How can digital financial services effectively support financial inclusion? To answer this question, the World Bank recently collaborated with the Association of Southeast Asian Nations (ASEAN) Working Committee on Financial Inclusion (WC-FINC) on a study titled “Advancing Digital Financial Inclusion in ASEAN: Policy and Regulatory Enablers.” This study analyzes a wide range of digital financial services (DFS) through a framework based on that of the Payment Aspects of Financial Inclusion (PAFI) report.
According to the use of the PAFI framework (see figure below), three foundations must be present to enable the spread of DFS: government and private sector commitment to DFS development, a sound legal and regulatory framework concerning DFS, and an enabling financial and information and communications technology infrastructure. Atop these three foundations stand four catalytic pillars that increase uptake and use of DFS: improving the design of DFS products (and of the regulations that govern them), expanding agent networks and other access points, spreading financial literacy, and shifting large payment streams to flow through digital channels.
In November 2016, we published the “Practical Guide for Measuring Retail Payment Costs”, an innovative methodology that can be customized to country needs and circumstances, without losing the international comparative dimension.
The guide enables countries to measure the costs associated with retail payment instruments, based on survey data, for the payment end users, payment service/infrastructure providers, and the total economy. The guide also enables countries to derive projected savings in shifting from the more costly to the less costly payment instruments.
Blockchain is the subject of considerable hype, thanks largely to the rise (and fall and rise...) of high profile digital currencies. Beyond this spotlight, development experts and innovators are exploring whether the technology behind cryptocurrencies can be leveraged to advance gender equality.
Blockchain is a distributed ledger technology that facilitates peer-to-peer transactions without using an intermediary. (The technology is also notoriously difficult to follow, but we find this brief video helpful and this talk explains blockchain well, if you have a bit more time.) Put simply, the system is maintained by collaboration, code and sometimes competition. Many experts refer to Google Docs to explain the concept: multiple users can access the same document simultaneously and they can all see the changes. This feature potentially makes it suited for validating records and processing financial transactions in the absence of strong institutions.
With financial inclusion now established as an objective for most financial sector policymakers worldwide, the day-to-day responsibility for ensuring its achievement in a responsible, consumer-friendly, and evidence-based manner often falls to financial sector supervisors. Two challenges are particularly relevant: first, with an increased policy focus on financial inclusion, supervisors are often tasked with adapting reporting systems to collect granular data to monitor financial inclusion and inform policy. For example, how many customers are using each product? Are newly opened accounts active or dormant? What is the rate of growth of agent networks in rural areas?
Second, in a given market in order to improve competition and consumer choice, and ultimately financial inclusion. This means that non-bank FSPs such as mobile network operators (MNOs), fintech companies, financial cooperatives and microfinance institutions are increasingly brought under the supervisory mandate of supervisory authorities. This presents a significant challenge for financial sector supervisors who must cover a large and diverse set of FSPs with distinct risk profiles and capacities, stretching their already limited resources. Collecting and analyzing accurate, relevant, and timely information from these providers is at the heart of this supervisory challenge.
to address these challenges, an approach known to some as “suptech” (i.e. supervision technology). The National Bank of Rwanda (BNR) provides a case in point.
Photo Credit: Women’s World Banking
Two years ago, Visa announced a commitment, alongside other organizations, to provide financial access to 500 million unbanked adults as part of the World Bank Group’s goal of achieving Universal Financial Access (UFA) by 2020. It’s widely reported that —no bank or savings account, no formal way to store or send money, no basic financial tools to manage life or business or help to generate income.
There was no doubt in our minds that Visa had a role to play, given the reach of our payments network and the fact that facilitating the issuance of digital payment accounts is our core business. What was not as clear was how much our efforts would need to factor in changes to strategy in order to ensure the kind of accounts people are receiving hit their mark in terms of usage and provided a genuine pathway to full financial inclusion.
Financial technology, “fintech,” has been reshaping the financial services industry with the level and speed of innovation that’s simply fascinating.
A month ago, my colleagues and I attended the 5th Annual Lendit USA conference to check out about the latest innovations and thinking in this field and see how we can apply it to our work.
There is growing interest in trying to figure out this new industry and take advantage of the opportunity. Now billed as the largest Fintech industry meeting in the world, Lendit organizers started this event four years ago with about 200 participants. This year’s event attracted more than 5,000 people.
We work on various areas of financial inclusion and are interested in new ways that can help expand access to financial services to hard-to-reach populations and small businesses in developing countries.
We returned with a new appreciation for the magnitude of change that is coming, and how quickly it could occur – and already is in some instances. Some innovations will help developing countries leapfrog into this new tech era. This could have a significant – and potentially highly positive - impact on financial inclusion, and fundamentally change the nature of financial infrastructure.
However, these opportunities come with potential risks, such as those related to (un)fair lending practices related to unmonitored use and analysis of big data or increased systemic vulnerabilities due to threats to cybersecurity.
As World Bank staff working on financial inclusion, our days revolve around a critical question: what are the most promising ways to improve access to and usage of appropriate financial products for the underserved? A big part of our job is to track the wide range of experiences and learnings from around the world and incorporate them into our work advising policymakers and regulators. We thought it would be useful to share our current thinking, distilled into a list of the top eight approaches to accelerate financial inclusion. This list is from a policymaker perspective, and takes into account the fact that policymakers play a multi-faceted role in financial inclusion, balancing promotion, protection and stability.
First, two caveats. This is subjective list, drawn from our experience. We expect reasonable people to disagree with some of our choices and that’s OK – in fact, debate is welcome.
Second, country context plays a critical role in formulating appropriate approaches to financial inclusion. This list is meant as a general guide for what is impactful in most countries, most of the time.
Efficient, accessible and safe retail payment systems and services are necessary to extend access to transaction accounts to the 2 billion people worldwide who are still unserved by regulated financial service providers.
Having interoperable payment services addresses several important challenges regarding financial access and broader financial inclusion. This is because via a single transaction account.
Establishing payments interoperability is a formidable task. Our experience shows it is important to find the right balance between cooperation and competition when reforming retail payment systems. Despite the advantages that interoperability brings, not all market participants will necessarily embrace interoperability initiatives, e.g. if they fear to lose their dominant position and/or competitive advantage. In an earlier Blog the role authorities to facilitate interoperability has been discussed. Central banks are a key driving force in any payment system reform, but they cannot – and should not – act alone. Other regulators – such as financial and telecom regulators – are also important to achieving interoperability.
National financial inclusion targets, better data availability, and transformative business models to provide financial services are helping to accelerate financial inclusion across the globe and in Asia – where more than a billion of unbanked people live.
Countries set national financial inclusion goals to increase the pace and impact of reforms. For this to be effective, it’s critical to have in place a robust monitoring and evaluation (M&E) system to track progress, identify obstacles, and demonstrate success. However, it’s often difficult to evaluate and track the extent and quality of the national financial inclusion strategy implementation, and to aggregate the results of multiple actions at the national level.
The Philippines has adopted a fresh approach to this challenge by designing a comprehensive M&E system that will report on headline and national-level indicators, as well as track progress of the regional and program-level performance indicators.
The Philippines is one of the 25 countries that are part of the World Bank Group’s Universal Financial Access 2020 initiative, whose goal is to provide access to a transaction account to the 2 billion unbanked people worldwide.
Between 2011 and 2014, . This resulted in some 2.7 million adults gaining access to formal financial services. Potential demand is significant, considering that an estimated 10 million Filipinos keep savings outside of the formal financial system.
Interoperability – a term used in a variety of industries, including telecommunications and financial services – is generally understood to refer to the ability of different systems and sometimes even different products to seamlessly interact. For payment systems, “interoperability” depends not only on the technical ability of two platforms to interact but also the contractual relationships between the entities wanting to interact. Traditionally, interoperability has been established by the same type of institutions, by banks’ participation in a central retail payment infrastructure (e.g. a central switch or an automated clearing house) and adhering to a payment scheme (e.g. a card scheme or a credit transfer scheme).
These days interoperability in retail payments is no longer limited by national borders and the overall ecosystem has become more complex. Non-bank payment service providers have emerged (many of them mobile network operators-MNOs) and there are new types of payment instruments (e.g. mobile money). Innovative payment instruments often start as proprietary solutions, processed in-house rather than via a central platform. In that regard, interoperability can help tear down barriers by enabling transactions between customer accounts of different mobile money solutions. In some countries, interoperability even facilitates transactions across different type of accounts (e.g. deposit transaction accounts held with banks and mobile money accounts held with non-bank service providers).