Policy Making and Digital Financial Services

Digital financial services are expanding the possibilities for the financially excluded and underserved to access formal financial services. They are also raising important new regulatory issues for policy makers seeking to ensure these services are delivered responsibly, at a cost affordable to the customer, and sustainable for the providers.

In more and more countries, significant numbers of poor and low-income customers are able to transfer funds and store value via digital transactional platforms accessed through mobile phones or other low-cost digital communications infrastructure. A wide range of retail agents transform customers’ cash into electronically stored value and back into cash. The digital transactional data footprint this creates is helping spur offerings of more tailored financial services. Governments are also using digital transactional platforms to deliver an increasing range and volume of payments and benefits, which often carries significant cost savings as well as providing a potential entry point into formal finance for recipients.

Compared with traditional approaches to retail financial service delivery, digital financial inclusion introduces new market participants and allocates roles and risks differently. Key regulatory issues raised by digital financial services relate to agents, anti-money laundering and countering the financing of terrorism (AML/CFT), e-money, consumer protection, payment systems, and competition. Many of these issues fall within multiple regulators’ competencies, requiring effective communication and collaboration among them. Examples of policy issues include:

  • The use of agents as the primary interface with the customer introduces new consumer protection challenges, such as risk of agent fraud and theft affecting consumers, abusive treatment by agents, inadequacy of recourse roles and arrangements, and agents’ failure to handle customer data confidentially. Many countries are now confronting new agent-related issues, including questions around whether to apply the same rules to bank and non-bank agents where both exist in a given market, who takes on liability for agents’ conduct, and how and by whom agents should be supervised.
  • Inclusive payment system regulation that enables participation by banks and non-banks, and effective payment system oversight, take on increasing importance as digital transactional platforms reach scale. Regulation and policies that promote interoperability and interconnectivity will be critical to the success of digital financial inclusion.
  • Competition between banks and non-banks for new customers—including the financially excluded and underserved—is present in many markets and may result in lowering of fees, efforts on the part of banks to reduce their operational costs, and the introduction of new products and services. It is therefore important for the success of digital financial inclusion to balance incentives for existing providers to launch new products with high upfront costs and risks, with the long-term goal of a market that is open to new entrants and further innovation on product delivery.

CGAP’s global policy work seeks to advance thought leadership generally on new frontiers in inclusive regulation and standard setting. As lead Implementing Partner for the GPFI Subgroup on Regulation and SSBs, CGAP developed the framework to explore this frontier issue during the second GPFI SSBs conference, Standard Setting in the Changing Landscape of Digital Financial Inclusion. In addition, CGAP is conducting research on a range of topics, including:

  • Deposit insurance for digital “deposit-like” products. CGAP is currently conducting research on three different approaches that have emerged at the country level and their implications for financial inclusion, in collaboration with The Bill & Melinda Gates Foundation and GSMA.
  • Competition. CGAP is engaged in comparative research on the competitive environments for digital financial services at the base of the pyramid. This includes case studies in two dynamic markets already with impressive scale in digital financial services, but with very different levels of market concentration in the mobile and banking sectors: Kenya and Tanzania.
  • Engagement with global non-financial standard-setting bodies. The emergence of digital transactional platforms involves complex combinations of banks and non-bank entities - particularly mobile network operators. As a result, two very different worlds of standard setting are converging. In December 2014 the International Telecommunications Union (ITU) launched a two-year Focus Group on Digital Financial Services in which CGAP is participating, which will explore implications of this convergence for building enabling and protective policy for financial inclusion.


Topic Contact: Timothy Lyman


06 October 2016
This Brief summarizes issues relevant to deposit insurance arising from emerging digital stored-value products and offers three distinct approaches for countries to consider.
Download PDF: 
English (4 pages) | French (4 pages) | Spanish (4 pages)
06 October 2015
This Brief explains why approaches to inclusive finance that are currently widespread do not share the potentially destabilizing attributes of other types of shadow banking, concluding by identifying some risks worth monitoring as the picture continues to evolve.
Download PDF: 
English (4 pages) | French (4 pages) | Russian (4 pages) | Spanish (4 pages)

From Our Blog

Woman on mobile phone, Rwanda
09 January 2017
1 comment
Interoperability can greatly expand the reach and usefulness of financial services for the poor. What do regulators need to know about the complex interplay between interoperability and financial inclusion?
Serious man, Tanzania
21 November 2016
The world of digital financial inclusion is growing quickly and outpacing capacity and resources to tackle it from a regulatory and supervisory standpoint. In response, CGAP and Toronto Centre piloted the first Digital Financial Inclusion Supervision training program in Tanzania.