Innovations and their impact on sustainability

1. Define a current problem in the selected country. Who is affected? Where are the individuals located? What are the resulting socioeconomic costs of the problem to the affected individuals?

Financial technology is quickly revolutionizing the way consumers interact with their banks, insurance companies, and other financial intermediaries. These fintech firms utilized concepts such as artificial intelligence, data analytics, and other innovations to allow for a much more seamless process of accessing monetary funds. This has quickly become an emerging technology within Brazil and Latin America overall. Brazil has historically had one of the most concentrated and antiquated financial systems in the world. 5 banks controlled nearly 95% of the country’s deposits. Nearly half of the population of Brazil was unbanked and even more didn’t access to basic financial products such as a credit card. The Brazilian economy has recently experienced a nearly 5-year recessions causing the unemployment rate to increase to nearly 14%. Consumers during this recession were further restricted access to capital at the very moment they needed it. As a result, consumers could not purchase homes, invest, or even purchase insurance without a very large increase in pricing. This pricing increase occurred as the financial industry is highly concentrated and thus allows only a handful of institutions to command a large amount of influence. This has led to a lack of innovation, low consumer satisfaction, and lower service ratings on the part of financial institutions in Brazil. In response, the government has initiated several reforms to help increase access to capital for consumers while also shoring up the financial integrity of the banking system overall (Douglas, 2016). The government has loosened regulations allows competitors to enter the market and compete for consumers. This have also allowing technology firms to apply for bank charters in an effort to help create further innovations within the industry. As a result, fintech firms have emerged that have quickly gained market share. These innovations have impacted nearly 200 million Brazilians who can now have access to much more innovative financial technology, products and services. The resulting socioeconomic costs of the problem are difficult to quantify but are very high considering the large percentage of Brazilians that are currently unbanked. The result of a large unbanked populations limits the exchange of capital and resources from savers to borrowers. It also undermines the overall integrity of the financial system as consumers are forced to use unsecure methods of storing and saving money (Douglas, 2017).

2. What global or local technologies are emerging that could be used to solve the problem? What are the costs associated with implementing the technology solution?

Fintech firms such as Nu Bank, Banco Inter and Stone Co and others are heavily disrupting the largely oligopolistic financial sector. These sectors are bypassing the typical bank branch are using mobile technology and innovations to help improve the overall problem of being unbanked. Here companies are using innovations to first target and segment financial product users. Through data analytics, they can properly gauge the overall credit worthiness of the individual. Through these innovations, companies can offer further products to consumers such as insurance, brokerage accounts and so forth, bypassing the more antiquated banking models and systems of the past. Here, consumers have complained about the legacy systems of traditional Brazilian banks and how difficult it is to open an account or even to deposit money into an account.

The cost of implementing these systems is very large and often come with large amounts of compliance and security issues. Financial technology firms must undergo rigorous review processes to ensure there are no gap within system or within processes that can expose the larger financial system. Likewise, firms must invest heavily into technology that can not only improve the customer experience, but also improve the manner security in which financial transactions occur.

3. Apply the Hype Cycle and the 6 Ds of disruption model (also known as 6 Ds of exponential change) to the emerging technology.

The emerging fintech platform in Brazil is applicable to the Gartner Hype Cycle. For one, the technology promises to deliver increases in security, financial service access and efficiencies. However, the payoff of these emerging technologies is largely in the future. Here, many of the cycles of the Hype Cycle have already passed. For one, the innovation trigger which is the ability to bypass traditional banks in favor of online financial services and products has already begun. Consumers, particularly in developed markets have already adopted these practices. Likewise, the peak of inflated expectations and the trough of disillusionment have also passed as it relates to fintech adoption in Brazil. Currently, the emerging technology is in the slop of enlightenment phase where consumers are beginning to see the benefit of adoption and the long-term payback to society is now being recognized. Here, second- and third-generation products are now appearing from technology providers indicating the large market opportunity within Latin America. Likewise, conservative companies such as tradition banks remain cautious and look to maintain the status quo.

As it relates to the 6 Ds of distribution, the product is already heavily focused on digitization within its product offering. This digitization has expanded the overall reach and target market of the product, thus help in the democratization phase. The product is heavily disruptive to the old, and antiquated financial systems of the past. As a result, the new products are much more cost effective for consumers while also adding a layer of convenience. The products are demonetized as many fintech firms can charge lower interest rates for lows and other financial products due to their low-cost basis. Traditional banks often use a much more structured and capital-intensive approach that requires them to charge higher interest rates. Fintech firms however can charge lower interest rates using data analytics and other artificial intelligence backed products to lower credit risk and enhance consumer outcomes (Sumit, 2020).