FinTech may bring solutions to refugees excluded from financial services, report says

FinTech may help financially integrate refugees [Joyseulay/Shutterstock]

Many refugees living in Europe are still struggling to access basic financial services leading to some choosing informal or illegal alternatives to take loans, transfer money internationally, or make online purchases, a new report has found.

Solutions based on emerging technologies in the financial sector may fill the gap left behind by traditional banks and help governments gain lost revenue.

“Virtually none” of the financial innovation in the EU “is serving the refugee population living inside Europe’s borders,” states a new report by Village Capital.

Since the EU passed a directive in 2014 requiring banks to offer basic payment accounts to all customers legally residing in EU countries, including asylum seekers and refugees, only half of member state regulators have issued formal guidelines on the financial integration of refugees.

Even “when financial services are available, they are often basic, difficult to access, or prohibitively expensive,” the report finds.

Germany, the largest single recipient of asylum seekers in the EU, has seen the share of refugees paying taxes on wages increase from 5% in 2015 to 29% in 2019.

Yet, “the more refugees become integrated … the more they need access to financial services beyond the basic Sparkasse account issued upon arrival,” representing a “problem for the German government, which is both missing out on banking revenue, and has increasing incidence of unregulated and illegal financial service providers channeling money internationally, often into countries that are under international sanctions such as Syria or Iran.”

“There’s been a fatigue from the societies that are taking care of refugees,” Ben Younkman, lead author of the report told EURACTIV. “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.”

COVID-19 ‘locks out’ refugees

As many businesses have gone cashless amid the COVID-19 pandemic, those without a credit card are ‘locked out.’

Additionally, with banks easing lending requirements to jump-start the economy, the access gap for refugees who still lack an account will widen, the report argues.

“So you’re talking about groups that are skilled,” said Younkman. “People who are living in cramped quarters have ideas and ways to react” to the pandemic.

Non-state issued digital identity can help open financial services to refugees including through online banking, while alternative digital lending products can provide access to credit, the Village Capital report argues.

The EU’s anti-money laundering and terrorism regulations that require collecting identification, verifying documents, and conducting background checks to ensure that clients are properly risk assessed remain a big barrier for projects looking to integrate refugees.

“I just don’t think that the blunt tools the EU developed are as nimble as they could be,” said Younkman. “There is space for increased discernment for addressing these populations, especially those with a legal status.”

One solution is so-called ‘regulatory sandboxes,’ which allow FinTech startups to innovate, develop and scale products in a safe, temporarily relaxed regulatory environment.

Happy as a 'sandbox': Bulgaria’s tech upsurge

The creation of a “sandbox” – a safe environment where FinTech companies can test their products – is big news for Bulgaria and the entire tech community in Central and Eastern Europe, write Eduard Tsvetanov and Filip Genov.

 

 

“When you get with these banks they say ‘if you get the solution wrong you can break the whole system,'” said Younkman, adding that in “an existing system it runs the risk of causing chaos and creating loopholes that are unseen.”

“So putting something like [these solutions] into a microcosm, where you can work on it in a focused, defined, walled off way is a great way to start before it gets into the wider and affects the wider population.”

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