FinTech brings an immense opportunity to help build viable financial solutions for the refugee population. In the EU for example, refugees face notable barriers to include strict regulations, licensing requirements, and a lack of access to capital. A new report lays out how FinTech could be the biggest factor in changing that, however.
The Current State of Financial Innovation in the EU
The refugee population living inside Europe’s borders have a tough time receiving basic financial services. The current coronavirus pandemic has intensified some of the problems that these people have already been facing with receiving paychecks, exchanging money with family overseas, or buying necessities like essential groceries.
However, it looks like things are going to change for the better soon. As per a report by Village Capital, the emerging FinTech sector could provide exciting innovations for the refugee community in Europe and may fill the gap left behind by traditional banks and help governments gain lost revenue.
The EU passed a directive in 2014 requiring banks to offer basic payment accounts to all customers living in EU countries, including refugees and asylum seekers. However, only half of the member states have issued proper formal guidelines on the financial integration of refugees.
As VIllage Capital notes, “virtually none” of the financial innovation in the EU “is serving the refugee population living inside Europe’s borders.” Plus, the report also observed that even when these financial services are available, they are often “basic, difficult to access, or prohibitively expensive.”
Germany, which has the largest population of asylum seekers in the EU, has seen the percentage of tax-paying refugees go up from 5% in 2015 to 29% in 2019. However, despite this, the fact remains that as more refugees get integrated into the system, the more pressing is their need to gain access to sophisticated financial services beyond the basic Sparkasse account they are issued upon arrival.
This represents a real problem for the German government because of the following reasons:
- They are missing out on banking revenue.
- They face an increasing amount of unregulated and illegal financial service providers who siphon money into countries under international sanctions such as Syria or Iran.
As Ben Younkman, lead author of the report told EURACTIV:
“There’s been a fatigue from the societies that are taking care of refugees. These populations want to get out, work, and are incredibly entrepreneurial but accessing finances is a critical way to get any business off the ground.”
Refugees Suffering Amid Coronavirus Crisis
The COVID-19 crisis has had a major economic impact — sending the stock market crashing and closing the doors of not just companies, but industries. Many businesses have gone cashless, which has locked out those without credit card access. This, along with banks easing lending requirements, widens the access gap from refugees who are still presently unbanked.
The report argues that non-state issued digital identity can help open financial services to refugees through online banking. At the same time, they can secure access to credit through alternative digital lending products.
Another barrier these refugees are facing is the EU’s AML and anti-terrorism policies that require identification, verifying documents, and exhaustive background checks. The problem with trying to positively disrupt these core issues is that you run the risk of breaking the whole system if you get something wrong.
A possible solution to this lies in creating “regulatory sandboxes,” which enables FinTech startups to innovate, develop, and scale products in a safe and contained environment. This will allow startups to test out their solutions before implementing them in the real world.
The refugee population already faced significant barriers to financial services and they have widened even more during the current Coronavirus pandemic. Do you think these FinTech solutions could help even the odds and give these refugees access to the financial services they deserve? Let us know in the comments below.
Image courtesy of Euractiv.