital Finance,” IDEAS, Working Paper Series from Repec, 2017, https://
17. Claire Yurong Hong, Xiaomeng Lu, and Jun Pan, “FinTech Adoption and Household Risk-Taking,” NBER Working Paper No. 28063, November 2020, http://
18. Susanne Chishti and Janos Barberis, The Fintech Book: The Financial Technology Handbook for Investors, Entrepreneurs, and Visionaries (West Sussex: John Wiley & Sons, 2016).
19. Oksana Kabakova and Evgeny Plaksenkov, “Analysis of Factors Affecting Financial Inclusion: Ecosystem View,” Journal of Business Research 89 (August 1, 2018): 198–205.
20. The value of economic activity is high, with GDP at $350 billion in 2014. Per capita GDP growth rates have risen from negative rates to an average of 1.6 percent per annum since 1994 (when apartheid ended). Per capita GDP is only about 10 percent higher than it was in 1980. During the same period, other developing countries have seen much higher increases in income levels, almost twice as much in recent years. Unemployment rates have persistently stayed above 20 percent in the country. Youth unemployment is at 50 percent, the highest in the emerging world, and the overall unemployment rate is 2 percent higher than it was in 1994, when apartheid formally ended.
21. Ruchir Sharma, The Liberation Dividend (Oxford: Oxford University Press, 2014).
22. Asli Demirguc-Kunt and Leora Klapper, “Measuring Financial Inclusion: The Global Findex Database,” World Bank, Policy Research Working Paper WPS 6025, 2012, http://
23. Demirguc-Kunt and Klapper, “Measuring Financial Inclusion.”
24. Demirguc-Kunt and Klapper, “Measuring Financial Inclusion.”
25. Asli Demirguc-Kunt, Leora Klapper, Dorothe Singer, Peter Van Oudheusden, “The Global Findex Database 2014: Measuring Financial Inclusion around the World,” World Bank, Policy Research Working Paper WPS 7255, 2015, http://
26. In China, there remains a significant urban-rural divide in personal income, economic growth, and financial market developments. The shortage of local financial institutions in rural regions is another underlying constraint that prevents financial inclusion. Yubing Sui and Geng Niu, “The Urban-Rural Gap of Chinese Household Finance,” Emerging Markets Finance and Trade 54, no. 2 (2017), 377–392; Zhu Bao, Shiting Zhai, and Jing He, “Is the Development of China’s Financial Inclusion Sustainable? Evidence from a Perspective of Balance,” Sustainability 10 (2018): 1200.
27. Pete Sparreboom and Eric Duflos, “Financial Inclusion in the People’s Republic of China: An Analysis of Existing Research and Public Data,” China Papers on Inclusiveness, No. 7, August 2012, http://
28. Chen and Jin, in a 2017 report, state that even though 53 percent of households in rural China used credit, only 20 percent had credit from formal sources. Zibei Chen and Minchao Jin, “Financial Inclusion in China: Use of Credit,” Journal of Family and Economic Issues 38, no. 4 (2017): 528–540.
29. Shijun Chai et al., “Social Networks and Informal Financial Inclusion in China,” Asia Pacific Journal of Management 36, no. 36 (2019): 305–319.
30. Ben Walsh, “Fintech Lending Booms: Is That a Good Thing?,” Barrons, September 24, 2018; Sara Hsu, “China’s Fintech Giants Have the Money and Means to Dominate Despite the Wider Slowdown,” Forbes, August 31, 2018.
31. The Treasury of the Australian Government, “Economic Benefits of Fintech,” 2016, https://
32. International Monetary Fund. “Colombia: Staff Report for the 2015 Article IV Consultation: IMF Staff Country Reports: Colombia—2015 Article IV Consultation-Press Release; Staff Report, and Statement by the Executive Director for Colombia,” 2015, http://
33. Real GDP fell 4.2 percent. The unemployment rate was 20 percent, and 60 percent of the population was below the poverty line. Poverty line is defined as people living under $4 a day, PPP. The middle class came down to 11 percent, from 20 percent. Cord, Genoni, and Rodriguez-Castelan estimate that between 2002 and 2013 transfers accounted for 16.8 percent of the reduction in moderate poverty (US$4 per day, PPP) in the country. The Gini coefficient improved only marginally since 2000, from 58.7 to 55.9 percent in 2010, when the lowest quintile held only 3 percent of the income share. In Colombia, the Gini coefficient declined by about 3.4 percentage points from 2002 to 2012, even as the rest of Latin America on average achieved a 5.8 percentage point reduction over this period. Louise J. Cord, Maria Eugenia Genoni, and Carlos Rodriguez-Castelan, “Shared Prosperity and Poverty Eradication in Latin America and the Caribbean,” World Bank, 2015, http://
34. Ulf Thoene and Álvaro Turriago-Hoyos, “Financial Inclusion in Colombia: A Scoping Literature Review,” Intangible Capital 13, no. 3 (2017): 582–614.
35. Ernst & Young, “Global FinTech Adoption Index 2019,” https://
36. The mobile penetration in Russia was 89 percent in 2017 and was forecasted to be 90 percent in 2025. In the list shown here for each nation, the 2017 percentage is shown first, and the 2025 forecast is shown second. China: 84 / 85; Indonesia: 73 / 77; Brazil: 68 / 75; Mexico: 63 / 72; India: 53 / 63; Bangladesh: 51 / 60; Nigeria: 43 / 55; Pakistan: 39 / 50. GSM Association, “The Mobile Economy 2018,” 2018, https://
37. Harvard Business School Professor of Economics Julie Battilana’s research on power dynamics shows that existing power dynamics made leading social change even more challenging. People come to accept existing power differences and then take them for granted. Existing norms are reinforced by powerful individuals and organizations that gain from maintaining the status quo, and by those with limited power, the people who end up accepting their lower status positions. Leaders of change get stuck when their underestimation of power hierarchies befuddles their intentions, and when their overestimation of power hierarchies paralyzes their actions. Julie Battilana and Marissa Kimsey, “Should You Agitate, Innovate, or Orchestrate?,” Stanford Social Innovation Review, September 18, 2017, https://
38. Josh Horwitz, “Alibaba’s Customers Can Now Get a Loan Based on Their Online Shopping History,” Quartz, June 25, 2015, https://
39. To establish a new Aadhaar card, individuals must present photo identity cards that contain name and photo. There are at least twenty commonly used forms of ID that can be used to obtain an Aadhaar card (passport; ration card; PDS photo card; PAN card; driving license; voter ID; NREGS job card; government photo ID cards or PSU issued service photo identity card; arms license; photo ID issued by a recognized educational institution; photo credit card; photo bank ATM card; Kissan photo passbook; pensioner photo card; freedom fighter photo card; ECHS / CGHS photo card; certificate of identity that has photo issued by an officer or Tehsildar on a letterhead; address card that has name and photo issued by the Department of Posts; disability ID card or handicapped medical certificate that is issued by the respective state or union territory government or administrators).
40. Tania Lopez and Adalbert Winkler, “The Challenge of Rural Financial Inclusion—Evidence from Microfinance,” Applied Economics 50, no. 14 (March 22, 2018): 1555–1577.
41. Saifullahi Sani Ibrahim, Huseyin Ozdeser, and Behiye Cavusoglu, “Financial Inclusion as a Pathway to Welfare Enhancement and Income Equality: Micro-Level Evidence from Nigeria,” Development Southern Africa 36, no. 3 (2019): 390–407.
42. Patrick Schueffel, “Taming the Beast: A Scientific Definition of Fintech,” Journal of Innovation Management; Porto Portugal 4, no. 4 (2016): 32–54.
1. Where no source is mentioned this section draws extensively on Asli Demirgüç-Kunt et al., “Measuring Financial Inclusion and the Fintech Revolution,” Global Findex Database, 2017, https://
2. In high-income economies, 94 percent of adults have an account; in developing economies, 63 percent do. Demirgüç-Kunt et al., “Measuring Financial Inclusion.”
3. Demirgüç-Kunt et al., “Measuring Financial Inclusion.”
4. Robert Allen, “Technology and the Great Divergence: Global Economic Development since 1820,” Explorations in Economic History 49, no. 1 (2012): 1–16.
5. Demirgüç-Kunt et al., “Measuring Financial Inclusion.”
6. Asli Demirgüç-Kunt et al., “Measuring Financial Inclusion and the Fintech Revolution,” Global Findex Database, 2017, https://
7. Stefan Dercon, Tessa Bold, and Cesar Calvo, “Insurance for the Poor?,” UNICEF Social Policy, 2018, https://
8. James C. Brau, Craig Merrill, and Kim B. Staking, “Insurance Theory and Challenges Facing the Development of Microinsurance Markets,” Journal of Developmental Entrepreneurship 16, no. 4 (2011): 411–440.
9. Saibal Ghosh and Deepak Vinod, “What Constrains Financial Inclusion for Women? Evidence from Indian Micro Data,” World Development 92 (2017): 60–81.
10. Ross Levine shows that financial inclusion mobilizes savings for investment and helps people harness resources that promote specialization and innovation. Abiola Babajide and colleagues show that in the long term, financial inclusion should boost economic growth and productivity through increased availability of capital, increased transaction volume, betterment of resource allocation, improved risk management, and the reduction of information asymmetries. Ross Levine, “Financial Development and Economic Growth: Views and Agenda,” Journal of Economic Literature 35 (1997): 688–726; Abiola Babajide, Folasade Adegboye, and Alexander Omankhanlen, “Financial Inclusion and Economic Growth in Nigeria,” International Journal of Economics and Financial Issues 5, no. 3 (2015): 629–637.
11. Jose de Luna Martinez, “Financial Inclusion in Malaysia: Distilling Lessons for Other Countries,” World Bank Knowledge and Research, 2017, http://
12. Ratna Sahay et al., “Financial Inclusion: Can It Meet Multiple Macroeconomic Goals?,” IMF Staff Discussion Note, SDN / 15 / 17, 2015, https://
13. Lawrence Okoye et al., “Financial Inclusion as a Strategy for Enhanced Economic Growth and Development,” Journal of Internet Banking and Commerce 22, no. S8 (2017).
14. Babajide et al., “Financial Inclusion.” Collecting accurate, representative data in developing settings is a challenge. There is often a dearth of administrative data. Also, it is in the country’s best interest to report findings that paint them in a positive light. (For this reason, the most vulnerable and excluded groups are often excluded.) The data often lack rigor and representativeness, even today. Going back one or two decades, data collection and analysis were even worse.
15. Dipasha Sharma, “Nexus between Financial Inclusion and Economic Growth: Evidence from the Emerging Indian Economy,” Journal of Financial Economic Policy 8, no. 1 (2015): 13–36.
16. The seventy-four emerging economies are: China; India; Brazil; Indonesia; South Africa; Colombia; Turkey; Mexico; Russia; Malaysia; Thailand; Argentina; Bangladesh; Botswana; Chile; Costa Rica; Ecuador; Iran; Mozambique; Myanmar; Niger; Nigeria; Pakistan; Ukraine; Uruguay; Zimbabwe; Afghanistan; Angola; Albania; Burundi; Benin; Belarus; Belize; Bhutan; Botswana; Djibouti; Dominica; Algeria; Estonia; Micronesia, Fed. Sts.; Georgia; Ghana; Guinea; The Gambia; Guinea-Bissau; Honduras; Croatia; Iran, Islamic Rep.; Iraq; Kazakhstan; Kenya; Kyrgyz Republic; Morocco; Moldova; Madagascar; Maldives; Macedonia, FYR; Mali; Malta; Myanmar; Mozambique; Mauritania; Mauritius; Panama; Peru; Philippines; Paraguay; Romania; Rwanda; Sao Tome and Principe; Suriname; Slovak Republic; Slovenia; and Zambia. Although World Bank Financial Index data spans only three observations per country, the sample was extended to a fourteen-year range by including alternative measures of financial inclusion. The dependent variables GDP per capita and GDP growth intend to reflect the changing levels of individual wealth. All variables are time-series data, and the relationships were analyzed using both ordinary least squares (OLS) and fixed effects regressions.
17. Although results overall indicate a strong, positive association between measures of banking penetration / accessibility and GDP per capita, the link between such indicators and GDP growth is slightly negative or not statistically significant, like the results reported in Okoye et al., “Financial Inclusion.” It is noteworthy that regressions with both year and state fixed effects (not included in tables) are far from statistically significant. The linear models suggest that increasing financial inclusion has the potential to raise global living standards and reduce global income inequality. However, the literature reveals contradictory results on the direction of causality. There is a strong possibility of reverse or bidirectional causality; that is, high per capita income may simultaneously allow for greater financial inclusion. Other considerations in this analysis include lag effects and scarcity of data. Increased account ownership or bank presence theoretically may improve growth, but the effects would likely take a substantial amount of time to manifest within the economy. Because account ownership is measured only every three years, it is challenging to measure the impact of financial inclusion on economic growth.
18. GSMA Intelligence, “Global Mobile Trends 2021,” 2019, https://
19. For more details on global consumer transactions carried out in cash, refer to the following sources: Susanne Chishti and Janos Barberis, The Fintech Book (West Sussex: John Wiley, 2016); World Bank, “Measuring Financial Inclusion and the Fintech Revolution,” Global Findex Database, 2017, http://
20. Arvind Gupta and Philip Auerswald, “How India Is Moving toward a Digital-First Economy,” Harvard Business Review, November 8, 2017, https://
21. India Ministry of Finance, “Finance Ministry: Demonetization Immensely Beneficial to Indian Economy and People,” August 2017, http://
22. Gupta and Auerswald, “How India Is Moving.”
23. “Know Your Customer” is the process of a bank verifying the identity of its clients and assessing potential risks of illegal intentions for the relationship.
24. Varadharajan Sridhar, The Telecom Revolution in India: Technology, Regulation and Policy (Oxford: Oxford University Press, 2011).
25. Ernst & Young, “Global FinTech Adoption Index 2019,” https://
26. Ernst & Young, “Fintech Adoption Index 2019.”
27. Ernst & Young, “Fintech Adoption Index 2019.”
28. Chishti and Barberis, The Fintech Book.
29. Andrew Meola, “These Are the Five Best Remittance Companies in the World,” Business Insider, July 11, 2016, https://
30. Businessline, “Digital Payments Will Touch $500B in India by 2020, Says Report,” 2016, https://
31. Safaricom, “M-Pesa Rates, M-Pesa Tariffs, M-Pesa Withdrawal Charges, M-Pesa Transaction Fees,” 2018, https://
32. Anybody can open an account with a valid ID and a phone number. This excludes those without ID, which is a prevalent issue in many developing economies.
33. Safaricom, “M-Pesa Rates.”
34. Ignacio Mas and Daniel Radcliffe, “Mobile Payments Go Viral: M-Pesa in Kenya,” Capco Institute’s Journal of Financial Transformation 32 (August 2011): 169.
35. CNN, “M-Pesa: Kenya’s Mobile Money Success Story Turns 10,” 2017, https://
36. Mas and Radcliffe, “Mobile Payments Go Viral.”
37. Rob Matheson, “Study: Mobile-Money Services Lift Kenyans Out of Poverty,” MIT News, December 8, 2016, http://
38. Aaron Meyer, Francisco Rivadeneyra, and Samantha Sohal, “Fintech: Is This Time Different? A Framework for Assessing Risks and Opportunities for Central Banks,” Bank of Canada Staff Discussion Paper 2017–2010, July 2017, https://
39. Pratim Datta, “A Preliminary Study of Ecommerce Adoption in Developing Countries,” Information Systems Journal 21, no. 1 (January 1, 2011): 3–32.
40. Tyler Aveni and Joep Roest, “China’s Alipay and WeChat Pay: Reaching Rural Users,” CGAP, 2017, http://
1. Maslow’s hierarchy of needs is a theory in psychology proposed by Abraham Maslow in his 1943 paper “A Theory of Human Motivation.” Maslow used the terms physiological, safety, belonging and love, social needs or esteem, and self-actualization to describe the pattern through which human motivations generally move. This means that for motivation to occur at the next level, each level must be satisfied within the individual. Abraham H. Maslow, “A Theory of Human Motivation,” Psychological Review 50, no. 4 (1943): 370–396.
2. Marion Laboure and Emmanuelle Taugourdeau, “Does Government Expenditure Matter for Economic Growth?,” Global Policy 9, no. 2 (2018): 203–215.
3. The three core sub-models—conservative, liberal, and social democratic—are developed in Gosta Esping-Andersen, The Three Worlds of Welfare Capitalism (West Sussex: John Wiley, 2013).
4. For further information on Wagner’s law, see Adolph Wagner, Grundlegung der Politischen Oekonomie, vol. 1: Grundlagen der Volkswirthschaft (Leipzig: C. F. Winter, 1892).
5. While Barro holds that economic growth is primarily the result of endogenous forces, Myles shows that, for instance, subsidies for research and development or education can increase growth rates by increasing the incentive to innovate. Robert. J. Barro, “Government Spending in a Simple Model of Endogenous Growth,” Journal of Political Economy 98, no. 5 (1990): 103–126; Gareth D. Myles, “Economic Growth and the Role of Taxation Theory,” OECD Economics Department Working Paper 713, 2009, https://
6. Wilensky found that a certain level of economic development and revenue is required to divert limited resources from productive use (investment) to welfare. Laboure and Taugourdeau found a positive association between public spending and the economic growth rates of low-income countries, whereas they found negative associations across higher-income countries. Harold L. Wilensky, Industrial Society and Social Welfare: The Impact of Industrialization on the Supply and Organization of Social Welfare Services in the United States (New York: Russell Sage Foundation, 1958); Laboure and Taugourdeau, “Does Government Expenditure Matter?,” 203–215.
7. Mridula Ghai, “A Model for Universal Social Security Coverage: The Experience of the BRICs Countries,” International Social Security Review 68, no. 3 (July 1, 2015): 99–118.
8. Labor contracts in these nations are often informal, and income and wealth inequality are high. Thomas Scharping showed that China’s one-child-per-family policies introduced in 1979 corresponded with significant increased longevity. All the estimates come from World Bank staff estimates based on age distributions of the United Nations Population Division’s World Population Prospects, 2017. Mukul G. Asher and Azad Singh Bali, “Social Security Reform and Economic Development: The Case of India,” in Reforming Pensions in Developing and Transition Countries, ed. Katja Hujo (London: Palgrave Macmillan, 2014), 158–186; Thomas Scharping, Birth Control in China 1949–2000: Population Policy and Demographic Development (London: Routledge, 2003); World Bank, “Age-Dependency Ratio—China,” https://
9. Katja Hujo, “Reforming Pensions in Developing and Transition Countries: Conclusions,” in Hujo, Reforming Pensions, 311–335; Katja Hujo and Mariana Rulli, “Towards More Inclusive Protection: A Comparative Analysis of the Political Process and Socio-Economic Impact of Pension Re-Reforms in Argentina and Chile,” in Hujo, Reforming Pensions, 278–310.
10. Lianquan Fang, “Towards Universal Coverage: A Macro Analysis of China’s Public Pension Reform,” in Hujo, Reforming Pensions, 187–219.
11. Fang, “Towards Universal Coverage.”
12. Hujo, “Reforming Pensions”; Hujo and Rulli, “Towards More Inclusive Protection.”
13. Asli Demirgüç-Kunt et al., “Measuring Financial Inclusion and the Fintech Revolution,” https://
14. Benjamin Olken and Rohini Pande, “Corruption in Developing Countries,” Annual Review of Economics 4 (2012): 479–509.
15. Paul DiMaggio et al., “Social Implications of the Internet,” Annual Review of Sociology 27, no. 1 (August 1, 2001): 307–336.
16. Andreas Freund, “Automated, Decentralized Trust: A Path to Financial Inclusion,” in Handbook of Blockchain, Digital Finance, and Inclusion, ed. David Lee Kuo Chuen and Robert Deng, vol. 1 (Amsterdam: Elsevier, 2017).
17. Susanne Chishti and Janos Barberis, The Fintech Book: The Financial Technology Handbook for Investors, Entrepreneurs, and Visionaries (West Sussex: John Wiley & Sons, 2016).
18. “Know Your Customer” (KYC) is the name given to the process of verifying the identity of a company’s customers. The term is also used to refer to the banking regulations that govern these activities. KYC processes are used by companies of all sizes to ensure customer compliance with anticorruption laws and to verify their integrity and integrity. It also aims to prevent identity theft, tax evasion, money laundering, and terrorist financing. These processes are typically done through data collection and analysis, verification of list presence (such as that of politically exposed persons), behavioral and transactional analysis, and so on.
19. For further information on the blockchain’s decentralized trust, see Freund, “Automated, Decentralized Trust.”
20. Freund, “Automated, Decentralized Trust.”
21. Asian Development Bank Institute, “Accelerating Financial Inclusion in Southeast Asia with Digital Finance,” IDEAS, 2018, http://
22. Demirgüç-Kunt et al., “Measuring Financial Inclusion.”
23. “e-KYC” stands for “electronic Know Your Customer.” This term is generally used by the Indian government’s Aadhaar initiative. The principle behind it is that a person with only an Aadhaar number and a fingerprint can open a bank account. The Aadhaar biometric system would provide enough electronic identification and documentation to replace the previous KYC system that required paper documentation. Cyn-Young Park and Rogelio Jr V. Mercado, “Financial Inclusion: New Measurement and Cross-Country Impact Assessment,” ADB Economics Working Paper Series 539, March 15, 2018, http://
24. Pratim Datta, “A Preliminary Study of Ecommerce Adoption in Developing Countries,” Information Systems Journal 21, no. 1 (2011): 3–32; Aakanksha Joshi, “Mandatory Aadhaar Linking: Confusion, Chaos and Complications,” WTD News, December 1, 2017, http://
25. Yvonne Braun, “Pensions Dashboard: The Next Frontier in Fintech,” Professional Pensions, 2016, https://
26. Demirguc-Kunt et al., “Measuring Financial Inclusion.”
27. Chishti and Barberis, The Fintech Book, 66.
28. Alliance for Financial Inclusion, “Fintech for Financial Inclusion: A Framework for Digital Financial Transformation,” Intergovernmental Group of Twenty-Four, 2018, https://
29. Alliance for Financial Inclusion, “Fintech for Financial Inclusion.”
30. Ernst & Young, “Global FinTech Adoption Index 2019,” https://
31. M. Mostak Ahamed and Sushanta K. Mallick, “Is Financial Inclusion Good for Bank Stability? International Evidence,” Journal of Economic Behavior & Organization (August 1, 2017).
32. Kok Lian Woo, “How Chinese Commercial Banks Innovate: Process and Practice,” Journal of Innovation Management 5, no. 2 (2017): 81–110.
33. For further information on the European Union, see European Banking Authority, “EBA’s Approach to Financial Technology (Fintech),” 2017, https://
34. A primary aim of a sandbox is to align compliance and regulation with the rapid growth of fintech companies without drowning them in rules, while also not compromising customer security. Another goal is to attract the attention of different players, such as banks, private equity, and venture capital funds, in the hopes of securing investment. Regulatory uncertainty discourages investment. Investors are hesitant to invest in a company that is working in an unregulated landscape because regulatory bodies can suddenly deem its operations illegal, either forcing it to drastically change the business or shut it down. Similarly, investors do not necessarily want to invest in an overregulated market. We’ve mentioned that overregulation can hinder innovation, affecting a company’s growth rate and ability to achieve a worthwhile return on investment. Fintech start-ups participating in regulatory sandbox initiatives can therefore potentially convince investors who previously have been hesitant to invest that they are working to comply with regulatory obligations and on their product or service innovations. In Europe the Authority for the Financial Market (AFM) and De Nederlandsche Bank (DNB) in Holland combined forces for a regulatory sandbox, and Denmark’s Financial Supervisory Authority (Finanstilsynet) launched the FT Lab. Apart from Britain, these are the only two European countries that offer a fintech sandbox program. With Britain’s decision to leave the EU, the European Union’s banking watchdog indicated that there is an urgent need for a cross-border sandbox and innovation hub that will nurture the continued growth of fintech start-ups in the EU. In 2015 the UK Financial Conduct Authority (FCA) launched the first regulatory sandbox for Fintech start-ups, called Project Innovate. The program was rolled out in phases (or “cohorts,” as they call them), with companies applying to be part of each stage. The sandbox seeks to provide firms with the ability to test products and services in a controlled environment; reduced time-to-market at potentially lower cost; support in identifying appropriate consumer protection safeguards to build into new products and services; and better access to finance. The Monetary Authority of Singapore (MAS) launched their fintech sandbox in 2016 to encourage more fintech experimentation and innovation. “The regulatory sandbox will enable FIs as well as fintech players to experiment with innovative financial products or services in the production environment but within a well-defined space and duration. It shall also include appropriate safeguards to contain the consequences of failure and maintain the overall safety and soundness of the financial system.” Regulatory sandboxes have been extensively developed in Ivo Jenik and Kate Lauer, “Regulatory Sandboxes and Financial Inclusion,” CGAP Working Paper, 2017, https://
35. Jayati Ghosh, “Microfinance and the Challenge of Financial Inclusion for Development,” Cambridge Journal of Economics 37, no. 6 (October 2013): 1203–1219.
For more details on this chapter, please see Appendix A.
1. Marion Laboure and Jim Reid, “The Future of Payments Part I. Cash: The Dinosaur Will Survive … for Now,” Deutsche Bank Research, Corporate Bank Research, 2020, https://
2. Jack Lefler, Las Cruces Sun-News (NM), July 24, 1968; Neil Ardley, World of Tomorrow: School, Work and Play (Franklin Watts, 1981); “The End of the Cash Era,” The Economist, February 15, 2017, https://
3. With the exception of Sweden, where the use of physical cash is actually declining. According to a nationwide survey conducted by the Sveriges Riksbank—the Swedish central bank—only 18 percent of Swedes reported using cash recently, compared to 40 percent of Swedes in 2010. Factors that help include Sweden’s strong broadband coverage, even in remote areas; small, tech-savvy population; and deeper trust in institutions and new technologies.
4. One exception is Sweden, where the use of physical cash is declining substantially. According to a nationwide survey conducted by the Sveriges Riksbank—the Swedish central bank—only 18 percent of Swedes reported using cash compared to 40 percent in 2010. Purchases are usually done as digital transaction by cards, online, or by using Swish, Sweden’s most popular mobile payment app. The following factors help: strong broadband coverage, even in remote areas; a small, tech-savvy population; and a deeper trust in institutions and new technologies.
5. Mathew Scott, “WeChat Is a Way of Life for 900 Million Daily Users,” INTHEBLACK, May 1, 2018, https://
6. Constance Emmanuelli et al., “Elevating Customer Experience Excellence in the Next Normal,” McKinsey & Company, May 21, 2020, https://
7. In advanced economies, the collection and use of data are more challenging due to data protection regulations. In the European Union, the General Data Protection Regulation (GDPR) regulates individuals’ data and privacy. Similarly, in California, the California Consumer Privacy Act (CCPA) is a state statute intended to enhance privacy rights and consumer protection for residents of California. Alessandra Tanda and Cristiana-Maria Schena, “FinTech, BigTech and Banks Digitalisation and Its Impact on Banking Business Models,” Palgrave Macmillan, Palgrave Pivot Analysis, 2019, https://
For more details on this chapter, please see Appendix B.
1. The Bank of International Settlements defined three examples of current technological and design features of cryptocurrency assets relative to traditional assets: (1) They are digital and virtual in nature; (2) they rely on cryptography and advanced mathematical techniques to restrict the transmission of data to the intended parties; (3) they use distributed ledger technology.
2. But it is bad for AI developers, who face hurdles accessing the data they need to train their algorithms. The European Union has codified and put into practice “right to be forgotten” since 2006.
3. That suits Chinese technology firms just fine. The legal framework in China allows tech firms to collect a wide range of user data for a wide range of purposes, such as constructing social-scoring systems, like Alibaba’s Sesame Credit.
4. Marion Laboure and Jim Reid, “The Future of Payments: Series 2, Part I. Post Covid-19: What Executives Are Thinking and Doing,” Deutsche Bank Research, January 13, 2021, https://
5. The UK has just started the consultation process, and the government follows a staggered consultation approach with individual focus on the different categories and purposes of cryptocurrencies. The Chinese government has high interest in establishing and strengthening the digital yuan. We find targeted regulatory actions to support that. For example, in 2017, in response to Bitcoin peaks, the government increased already strict scrutiny over cryptocurrencies as the People’s Bank of China (PBoC) prepared to launch its own digital currency. In October 2020, PBoC outlawed the issuance of private digital currencies. In India, cryptocurrencies are no longer banned but regulatory activities are very much prohibitive. For example, exchanges are legal, but the government has made it difficult for them to operate. We will see more activity throughout 2021. In Japan there were lots of regulatory activities related to cryptocurrencies in 2020. They were mainly focused on adoption of payment and financial services, and on exchange rules for cryptocurrencies.
6. Raphael Auer and Stijn Claessens, “Cryptocurrencies: Why Not (to) Regulate?,” in The Economics of Fintech and Digital Currencies, ed. Antonio Fatás (London: CEPR Press, 2019), 83–90.
7. “Stablecoins” are designed to minimize volatility. The value of stablecoins can be pegged to an existing asset, such as a commodity, or to an existing currency (or a basket). This approach makes cryptocurrencies more useful for transaction and settlement processing on a business network using a distributed ledger technology such as blockchain, which reduces traditional infrastructure expenses and operational costs. Since 2017, over two hundred stablecoins have been created. Diem plans to use stablecoins pegged to fiat currencies like the dollar, the euro, and sterling.
8. Libra Association, “Cover Letter,” White Paper 2.0, April 2020, https://
9. Mathew Scott, “WeChat Is a Way of Life for 900 Million Daily Users,” INTHEBLACK, May 1, 2018, https://
10. Cash as a means of payment has declined while cash as a store of value has increased. The rise of cash in circulation over the last twenty years is almost entirely due to high-denomination notes. It is also estimated that two-thirds of USD 100 notes are held outside the United States, which indicates they are not used for ordinary transactions.
11. BIS, “Central Bank Group to Assess Potential Cases for Central Bank Digital Currencies,” January 20, 2021, https://
12. BIS, “The Technology of Retail Central Bank Digital Currency,” BIS Quarterly Review (March 2020), https://
13. For example, the Riksbank—the Swedish central bank—launched in 2017 its e-krona project and reported on how to straddle the difficult line between anonymity, public backing, and compliance with anti–money laundering laws and regulations designed to prevent the financing of terrorism.
14. In other words, a CBDC would (1) be a third form of central bank money that exists next to cash and reserves; (2) try to combine the advantages of world reserves, which are already digital but available only to banks, and cash, which is available to everyone, but physical; and (3) be digital and available to everyone. Clearly, a digital currency is not the same as paper cash. CBDCs are complementary to cash; they are not supposed to replace cash in most advanced economies. Cash has specific properties that only allow it to be transmitted peer-to-peer. In other words, cash transactions are not traceable. They are anonymous.
15. The digital yuan is a digital form of cash (digital banknotes and coins). Technically speaking, it is part of M0, which is the most liquid form of money supply in the economy. The e-RMB is issued and backed by the country’s central bank.
16. China has a high number of banked people (80 percent in 2017) compared to the other emerging economies; however, due to its large population, China has the highest number of unbanked people in the world. According to the World Bank, 224 million Chinese people were unbanked in 2017.
17. This is also why Alipay (for example) and PBoC wallet are different.
1. McKinsey Global Institute, “Jobs Lost, Jobs Gained: Workforce Transitions in a Time of Automation,” 2017, https://
2. Håkan Samuelson, “What Percentage of Trading Is Algorithmic?,” The Robust Trader, April 13, 2021, https://
3. Marion Laboure, “The Future of Payments—Part II: Moving to Digital Wallets and the Extinction of Plastic Cards,” Deutsche Bank Research, January 2020, https://www.dbresearch.com/PROD/RPS_EN-PROD/PROD0000000000504508/The_Future_of_Payments_-_Part_II__Moving_to_Digita.PDF?undefined&realload=a1HFAwdhjWXerPnNISwUv0bV4mRYc3deOAE65DtWxYBptW1woTBcexqb63HwiF5TfNDUeDNidtne2zDZjhYhqw==.
4. MicroStrategy, “MicroStrategy Announces Over $1B in Total Bitcoin Purchases in 2020,” December 21, 2020, https://
5. Yet, this is not far from our current system. They do deny or charge high premiums to individuals with high risks. So, the fact that big data convey more information plays along with this method, and legally it would be hard to argue against it unless the whole risk model is challenged.
6. Yves Thomas et al., “Survival of Influenza Virus on Banknotes,” Applied and Environmental Microbiolology 75, no. 10 (2008): 3002–3007; Danielle Westhoff Smith et al., “Ebola Virus Stability under Hospital and Environmental Conditions,” Journal of Infectious Diseases 214, no. 3 (October 2016): S142–S144.
7. G. Kampf et al., “Persistence of Coronaviruses on Inanimate Surfaces and Their Inactivation with Biocidal Agents,” Journal of Hospital Infection 104, no. 3 (February 6, 2020): 246–251.
8. Statista, “Number of Online Payment Users in China from 2009 to December 2020,” 2021, https://
9. Marion Laboure, “The Steps Required to Promote Digital Currencies,” Konzept, no. 19 (November 10, 2020): 49, https://www.dbresearch.com/PROD/RPS_EN-PROD/PROD0000000000513741/The_steps_required_to_promote_digital_currencies.pdf?undefined&realload=Z1UoWbB1mtD3cSx9d4vGVuqiviOWpcuU3CROwUgPdXagCMcNMCv50wkIGQrJLq0QIC4eRQ99e9lBNH4qwowLVQ==.
10. CNN, “M-Pesa: Kenya’s Mobile Money Success Story Turns 10,” 2017, https://
11. Thierry Isckia has investigated the role of platforms in the emergence and development of broader ecosystems. The development of platforms shapes the nature of relationships between partners engaged in an open innovation process. The more open the platform, the more it will improve collaboration between business partners. Aadhaar is a typical example. The Indian government initially created the platform to help citizens establish IDs, but it has since been opened to banks and to a broader network of application developers. In the future, start-ups could develop ATM withdrawal mechanisms or e-commerce authentication systems that use a fingerprint or iris scan. Thierry Isckia, “Amazon’s Evolving Ecosystem: A Cyber-Bookstore and Application Service Provider,” Canadian Journal of Administrative Sciences 26, no. 4 (2009): 332–343; Thierry Isckia and Denis Lescop, “Open Innovation within Business Ecosystems: A Tale from Amazon.com,” Communications & Strategies 74, no. 1 (2009): 37–54; Ben Letaifa, Anne Gratacap, and Thierry Isckia, Understanding Business Ecosystems: How Firms Succeed in the New World of Convergence (Louvain-la-Neuve: De Boeck, 2015).