Role of the new technologies in financial inclusion. The Italian case.

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1 Prof. Paola Bongini, Ph.D. University of Milan-Bicocca Role of the new technologies in financial inclusion. The Italian case. New information and communications technology (ICT) is rapidly changing the face of financial services across the globe. In particular, ICT promises to enable people to access financial services more easily than ever before thanks to their capability to reach people wherever they are and, above all, at a lower delivery cost. In this sense, ICT offers new munitions in the task of reducing financial exclusion as it offers the prospects of more convenient, tailored and responsive services even for individuals or businesses non-users of the official financial system. 1. Financial inclusion in Italy Financial exclusion is defined as the inability to access necessary financial services in an appropriate form. Exclusion can come about as a result of problems with access, conditions, prices, marketing or self-exclusion in response to negative experiences or perceptions 1. Italy has a level of financial exclusion slightly superior to other OCSE nations 2. According to the latest Survey on household income and wealth (2012), 7% of Italian families declare not to possess any checking or postal account, against a 5% in France, a 3.4% in Germany and a 3% in the U.K 3. This data probably underestimates the Italian financial exclusion as the Survey doesn t consider the non-resident immigrant population, most likely characterized by a high percentage of financial exclusion. This data, however, must be analyzed over a certain timespan, evidencing how access to a basic financial product such as a checking account has grown over time: in % of Italian families possessed a checking account, a percentage that increased from 91.5% in 2010 to 93% in This positive trend is the result of the introduction of the Conto di Base (CD) in The CD has been specifically introduced to increase the degree of financial inclusion of low-income Italian and immigrant citizens. The account includes a limited annual fee and a series of information and payment services, such as the debit card. Considered a mere money transferring account, interests on deposits, or the possibility to overdraw, are not contemplated. In addition, for the socially 1 Anderloni, L. and Vandone, D. (2007), Migrants and Financial Services: which opportunities for financial innovation?, in Molyneux P., E. Vallelado (edited by), Frontiers of banks in a global world, Palgrave, 2 Gomel, G. et al. (2011), Inclusione finanziaria: le iniziative del G-20 e il ruolo della Banca d Italia, Bank of Italy, Occasional papers 96 3 Centre for social impact (2014), A global snapshot of financial exclusion, 1

2 underprivileged (low-income, low-pension) the account is offered tax exempt. The basic checking account has therefore been introduced, by expressed provisions of the law, as an instrument of financial inclusion of particular interest to the older segments of the population (pensioners) and to the immigrants that for the first time access the Italian financial system, in a context like the Italian one in which the population is characterized by a poor attitude to the use of new information technologies and to new payment tools. 2. New technologies Indeed, the first Report of the National Observatory on financial inclusion of the immigrant population in Italy (CeSPI, 2011) evidenced a greater share of possession and usage of tablets and smart-phones in respect to the Italian population. These communication tools are important drivers in financial inclusion as they easily adapt to the products of mobile payment and in general to the mobile banking. A simplification of the access to the various payment services constitutes an important step in the approach to regulated financial services and intermediation. The development of the rechargeable cards has been a real and true revolution in the Italian payment market, with a high diffusion rate in few years, as a result of the limited costs and the increased ease of emission and management in respect to traditional checking accounts. The rechargeable cards can be totally unconnected from a checking account: this big innovation may have been the reason for their rapid diffusion. They have been appreciated like a secure wallet where to accumulate money at reduced costs (even if without positive interests) and they have responded to the basic requirements of a normal checking account (payments and withdrawals). There exist three types of rechargeable cards with these common characteristics albeit with some variations: a) Bearer cards: unlike other debit cards, they re without ownership and they can be issued with no particular restrictions on documents requested at the time of issue. This characteristic limits the use; in fact there are limits to its scope of operations and to its plafond. b) Cards that can be assimilated to checking accounts: they guarantee all basic functions of a checking account as far as the management of the payments (debits, deposits, bank transfers, etc...), assuring a constant control of their management through access o dedicated internet portals. c) Twin Cards: two cards issued to the same user with the possibility to send the second card to a family member, to activate the card and subsequently use the card for money transfers. In Italy, these cards were launched by BancoPosta under the name PostePay Twin. 2

3 Another important innovation in the payment systems has been the development of the contacless technology. It is a technology, inserted in the chip of the credit or debit card, which allows the transfer of information simply through the proximity of a terminal. The chip can be installed in various and non-conventional objects such as, for example, the mobile phone. Its application on a wide-scale could transform the mobile phone into a full-fledged payment tool, while remaining connected to an international payment system and to a financial intermediary (Authorized Payment Institute). The mobile telephone system constitutes therefore the most interesting alternative in the development of technological payment systems. Although the European regulations have opened up to telephone operators to become Payment Institutions and therefore authorized to issue payment tools, to this day the Italian operators have opted for partnership strategies with banks and financial operators. The choice seems to be related to a series of factors, such as a new regulation yet to be consolidated and the awareness that they would be entering in a sector, that of the payment services, new and with specific problems peculiar in respect to the traditional business. Multiple are the possible products and services offered as a result of the link between the telephone market and that of the financial instruments (first of all payment systems); they can be divided into three categories: Mobile Banking Services (Graph 1), include all services that connect the customer with his/her checking account, through the mobile phone (or tablet) -checking bank account, notifications, wire transfers, brokerage, asset management, etc..-. Graph 1 shows the distribution, in 2011, of the services offered to the immigrant population, divided by typology, on a panel of Italian banks. Graph 1 Source: Osservatorio Nazionale sull inclusione finanziaria dei migrant (2011) Money Payment Services use the mobile phone to make payments. Different scenarios have been developed in this sector through the interaction, in a partnership, of three separate subjects: a telephone operator, a payment services manager and a bank and the use of a checking account or rechargeable card as a reference portfolio. The only different scenario, which demonstrates how the sector is in a rapid transformation phase, concerns the Mobile Ticketing service, offered by major telephone 3

4 companies 4, united in a consortium, thanks to an authorization granted by the Bank of Italy, which allows to charge the cost of the public transportation directly on the SIM of one s mobile phone. Another particularly interesting experiment is represented by Move and Pay, the Intesa Sanpaolo platform for payments with the mobile phone on the MasterCard Paypass circuit that permits making payments approaching the phone to a Contactless POS activated to the circuit. For payments inferior to 25, the transaction is concluded without the input of a pin number or the signature of a document (as contemplated by the micro-payment discipline) The system utilizes a technology developed by Samsung that involves a payment application inserted in the telephone and incorporated into the SIM. It is the largest investment made in this field on behalf of a bank in Italy. A third experience is represented by the launch of a debit card by Vodafone. The card actually creates an electronic purse separate from the telephone credit and allows through an IBAN code, to be utilized like a payment tool, useable also from the telephone by the means of an application. The card developed as a result of a partnership between Mastercard and Istituto Centrale delle Banche Popolari, presents an important innovation in the Italian scenario in that it can be issued (and recharged) at any Vodafone point of sale. Although a direct money transfer from the electronic purse (the debit card) to the telephone credit hasn t been contemplated yet, undoubtedly the experiment goes in the direction of integration and to a potential transfer system of the payment systems to the phone. Money Transfer Services include the possibility to send money through an application on one s mobile phone. It concerns a specific market sector dedicated to the immigrant clientele. While in other countries various experiences have been developed in that direction, in Italy operators are still of the idea that regulatory obstacles limit development. An interesting experience though in that direction is the agreement between Wind and Western Union that will consent to operate the transfer command from the electronic purse on a credit card to a Western Union account for international money transfers. The joint-venture has developed an application on the mobile phone that uses text message technology to transfer money through an instruction sent and received through the mobile phone. This experiment has obviously found its natural end market in the technologies connected to the smartphone applications and it has been deliberately reserved to Western Union loyal customers. 3. Financial education Financial inclusion also passes through the predisposition and the offer of financial education projects. Financial education is in fact one of the principal remedies to prevent and remove the causes that fuel the financial exclusion phenomenon. Through a better and wider financial culture one can overcome technical-linguistic barriers and the lack of trust in intermediaries that often 4 Vodafone, Wind,Telecom, PosteMobile and Fastweb 4

5 create obstacles in the access to bank and financial products and services on the part of the weaker segments of the population. Also in this setting, it is possible to gain advantages from the development of new technologies. ICT consents for example a reduction in production costs of course materials- the expensive books or brochures could be substituted by compact discs that permits to easily reach, via web, a vast audience of users. In the forefront of financial education various public and private subjects have operated for many years in Italy, even in the absence of a national strategy for financial education. In accordance with other Supervisory Authorities and Central Banks, in the institutional website of Bank of Italy, a specific section has been set up on the theme of financial education and it has been inserted in the area dedicated to services to the public. In this section contributions have been published in order to provide basic information on the main bank, financial and social security products with the objective to make available to a vast audience of customers and savers, documents easily comprehended. Similarly, the Consob, the supervisory authority on financial markets and operators, has organized on its website, a section dedicated to in-depth analysis of financial products in order to facilitate the investment choices made by consumers. Next to these institutional subjects, the Italian Banking Association (ABI), and its newborn foundation for financial education, has been extremely active in the financial education. In particular, through the National Observatory of Financial Inclusion of the immigrant population in Italy 5, ABI has prepared a brochure for foreign citizens who live and work in Italy. It represents an easy manual of where to find many answers to the most common questions, such as: i) How can I send money to my relatives back home? ii) My employer has asked me to open a current account to receive my pay. What documents do I need? iii) How can I pay my rent, utility bills and taxes? iv) I would like to buy a house in Italy. Can I do it? Can I get a mortgage? Is my income sufficient? v) I would like to build up some savings for my future and that of my children. What are my alternatives? vi) I would like to be protected if something unexpected happens to me or my family. What can I do? The brochure is written in Italian, English, French, Chinese, Arabic, Russian. It s available in all Italian bank branches and on the ABI website. 5 The national observatory of financial inclusion of the immigrant population in Italy is a long-term project born from the collaboration between Ministero dell Interno and Associazione bancaria italiana, commissioned to Cespi, Centro studi di politica internazionale. The main objective of the observatory is to monitor the evolution of the financial inclusion process in Italy and provide instruments of quali-quantative analysis of information and education able to support operators and policy makers in the definition of strategies and actions functional and effective to the needs of the immigrants. 5

6 An additional website of great interest for the immigrants is It is an Italian website that compares the cost of money transfers, guaranteeing greater transparency and clarity in the information given while stimulating operators in the market to improve products in favor of the immigrants. The website has been developed thanks to the contribution of the Ministry of Foreign Affairs and it has been certified by the World Bank. It is a free instrument, available to anyone who wants to compare costs, conditions and methods of money transfers from Italy and it does not favor any particular operators in the market. On the side of a sustainable debt education, there is the website, promoted by Assofin (Italian association of Consumer and Real Estate credit). Monitorata is a concrete support that permits the user to evaluate the degree of sustainability of his/her repayment plan in respect to his/her specific financial situation. It is a tool easy to use, easy to comprehend and it does not require the user to give any personal information that may allow contact him/her to be contacted or tracked down, but only essential data in order to reconstruct his/her economic/financial situation and social/demographic profile. In this way, the user can perform a financial evaluation for himself in an intuitive and efficient manner. It is a free and simple instrument that provides transparent and scientifically valid information (thanks to the support of the University of Roma Tor Vergata) that allows one to make a reflection on one s financial situation before undertaking the procedures for a loan. To conclude, it is important to remember that the majority of the subjects, mentioned so far, have been active in financial education programs dedicated to all levels of public education: financial inclusion is obtained through the enhancement of the financial literacy of future consumers of financial services. 6