Interoperability and Financial Inclusion: The Regulator’s Role

Payments interoperability enables different payment infrastructures and financial service providers to effect payments between customers. In doing so, interoperability expands the reach of transaction accounts and retail payment instruments, making them more useful for end-users. Payments are an essential financial service in their own right. But when made from a transaction account, they also serve as an important gateway for the delivery of additional digital financial services, such as savings, credit, insurance and even investment products. Digital transactional platforms that enable transfers, value storage and additional services — increasingly offered by banks, non-banks and even nonfinancial firms such as retail networks and mobile network operators (MNOs) in complex partnerships — can target the financially excluded and underserved. These efforts to deliver other financial services off of a digitally accessed transaction account means that the expanded reach offered by interoperability can have even greater significance for those who are financially excluded or underserved.

Woman on mobile phone, Rwanda
Woman on mobile phone, Rwanda. Photo by Evariste Bagambiki, 2016 CGAP Photo Contest.

The White Paper of the G20's Global Partnership for Financial Inclusion (GPFI) released earlier this year notes that in the absence of interoperability, “the early rapid growth of one system … could have a ‘tipping effect’ such that no other system can compete,” with negative effects on efficiency and innovation and consequently on outreach, adoption and usage. Below are some points regulators should bear in mind when considering the interplay between interoperability and financial inclusion.

Different countries, different means of achieving interoperability

Today, in many countries, achieving full interoperability across the various payment service providers and digital transactional platforms means bringing non-banks, such as MNOs that are authorized to provide payment services and digitally accessed transaction accounts, into the national payment system.  In a few countries, there is interoperability between nonbank payment service providers, often MNOs offering mobile money services. This is the case in Tanzania, where four MNOs agreed — in the context of an enabling regulatory environment and helpful central bank — to interoperate using six bilateral agreements and pre-funded accounts. In other countries, the foundation for interoperability between banks and authorized nonbanks has been laid by payment infrastructures that are accessible to nonbanks. A recent example is Peru, where an interoperable payments platform has been established by a partnership involving government, the financial institutions and four MNOs.

Set the stage for interoperability as the market for innovative platforms starts developing

While the regulatory approach should “follow the market,” the GPFI white paper suggests that during the early stages of development of digital transactional platforms, regulators should focus their attention on ensuring that interoperability is technologically feasible. The paper also recommends that regulators have authority to take action where there is evidence that a provider is exploiting its dominant position. This might mean, as some regulators have done, mandating interoperability or specifying a timeframe for interoperability.

Understanding potential new risks is key

As regulators consider the impact of interoperability on digital financial inclusion and a country’s payment system more generally, and determine what role to play, they will need a thorough understanding of the potential new risks posed by the interoperability of banks and non-banks (including legal, operational, and financial risks) and how to address such risks while maintaining a level playing field for all players.

Lowering security standards should not come at the expense of interoperability (or integrity)

Under certain circumstances, authorities may decide to lower security standards for lower-risk scenarios, such as small-value transactions or service providers serving specific customer groups.  However, as noted in the white paper, lowering security standards should not come at the expense of the integrity of and interoperability with providers and markets that are required to comply with higher security standards.  

Studying the landscape of existing interoperability scenarios will help regulators determine the best role

Analyzing the success of interoperability in a variety of countries and the role national authorities have played can help regulators determine if, how and when to intervene to ensure interoperability. CGAP recently published the experiences of several countries as part of a global landscaping exercise on interoperability. The lessons learned from the global landscaping will provide important insights for those who want to make interoperability happen, be they service providers or authorities. 


15 January 2017 Submitted by Gideon Isaac Omoyibo (not verified)

Interoperability is the future and the engine that will birth financial inclusion in Nigeria. Exploiting a dominant position may pose a major challenge - regulated banks want to maintain the control they have - as interoperability will give the control to the customers.

14 July 2017 Submitted by Diana Kagimba (not verified)

Good point that security should not be compromised for the sake of interoperability. Customers need to have the assurance that their money is safe when exchanged across platforms to encourage even more people to use it so that the underserved and excluded can trust the systems to save, invest and safe keep their hard earned money.

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