What do building materials have to do with helping to address economic inequality? Surprisingly, quite a lot. During the pandemic, as governments around the world moved quickly to provide much-needed financial assistance to its citizens, the West African country of Togo faced a challenge: how to identify its most economically vulnerable citizens and get money into their hands.
In partnership with a U.S.-based charitable organization called GiveDirectly, the Togolese government used an AI algorithm that analyzed satellite image data to target pockets of poverty in the country. “You can use different kinds of proxies for income level, like the types of roofing materials that are used,” says Robert Opp, chief digital officer at the United Nations Development Programme. For example, villages where homes predominately have thatched roofs are more likely to be economically disadvantaged compared with villages with metal roofs.
The project in Togo helped the government target its financial assistance efforts to those who needed it most. What’s more, it offers a powerful illustration of how digital tools are helping to address issues of economic inequality around the world. “GiveDirectly has greatly increased the capacity to get money quickly into the hands of people who need it,” says Michael Froman, vice chairman and president of strategic growth at Mastercard and chairman of the Mastercard Center for Inclusive Growth. “It’s been able to bring the tools of the digital economy—like data science—to the table in a way that promotes inclusion, not exclusion.”
THE DIGITAL DOWNSIDE
Our increasingly digital world is decidedly double-edged. Tools like AI and machine learning are helping to bridge the economic-inequality gap through innovative means. But a lack of access to basic digital tools such as smartphones and wireless data is limiting the economic opportunities for wide swaths of people around the world. The United Nations recently announced that nearly half the world’s population—some 3.7 billion people—are still offline. “The majority of issues with this digital divide is that people either can’t afford or don’t know how to use digital devices that are connected,” Opp says.
Access is a major problem in the developing world, where most of these 3.7 billion people live. But developed countries such as the United States aren’t immune to access issues. Some estimates put the number of Americans without access to broadband internet at 42 million—nearly 13% of the U.S. population. Among Blacks and Hispanics, that percentage is considerably higher. Wole Coaxum, CEO of MoCaFi, a financial technology firm focused on closing the racial wealth gap, likens a lack of broadband connection to a critical infrastructure failure. “That’s the 2021 version of access to electricity and clean running water,” he says.
An inability to access fast and reliable internet service puts individuals at a considerable economic disadvantage. That became even more acute during the pandemic, when so much financial activity—from traditional banking services to sending and receiving payments—quickly moved into the digital realm. That transition left many people behind. In the U.S., a record number of bank branch closures meant people without internet access had few options for efficiently managing their financial lives. “You have some families spending money on expensive financial-services products like payday loans, check-cashing fees, and the like,” Coaxum says. “They can spend more on those fees in a year than they do on food.”
Globally, individuals whose livelihoods relied on in-person, cash-based transactions—whether a farmer in Uganda or a fish merchant in the Philippines—faced considerable obstacles. For starters, social distancing during the pandemic meant fewer opportunities for in-person transactions. But for those individuals without the means to bank digitally, it has also meant a lack of financial history that makes it more difficult to build their businesses. “If you don’t have the ability to show credit history, you’re not really able to access financial services to get loans and other services like that,” Opp says.
THE POWER OF SIMPLE INNOVATIONS
Globally, efforts to bridge this digital divide are gaining ground. Organizations are working with telecom companies in developing nations to drop the cost of airtime to give merchants and individuals more opportunities to conduct transactions digitally. In fact, several mobile providers in Africa waived access fees during COVID-19 to encourage more digital transactions, which Opp says likely helped to increase adoption of these services.
Innovative digital tools are also helping to connect the unconnected to crucial financial services. Recently, MoCaFi and Mastercard partnered with the city of Los Angeles to create the Angeleno Connect Card, a digital card and app that gives L.A. residents without bank accounts access to a broad range of financial services, from remote check deposit to no-fee cash deposits at places such as CVS or 7-Eleven. It also allows the city government to funnel funds to those in need quickly and efficiently.
“These are the kinds of things that can be done all over the country—and all over the world,” Froman says. “They’re relatively simple innovations, but they can help transform people’s everyday lives in a very positive way. It provides the comfort and safety net that comes from knowing they have access to the resources they need in times of trouble.”