Financial Inclusion – A Peek Ahead

“You’ve got to think about big things while you’re doing small things,
so that all the small things go in the right direction.”

– Alvin Toffler, author, futurist, entrepreneur.

Rapid advances in digital connectivity have fueled innovation in financial inclusion and inspired governments and development agencies to integrate financial services into their projects. We’ve seen how taking a client-centric approach to creating and delivering services can help poor people to save, borrow, and transfer money, manage risk, and improve their lives. With a collaborative effort across borders, regulatory silos, and organizations, there’s hope that financial inclusion could help to achieve broader development goals.

As we enter 2018, just two years away from the global community’s ambitious target of achieving universal financial access by 2020, here’s a look at what is needed in three broad areas to advance to the next stage of financial inclusion for poor people.

The Drivers: Partnerships, Policies, Interoperability

Collaborative partnerships, policies, and programs must continue to create an environment that enables people at the bottom of the economic pyramid to connect to a wider digital marketplace.

For example, Hello Paisa, winner of our 2016 Clients at the Centre Prize, forged strategic partnerships across the world with banks, retailers, post offices, and mobile network operators to make it possible, legal, and less costly for individuals to send money to other countries.

Recent changes in regulations enable the company to grow by supporting its ability to create its own customers and interact with these operators and merchants directly and independently.

Other examples of relationships that push financial inclusion forward are in various states of evolution today, for example:

• Among its projects, CGAP is helping design architecture to enable governments to digitize all their payments; examining the marketplace for payments across different network operators and banks in East Africa; helping Pakistan’s central bank with its work on bank ownership structures and licensing rules to allow greater competition in mobile financial services; and helping Ghana to examine the regulatory environment for branchless banking and identify barriers to mobile network operators (MNOs).

• At the 2017 annual retreat of the Committee of E-Business Industry Heads in Nigeria, “Repositioning Digital Payments to Achieve the Financial Inclusion Goals of Financial System Strategy,” the goal was to evaluate that country’s payments system developments from inception to date to determine if policy has achieved its objectives as well as look ahead to 2018 – 2020 to identify areas in need of focus. The Deputy Governor of the Central Bank of Nigeria, Abebayo Adelabu, emphasized that payments services are the channel for extending other financial services to users. He called for a synergy between banks and emerging fintech companies in efforts to accelerate the progress of financial inclusion projects in Nigeria.

• Last year, G20 finance ministers put forth a basis for country action plans with eight G20 high-level principles for digital financial inclusion.

Anticipating and Facilitating Digital Innovation

Infrastructure providers such as banks or mobile network operators can facilitate financial inclusion by enabling service providers to connect with their systems.  Clients need to be able to send money across services and across borders without additional fees or devices for multiple service providers.

Industry and government will continue to play a critical role with programs and policies that enable interoperability between innovators and infrastructure. Recent examples include:

• Interoperability was a prominent theme at the 2016 Mobile World Congress annual roundtable. Industry leaders discussed the need for payment products, ATM, and POS networks to understand each other to foster the type of innovative ideas that enable financial inclusion.

• India launched its ambitious program to develop its digital infrastructure by issuing national identity cards based on biometrics, instituting digital government payments, and integrating service providers into a unified payment system.

As next generation fintech service infrastructures incorporate distributed ledger technology, or blockchain, with existing or emerging technologies, such as digital identity platforms and digital currencies, relevant regulatory bodies, policies, and programs must keep pace to oversee and monitor transactions.

Policies and Regulatory Practices Must Keep Pace

Looking ahead, traditional standards-setting bodies and regulators will need to adapt and work across financial product type and industry silos to foster and monitor innovation. For example:

• In Kenya, to make a new service, M-Shwari, possible, the Commercial Bank of Africa cooperates with cellular network operator Safaricom to provide clients instant access to savings and, over time, credit to M-Pesa mobile money users. In two years, M-Shwari became that country’s largest retail bank account.
• Pakistan and Mexico “Know Your Customer” rules employ tiered-regulation and customer-due-diligence approaches to make client-centric products available that promote financial inclusion while conforming to anti-money laundering/terrorism-combatting financing requirements.

Regulatory technology (“regtech”) innovators will need to find new ways to use technology to accelerate oversight of key financial services.

Technology is changing so rapidly, it remains to be seen what form access to a transaction account to store money, send, and receive payments will take. Will social media become a significant force for financial inclusion? Perhaps the best indicator of the future of financial inclusion will continue to come from digital data collected from clients themselves. As professor Eldar Shafir, co-author of the book Scarcity: Why Having Too Little Means So Much, explained at SoFI 2016:

“Big data is going to help you understand better and divide the world in more nuanced categories into what matters to people’s behaviors in ways that are relevant [to financial inclusion]. A lot of the findings are not intuitive.”

Data analytics is key, too, to informing product development and ensuring that new solutions are formulated based on client wants and needs. Indeed, as we look ahead, client centricity must continue to play a central role in financial inclusion services, policies, and programs. Without this, there is no guarantee that the rapid advancements in financial technology will drive financial inclusion.