The Power of Networks: Technology, Data and Finances

Networks have changed the world. Not only because of virtual, digital or social networks, but also as a consequence of the most traditional ones. Since the appearance of the first hominids, the exchange of information through communication networks has made possible the consolidation of communities, populations and entire civilizations. For a long time now, those communities who exchanged information and included the greatest number of people in their society have been the winners. Today, with a totally new financial universe, we have the possibility to do this.

Today, the power of networks is at the forefront of technological advances of extraordinary value: mobile devices, smart homes, international shipping, autonomous cars and, of course, financial services. Through networks, the world, as we know it today, is possible. In the last 10 years, global internet users have increased by 2.7 billion (Statista, 2022).

Toward Financial Education

The role of networks in education is crucial. In the world of finance, it is of the utmost importance that people access educational tools on how to control their money. Financial education makes it possible to continue creating knowledge networks. And with this, people can be empowered to take their place in decision-making, whether in their personal finances, or in the business world. As an example of the efforts of countries to integrate financial education into basic education we have Japan, which has integrated economic and personal finance topics into the school curriculum since 1989, followed by the US and England (Cruz, E., 2018).

Financial education is an issue that concerns everyone. In Mexico, the National Commission for the Protection and Defense of Financial Services Users (Condusef) designed the program “Educa tu portfolio” (Educate your portfolio) to provide tools related to financial management to people of all educational levels.

Networks and Open Banking

In the financial world, the exchange of data made possible the creation of open banking, which, as its name suggests, refers to the free flow of information between financial and non-financial entities as well as the possibility of low-cost payments directly between banks. This has meant a radical change, both for companies and users. As of 2019, at least 47 countries had implemented open finance policies. In Latin America, Colombia, as of July 25, 2022, is the latest in a slew of countries to decree an Open Banking Law.

Where does this lead us? Toward the formation of more effective ways to understand the financial world, one in which users have the same importance as companies, and where the old methods of operating are replaced by friendlier, simpler and safer practices. For companies, open banking represents greater innovation, cost reduction, new business models and the possibility of increasing their customer base. For users, the benefit is focused on better offers, insights into personal finances, reduction of time and costs, reduction of fraud through ID verification, and control of their banking information.

Thus, the exchange of data is a characteristic of open banking that is essential for improving the financial system. Crucially in Latin America, people classified as “marginalized” (those who do not have an account or only have a basic account) will probably pay lower fees in an open banking system, with savings equivalent to 0.8 percent of their income, according to Reynolds and Chidley (2019). Open banking would allow its users to save an amount equivalent to 2.5% percent of their income. Although, initially, many people were distrustful of how their data was going to be used, today, many are aware that a model like open banking, has high levels of security, equal to or higher than those of the most highly regulated financial entities.

Financial Inclusion

Weaving networks helps us understand that there is much work to be done. As we strive to achieve technological goals of all kinds, we are realizing that there are other areas that must be addressed as soon as possible. For this reason, financial inclusion is one of the axes on which institutions such as the World Bank work. Open banking contributes to this through its particular characteristics, since it seeks to have financial institutions share customer data through APIs, which fosters competition and innovation in financial services. This translates into better experiences for customers.

In the National Survey of Financial Inclusion (ENIF, 2021), of the total number of participants, 90.1 percent still make their payments with cash, while only 2.1 percent use other tools, such as bank transfer or direct debit. This result demonstrates the need to offer products that adapt to the needs of the great bulk of the population. Additionally, credit penetration in the country is low, which ends up limiting competitiveness and making efforts for financial inclusion more expensive.

The goal of financial inclusion is to give all people access to useful financial services and products, in responsible and sustainable environments. It is not simply that those who do not have access to a bank can join one. The goal of financial inclusion goes beyond banking.

As the World Bank points out in its report, “Open Banking: Design at the Service of Financial Inclusion (2020),” open finance initiatives can become a crucial public policy tool for emerging and developing countries by providing the possibility to encourage innovation and reduce costs.  This leads to the possibility of making it more economical to provide financial services to the underserved and unbanked and offer products and services more suited to their needs to promote greater financial inclusion.

To understand this phenomenon of social dimensions, we must work from the origins of the concept of inclusion. Only in this way is it possible to offer valuable solutions for those who need it most. Financial inclusion, like all types of work for inclusion, must ensure that it offers people relevant use cases and opportunities in the immediate context.

What does a world that owes its present (as well as its past and future) to networking say about us? Obviously, without contact with people, our realities would be far from what we know today. In the world of finance, specifically in that of open banking, the exchange of data and low-cost payments forges a new conception of the universe of products and services, but in every detail of our lives it is possible to contemplate an element that is only possible because of these networks.