Improving Financial Access for Refugees: How Fintechs Can Foster Inclusion

As the world faces unprecedented numbers of refugees (from countries like Ukraine, Syria, Afghanistan, Eritrea, Venezuela…​), it is more important than ever to find structural solutions to improve the financial inclusion of this group, helping them to rebuild their lives and integrate them into their new communities.
Unfortunately, traditional financial institutions often fail to serve the needs of refugees, leaving them with few options for managing their financials. In this blog, I try to give an idea of the typical issues with the financial sector refugees are facing and how innovative technology and Fintechs can (partially) address these financial barriers.

At the start of the Ukrainian refugee wave, many Fintechs stepped in to help Ukrainian refugees and to collect and donate money to Ukrainian charity organizations.
Revolut was one of the front-runners in this Fintech support-wave (Revolut’s cofounder and CTO Vlad Yatsenko is Ukrainian, so they are well positioned to understand the needs), not only by their support for several campaigns to raise money, but also by adapting certain internal processes of the neobank to help Ukrainian refugees, e.g.

• Revolut simplified the account setup documentation requirements(e.g. no longer need for a document with proof of right to reside in Europe) to open a Revolut account. This account has no monthly fees and can be used to send/receive money as well as exchange currency. Additionally the Revolut card can be used anywhere in the EEA and in Ukraine.

• Revolut waived a number of FX transfer and top up fees for those affected by the crisis.

These initiatives show that minor changes in the financial setup can make huge differences for refugees. Nonetheless Revolut also faced quite some fraud issues a result of those exceptions, showing also the complexity and inherent risk of lowering certain compliance boundaries.

But let us first have a look at the problems a refugee faces in the financial sector. To analyze this, it is important to understand the financial journey of a refugee.

This journey is similar to someone moving to another country, with that major difference that:

• The financial system in the home country is falling apart

• The move can usually not be prepared, but has to be done in a matter of a few days or even hours (and often under stressful and dangerous circumstances)

• The move is not happening out of free-will

• The move is not individual but with thousands of people at the same moment

Despite those crucial differences, the fundamental financial steps are similar, i.e.

• Leaving the home country, which consists of

  • Redrawing money

  • Taking along necessary identity paperwork and financial records

• The travelling to the destination country, which in case of refugees can be extremely expensive and challenging, meaning that all savings (and other belongings) can potentially be lost on this.

• The arrival in the new country and taking care of the first basic needs (food and shelter).

• Building up a new (temporary) live in the new country and trying to build up again some autonomy. This means also gradually using more financial services, like long-term credits, saving accounts, insurances…​

• Potentially returning back to the home country at a certain moment

If you know how troublesome the journey of moving to another country (or even just travelling on holiday to another country) can be from a financial point of view, especially when something goes wrong (e.g. your passport/cards get stolen or lost), you can only imagine how difficult this journey is for a refugee.

In short it comes down to "access to money" which should be:

• Quick: if you are trying to survive, you do not have time to face complex, long bureaucratic processes to access your money. You need money instantly to meet your primary needs.

• Easy: the access to your money should be easy, meaning anywhere, anytime and without too much friction.

• Safe: while cash money is both quick and easy, it is far from safe, especially when facing the dangerous conditions a refugee encounters. You need therefore a way to protect your money in a simple and secure way.

• Cheap: as most refugees are financially struggling, the last thing you want is to pay large commissions to pay with or access your own money. You also want to exchange as quickly as possible some of your money in home currency into a more stable currency (like USD, EUR, GBP, CHF…​) or directly into the currency of your new home country and this also with as little exchange commissions as possible.

Obviously from the financial institution side, this is easier said than done, as several risk and regulatory concerns need to be considered:

• KYC/AML: how can you properly identify the person and make sure the money the person is depositing/transferring has no criminal background, when

  • the person has no (or incomplete) identity papers

  • the papers cannot be verified (there is still no such thing as an international identity), as the government of the refugee’s home country is no longer or difficult accessible.

  • the origin of the money can almost not be traced back.

    In the end the bank has to protect itself from huge fines imposed by regulators, when KYC and AML checks are not correctly followed. The right compromise between security/regulation and helping should be found, as there will always be persons with malicious intend abusing the situation.

• Money transfer: how can a bank ensure that when money is transferred it gets correctly settled, when the counterparty bank is situated in a country which is in a tough economic, social and political situation. At the same time, when converting foreign currency, a bank does not want to end up with substantial amounts of foreign currency of a country, with probably very high inflation, fast dropping exchange rates and a system which is unstable. The only way to protect the bank against this risk, would be to ask remarkably high exchange commissions, but this is exactly what you want to avoid.

• Lending: in order to rebuild your live in a new country, it will be needed to lend some money to take a fresh start. But how can a bank do a proper credit risk assessment, if it cannot access any credit or general financial information about the debtor?

All those financial and regulatory risks combined with limited revenue possibilities make that traditional banks prefer not to serve these types of customers, as the financial gains do not outweigh the potential losses. However from an ESG perspective, this is a missed opportunity for a bank to give back to the community.

The answer to this dilemma probably lies in technology, which can reduce the risks and increase potential revenues, via new innovative digital techniques, e.g.

• Digital Payments: modern digital (mobile) payments can make payments faster, easier, safer and cheaper. For example, companies like WorldRemit and Wise offer low-cost remittance services that allow refugees to send and receive money across borders, often using mobile devices. And also in the crypto-world several initiatives exist to make remittances more accessible, like Wyre, Stellar, Transcrypt, BankeNu, BitPesa, Arcadia…​
  Interesting is also a solution like Leaf, which uses blockchain technology to give refugees the chance to convert their cash into digital currency before they leave home, so they can protect their assets and access them from their eventual new location.

• (Biometric) Identification: for refugees who lack traditional identification documents, Fintechs are developing biometric identification systems (such as fingerprints, iris scans, or facial recognition) to help them open bank accounts and access financial services. Companies like Simprints, Humaniq and Worldcoin are working on such solutions. There are also solutions being developed to provide a global identity, like e.g. Gravity or ZAKA.

• Microfinance: for refugees, microfinance (i.e. small loans offered to low-income individuals) can be a lifeline, providing them with the funds they need to start a small business, support their families, or invest in their education. Fintech companies like Wajenzi, Self Lender or Pillar offer these kinds of micro-credits in developed countries.

• Transferring credit history: the current credit scoring system limit cross-border credit mobility, i.e. customers cannot take their credit profiles from one country to another. As a result refugees are often excluded from all kinds of credits, as they lack any credit history. Several Fintechs are working on solutions to allow consumers to build up credit history via small loans, on solution to do credit scoring based on other criteria than credit history or on ways to transfer credit history across borders while ensuring accuracy and authenticity of the information. Blockchain technology can for example help to create such a digital credit history record which is both tamper-proof and easily transferable.

• Training and Support: refugees often face language barriers and a lack of familiarity with the local financial system. Fintechs and technology can therefore help a lot by offering refugees to build up their financial literacy and improve their financial decision-making skills. This can be via trainings and tools, like budgeting and financial planning apps, but also by translating the portals and all documents in the language of the refugee or by foreseeing a support desk who speaks the language of the refugees.

• Prepaid vouchers: governments and humanitarian organizations can make use of prepaid vouchers instead of handing out aid. These prepaid vouchers are similar to meal vouchers, i.e. the government or humanitarian organization gives a predetermined amount of money to a refugee. This money can only be used for specific purposes (like food, shelter, or medical care) and can only be spent in a limited (local) network of merchants, who can accept the voucher as payment.
  This system gives a lot of added-values compared to traditional aid, as it gives greater autonomy, more flexibility and less stigma to the refugee and avoids misuse of funds, as the vouchers can only be used for specific purposes and any spending can be easily traced. Finally those vouchers help to stimulate local economies and they are more cost-effective than traditional forms of aid, as they reduce the overhead costs associated with distributing goods and services.

Clearly those solutions have the potential to make financial services more accessible for refugees, but there is still a long way to go before they becomes mainstream and internationally accepted.

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