Why Fair Finance

People use finance every day. Well-functioning finance helps them seize opportunities, better manage risks, and improve their lives. Bad practices can exclude and harm them.

We need a financial system that empowers people and where business models that serve people’s interests succeed over models that exploit them.

That system can only be built when citizens, businesses, investors, policymakers and regulators actively shape it, guided by a set of principles that reflect an understanding of how the financial system works today and how it should work to be fair and serve everybody.

Principles of Fair Finance

Our fair finance principles describe an ideal state. Taken together, they function as our compass, providing guidance for decision-making in a wide range of circumstances.

That said, the principles do not provide a universally true or automatic roadmap. Market conditions will differ across geographies. New areas of opportunities and unforeseen challenges will emerge, and we will have to respond to them.

As investors, we apply our best judgment to support only those ventures that are consistent with our view of a fair financial system and positively influence its evolution.

Why this is important:

People need financial services to achieve their goals: going to school, buying a car, getting healthcare, and more. While these services should be empowering, they are often complex, hard to understand and difficult to use.

Failures of finance can reach beyond the finance system itself, affecting every facet of life. By contrast, when people receive financial services designed to improve their unique circumstances, their economic prospects improve.[1]

Key elements:

  • Financial services are easy to understand, and designed for lay people, not experts.
  • Financial services are suited and connected to people’s real-world needs: managing cash flows, seizing opportunities, and minimizing risks.
  • Financial services are relevant to and built into people’s daily activities: payments, savings, credit, and insurance are integral elements in the nonfinancial aspects of everyday life.

[1] Pande, R. Field, E. and Barboni, G. Evaluating the Economic Impacts of Rural Banking—Experimental Evidence from Southern India, July 2018. See: http://www.3ieimpact.org/media/filerpublic/2018/05/30/gfr-ow31011-india-rural-banking.pdf

Why this is important:

To trust financial providers, people need to believe that these firms are on their side and serve their interests. Yet, traditional financial providers are often not transparent.

In particular, revenue practices are a major source of confusion, making business models that are clearly aligned with their customers’ interest a key to gaining and maintaining trust.[1]

Key elements:

  • Providers deliver “value clarity” to customers. There are no hidden fees or undisclosed third-party payments. People know how much they pay and what they receive.
  • Businesses incentives are designed to help customers succeed. Their revenue models and customers’ financial health are mutually supporting, reinforcing trust.
  • Financial firms are transparent with customers about their decision-making.

[1] Oliver Wyman, Omidyar Network “Breaking New Ground in Fintech,” 2018. See: https://flourishventures.com/perspectives/breaking-new-ground-in-fintech/

Financial services and products increasingly rely on individual financial and nonfinancial data, creating new opportunities, and new concerns about privacy, security, and trust.

A fair financial system will give people control over their data, increasing their level of trust. Properly designed, this can be achieved while also allowing businesses to use the data necessary to tailor their services.

Key elements:

  • People have the clearest possible understanding of what data is held, who holds the data, with whom it is shared, and how it is used.
  • A robust, effective permissions system gives people the right and ability to control access to their financial data and to easily move financial accounts among providers.
  • Appropriate security protocols protect people’s financial data and apply to any party holding consumer financial data.

Why this is important:

To participate in the modern, digital economy, people need access to financial infrastructure.[1]

Expensive, hard-to-use infrastructure discourages innovation and competition, and transfers cost to customers. Open infrastructure makes new solutions more readily available to a greater number of people at quicker speed and lower costs.[2]

Key elements:

  • Modern financial infrastructure is characterized by a set of open API tools and protocols that reduces entry barriers and fosters competition.
  • New digital infrastructure strikes the right balance between public and private ownership to maximize innovation and accountability.
  • Private-sector providers leverage a common, low-cost stack of infrastructure technologies and focus on creating new applications that deliver distinct customer value propositions.

[1] See here: https://www.slideshare.net/indiastack/building-digital-infrastructure-for-a-billion

[2] Created as a public good, the Unified Payments Interface of India is the fastest interoperable payment system in the world. According to the Brookings Institute, real time payments enable services that can restore $3.5 billion to working families in the U.S. each year.

Why this is important:

Regulation and policies are hard to update as technology changes. Regulators are less likely to respond in consumers’ best interests when they don’t understand the risks and benefits of new technologies and data-driven services.

As a result, regulators may not be timely in responding to market failure and abusive practices, or in enabling customer-friendly innovation. Regulation and supervision will need to evolve in parallel with financial services as these services become digitally native.

Key elements:

  • Policymakers and regulators apply and enforce the principles of consumer benefit, value clarity, and open system’s architecture.
  • Regulators leverage the same digital technologies and approaches that they regulate and supervise.
  • Regulation and supervision are consumer-centric, adaptive, and based on the nature of the service rather than the organizational structure of the provider.