March 8, 2016    5 minute read

Volatility, Negative Interest Rates and Financial Inclusion

   March 8, 2016    5 minute read

Volatility, Negative Interest Rates and Financial Inclusion

In a desperate move to stimulate the Japanese economy, the Bank of Japan surprised the financial markets last month by lowering the interest rates into negative territory. This follows the similar measures taken last year by Switzerland, Sweden and Denmark and now even ECB President Mario Draghi is considering a similar course of action.

In simple terms, the average consumer will either be stimulated to spend or penalised for trying to save money; whichever the case may be. Adding to the global economic destabilisation is the volatility of the Chinese financial markets and the interference by the Chinese government and it’s Central Bank to exert control over the recent extreme volatility in the Chinese stock markets and the ripple effects throughout the major financial markets around the world.

More importantly, starting in 2014 and culminating in January 2016, the recent free-fall of the oil price to its lowest level since 2007 has cast doubts on the state of the world economy and the role of OPEC in controlling global output and oversupply. The lifting of UN sanctions against Iran only makes matters worse because Iran is planning to flood the global markets with cheap stockpiled Iranian crude oil, much to the dismay of – the ever powerful OPEC member – Saudi Arabia.

So what’s in store for the global economy?

The answer to this is that nobody really knows. However, there are countless predictions abound ranging from a bull market, bubble, correction, deflation, recession, as well as an outright global financial collapse. This year will most probably see more volatility in the financial markets as well as economic turmoil and as long Central Banks are prepared to print money – the fundamental problems of the global economy will remain the same. It’s simply bandaging the wound but not curing the pain.

In these uncertain times, there aren’t too many options for the average consumer, except to exert control over personal spending, debts and savings. This may be easier said than done because global consumerism is omnipresent and the average consumer is given all the “tools” to continuously spend their income via cash, credit cards, debit cards as well as NFC payments such as Apple Pay, Google Pay and endless newcomers in the virtual payments sphere. On the other hand, it is argued that facilitating payments – and thus consumer spending – is good for the global economy with the added benefit of consumer protection and the “safety” that comes with having access to money without physically carrying around cash. While the above are worthwhile considerations, it is important that personal financial planning, saving and investing is made available to the average consumer so that financial independence – and more importantly, financial security – is not an option for the affluent and wealthy but a basic right for everyone.

In the FinTech world, “financial inclusion” can take on many interpretations such as online and mobile banking, peer-to-peer loans and credit, money transfers, personal finance to name the most important. The common problem is that the average consumer is not always familiar with these new financial technologies and is therefore not keen or motivated to use or adopt them, usually offered as downloadable apps or online. Mobile has had a profound effect on consumer behaviour and has revolutionised many aspects of consumption by simplifying the access, distribution and payment of goods and services which previously were only available in brick-and-mortar stores, online and through mail order catalogs which are slowly fading away like print. This disruption of global commerce and distribution has been defined as the “Fourth Industrial Revolution” at the Davos Global Summit 2016 and we are now only experiencing the very beginning of what is to be the decade of digital revolution.

As digital natives, millennials will have to adapt continuously in order to stay at the forefront of technological advances and embrace the digitalisation of consumption as well as consumer behaviour. Visionary Steve Jobs anticipated this long ago and was instrumental in revolutionising everything from computers to smartphones, music to apps, which resulted in Apple becoming one of the most valuable companies in the world. Game changing products such as the revolutionary Macintosh II, iPod, iPad, iPhone and online music distribution service such as iTunes (which revolutionised downloadable music), had a profound impact on user experience and consumer behaviour alike. Since the introduction of the iPpod, carrying around a 1,000 songs in your pocket became a very convenient reality. Simplifying the distribution of consumer products and making it available in a small portable devices such as the game-changing iPhone gave Apple the competitive advantage that is now referred to as the “Apple Effect”.

Applying the “Apple Effect” in this digitised world can make new technology adoption easier and at the same time facilitate digital distribution to the masses. Mobility, utility and UX (user experience) will be the key differentiators in user adoption in the digital world of the “Fourth Industrial Revolution.
Financial inclusion will only become a reality if FinTech providers overcome the challenge to simplify financial products to the point that these become understandable, useful and convenient to the average consumer. “Frictionless” FinTech will revolutionise banking and financial services to the benefit of the mass market consumer. It’s time to act now and prepare for the Digital Revolution by embracing technological advancement and mobility.

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