Advancing Competition for Financial Inclusion: Six Policy Considerations for Financial Sector Authorities

Executive Summary

Competition has become a pressing concern for financial sector authorities across emerging markets. Even as financial access has expanded, many markets remain concentrated as well as dominated by incumbent providers. Challengers face steep barriers to entry and scale: they have a hard time getting licensed, they cannot access payment rails or data on fair terms, and/or they bear disproportionate supervisory burdens. Where they do enter, they blur traditional regulatory boundaries in ways that may expose oversight gaps and erode consumer trust, while competition may remain constrained by switching frictions, information asymmetries, and limited ability of consumers to make choices. Compounding this, closed digital ecosystems, such as platforms and super-apps, are locking in users and shutting out competitors, entrenching new forms of market power.

Yet many financial authorities remain unsure how to act on these concerns. Some lack a formal competition mandate while others defer to competition authorities that are typically sector-agnostic and may not fully grasp the unique dynamics of financial markets. Therefore, competition considerations in the financial sector often slip down the list of regulatory priorities or fall through institutional gaps between regulators.

CGAP developed a conceptual framework to help financial authorities understand how their regulatory toolkit shapes competitive dynamics (Kumaraswamy and Kremnitzer 2025). This Focus Note translates that framework into practice, offering six actionable policy considerations drawn from eight country case studies: Brazil, Cambodia, India, Kenya, Mexico, Pakistan, South Africa, and the United Kingdom, examining how regulatory choices over the past two decades have shaped competition in retail financial markets.

The country examples featured in this note are illustrative vignettes drawn from these case studies, which are available in full in the accompanying annexes. They are not mapped one-to-one to individual policy considerations. Each case reflects a broader set of competition dynamics and trade-offs, and examples are selectively used to illustrate the most relevant consideration in context. The guidance draws primarily on payments and credit market examples, reflecting the digital finance focus of the case studies.

The policy considerations are neither high-level principles nor detailed operational prescriptions. Instead, they offer practical guidance on design choices, trade-offs, timing and sequencing, and coordination challenges that regulators routinely navigate. The primary audience for this note is financial sector authorities in emerging markets, although competition authorities, financial inclusion funders, and advocacy organizations will also find the analysis relevant.

Drawing on the eight country experiences, six practical policy considerations emerge for financial authorities seeking to promote competition in ways that advance financial inclusion:

1. Use what already is at hand: Applying a competition lens is essential where a formal mandate is absent
What shapes competition in financial markets is not only whether authorities hold a formal competition mandate, but also how they use the mandates they already have. Existing objectives such as efficiency, consumer protection, and innovation each carry a competition dimension. Advancing competition therefore requires asking competition-relevant questions when making routine regulatory decisions, from licensing and infrastructure access to supervision and conduct oversight.

2. Coordinate effectively: Competition issues slip through institutional gaps
Competition dynamics in digital finance are inherently cross-sectoral. They span the jurisdictions of financial, telecommunications, data, and competition authorities, meaning no single regulator has full visibility over how competition dynamics evolve. Coordination helps identify issues early and ensures that competition concerns do not fall through institutional gaps. The coordination mechanism can take many forms, but it is effective only when it establishes clear lines of accountability and ensures that the authority best placed to act follows through.

3. Manage trade-offs: Competition and core regulatory objectives can coexist
Financial authorities are often cautious about promoting competition because they worry it may undermine core objectives such as financial stability, consumer protection, and market integrity. Intense competition can indeed compress margins, encourage risk-taking, and strain supervisory capacity. However, these are more often rooted in gaps in regulatory and supervisory frameworks rather than competition itself. With careful policy design, sequencing, and oversight, regulators can anticipate and manage these trade-offs, promoting competition while safeguarding their core objectives.

4. Leverage design and governance of financial infrastructure: They are powerful competition policy tools
Shared payment rails, digital identity systems, and data-sharing frameworks strongly shape how competition unfolds in financial markets. Their design is not only a technical undertaking but also a policy choice. When infrastructure is interoperable and access is open and governed on fair terms, entry barriers fall, innovation expands, and consumer costs decline by shifting competition from control over rails to innovation in products and services. But these gains materialize only when bottlenecks across the financial infrastructure are addressed, from identity and onboarding to payments and data. When access is restricted or uneven in any of these components, incumbents retain structural advantages, regardless of how many new firms enter the market.

5. Time interventions carefully: Competitive dynamics shift—and so do windows of opportunity
Digital financial services scale rapidly, consumer habits form quickly, transaction data accumulates in value, and network effects can entrench early-mover advantages. While an accommodative stance from regulators allowing markets to fully develop before addressing competition concerns is understandable, the speed and scale of digital finance make careful calibration essential, including introducing reforms in a sequence where each builds on the necessary foundations. Waiting too long allows market structures and competitive dynamics to crystallize, narrowing the range of available tools and raising the cost of course correction. This is not to suggest that action in mature, concentrated markets is futile, or that it is ever too late to act. Well-designed reforms can still create new competitive dynamics even where dominance is entrenched, through facilitating entry, expanding access to underlying infrastructure, or curbing incumbent advantages.

6. Get design and delivery right: Intent alone does not drive competition outcomes
Many reforms are competition-oriented in their stated objectives but do not fully reflect those goals in their design or implementation. Effective reforms change incentives for providers, consumers, and other market actors, altering the conditions that give incumbents structural advantages or create barriers to entry. Where incentives are misaligned or implementation frictions disadvantage new providers, reforms risk producing entry without contestability, diversity without meaningful choice, and access without deeper inclusion.

Competition outcomes in digital finance are shaped as much by regulatory conditions as by market forces themselves. The six considerations outlined here reflect practical ways financial authorities in emerging markets can shape those conditions, using the mandates, regulatory tools, and institutional frameworks they already have. What is required is the willingness to treat competition as part of core financial regulatory decision-making.

As digital ecosystems grow more complex, more integrated, and marked by platform dominance and data advantages, the window to shape competitive outcomes in financial markets is rapidly narrowing. Financial authorities need to act now and use this window well.

Section 1: Introduction

Financial sector authorities across emerging markets and developing economies have stepped up efforts to strengthen their financial systems, advancing financial inclusion. They are building shared financial infrastructure, setting up innovation hubs and regulatory sandboxes, creating new licensing frameworks, strengthening consumer protection safeguards, and deepening collaboration with peer regulators and industry stakeholders. Many of these efforts are paying off. Access to formal financial services has expanded significantly, and digital finance has accelerated that progress.

Yet concentration in financial markets remains a global challenge. Dominant incumbents hold their ground, barriers to entry for new providers stay high, and customers are left with limited choice, high costs, and products that do not always meet their needs. The landscape is also shifting in ways that compound the challenge. Rapid digitalization is bringing new financial products and new types of providers that blur traditional sector boundaries and stretch regulatory frameworks designed for an earlier era. The emergence of super-apps, digital platforms, and BigTechs in financial services is amplifying network effects and creating closed ecosystems that lock users in while excluding competitors, entrenching market power in new forms (BIS 2019; IMF 2022).

Competition has therefore become a pressing concern for financial authorities. What remains less clear is how to act on it. Most financial authorities do not have a formal mandate to work on competition. That responsibility typically rests with separate competition authorities, which are often sector-agnostic and may not have the specialized skills to address the unique competition dynamics of financial markets. Consequently, competition either takes a backseat in financial regulatory priorities or falls through institutional gaps between regulators, creating coordination challenges.

CGAP established that competition is a powerful enabler of financial inclusion (Kumaraswamy and Kremnitzer 2025). Drawing on global evidence, the paper showed how competitive pressure translates into five outcomes that matter for inclusion: greater provider and product diversity, expanded access channels, more tailored services, greater innovation, and lower prices. It also introduced a conceptual framework to help financial authorities think systematically about how their regulatory toolkit shapes competitive dynamics, spanning five domains: financial infrastructure and market development, market entry and licensing, prudential regulation, market conduct regulation, and competition policy. Importantly, the paper argued that advancing competition does not require new mandates or institutional frameworks, but a deliberate application of a competition lens and the coordinated use of the tools authorities already have.

This Focus Note moves from framework to practice. It offers six practical policy considerations for financial sector authorities to promote competition in ways that advance financial inclusion. Developed through desk research, expert interviews, and stakeholder consultations, these considerations draw on eight country case studies: Brazil, Cambodia, India, Kenya, Mexico, Pakistan, South Africa, and the United Kingdom, which examine how regulatory choices over the past two decades have shaped competition in retail financial markets.

The country examples featured in this note are illustrative vignettes drawn from these case studies, which are available in full in the accompanying annexes to this Focus Note. They are not mapped one-to-one to individual policy considerations. Each case reflects a broader set of competition dynamics and trade-offs, and examples are selectively used to illustrate the most relevant consideration in context. The guidance draws primarily on payments and credit market examples, reflecting the digital finance focus of the case studies.

The policy considerations are neither high-level principles nor detailed operational prescriptions. They are practical guidance on design choices, trade-offs, timing and sequencing, and coordination challenges that regulators navigate daily. The primary audience for this Focus Note is financial sector authorities in emerging markets and developing economies, given their ex ante role in shaping competitive market structures. Competition authorities, financial inclusion funders, and advocacy organizations will also find the analysis relevant as a basis for cross-agency coordination, programming decisions, and policy advocacy, respectively.

The primary audience for this Focus Note is financial sector authorities in emerging markets and developing economies, given their ex ante role in shaping competitive market structures. Competition authorities, financial inclusion funders, and advocacy organizations will also find the analysis relevant as a basis for cross-agency coordination, programming decisions, and policy advocacy, respectively. 

Section 2: Policy Considerations

The six considerations that follow offer practical guidance on how authorities can embed a competition lens in their regulatory functions to advance financial inclusion, drawing on eight country cases that reflect diverse geographies, income levels, regulatory architectures, policy reform trajectories, and competition and inclusion outcomes.

1. Use what already is at hand: Applying a competition lens is essential where a formal mandate is absent

Regulatory mandates define the legal authority and objectives within which a financial sector authority operates. They are legislatively conferred and determine what an authority is empowered to do, what it is accountable for, and how it prioritizes among competing objectives. Typically, financial sector authorities hold mandates organized around a core set of primary objectives: safeguarding systemic stability, ensuring market integrity, and protecting consumers (BCBS 2017; Kirakul, Yong, and Zamil 2021). Over time, several secondary objectives have emerged, particularly in emerging markets, including financial inclusion, market development, innovation, and supporting economic growth and competitiveness. Competition, however, is rarely among them.

What shapes competition in financial markets is not only whether authorities hold a formal competition mandate, but how they use the mandates they already have, by applying a competition lens.

That omission reflects a well-founded global consensus that excessive levels of competition can threaten the safety and soundness of the financial system, carrying severe and disproportionate costs for the broader economy, especially for low-income populations. The consequence, however, is that regulatory measures designed to safeguard stability, including stringent licensing regimes, heavy capital requirements, and restrictive infrastructure arrangements, have also entrenched market power and raised barriers to entry, sometimes at the expense of competition (Kumaraswamy and Kremnitzer 2025).

What shapes competition in financial markets is not only whether authorities hold a formal competition mandate, but how they use the mandates they already have, by applying a competition lens. This means treating competition not as a standalone goal, but as a dimension of existing regulatory objectives that already carry competition implications. Efficiency mandates, for instance, empower regulators to act on market structure and pricing, since concentrated markets extract rents and underserve customers. Consumer protection mandates extend to the conditions under which consumers can exercise meaningful choice. Innovation objectives are similarly served by competitive pressure, since without the threat of new entrants, incumbents have little incentive to develop better products or reach underserved customers.

Formal competition mandates matter. Where they exist, they expand legal authority, sharpen accountability, and strengthen the grounds for intervention, but remain secondary to core objectives. However, many financial authorities, particularly in emerging markets, operate without a competition mandate, and acquiring one usually is a complex and lengthy process, even as competitive dynamics in digital financial markets evolve rapidly. To meet authorities where they are, the strategic interpretation and confident use of existing mandates is what makes competition considerations actionable in practice and translates regulatory intent into decisions that shape market outcomes.

In practice, this means asking competition-relevant questions when making routine regulatory decisions. Licensing conditions, for example, determine who can enter the market and on what terms. Regulators can ask whether their existing licensing framework forecloses entry to challengers or levels the playing field. Similarly, infrastructure design determines who can access shared payment rails and at what cost. Here, they may consider whether access terms and pricing allow rivals to compete on equal footing or whether they entrench the advantages of those who control the infrastructure. Conduct supervision, too, shapes whether providers compete on value or exploit information gaps. A key question here is whether incumbents are using data or distribution advantages in ways that rivals cannot replicate. Where the state holds ownership stakes in financial institutions, regulators must also ask whether this creates conflicting incentives and whether public and private providers compete on equal terms. In each of these domains, regulators face a choice: to apply a competition lens ex ante or to leave competitive dynamics to chance. Action as well as inaction shape market structure. An authority that does not ask these questions is still making a decision with significant consequences for competition.

This is evident in Brazil, where the Banco Central do Brasil (BCB) pursued ambitious competition-focused reforms for over two decades without a formal competition mandate, leveraging its efficiency and inclusion mandates instead. As early as 2010, the BCB used its supervisory powers in coordination with the competition regulator, Conselho Administrativo de Defesa Econômica, to dismantle exclusivity in card-acquiring markets—arrangements that limited merchant choice, kept pricing opaque and fragmented, and discouraged card acceptance (CADE 2010). The 2013 Payments Law subsequently brought retail payments under BCB oversight, enabling nonbank providers to participate under proportionate rules and diversify the provider landscape (GovBrazil 2013).

Work Agenda BC#, launched in 2016 to modernize the financial system through innovation, inclusion, and competitiveness, accelerated this trajectory through two landmark reforms: (a) Pix, an instant payment system offering low-cost, interoperable payment rails that opened access to payment infrastructure (BCB 2021), and (b) Open Finance, a mandatory data-sharing framework that broke the data monopolies preventing new entrants from offering competitive credit and savings products (CMN and BCB 2020). At no point did the BCB require a formal competition mandate to act. Each reform was grounded in BCB's existing objectives and each also applied a competition lens.

Where Brazil acted without a formal mandate, the United Kingdom went further, embedding competition as a statutory objective across its entire regulatory architecture. The Financial Services Act 2012 gave the Financial Conduct Authority (FCA) a statutory competition objective and, from 2015, concurrent competition-law enforcement powers alongside the Competition and Markets Authority (CMA) (UK Parliament 2012).

Rather than deploying these powers through antitrust enforcement, each regulator advanced competition from within its own mandate. The FCA embedded competition in conduct supervision through the Consumer Duty, which required firms to show that their products deliver fair value and outcomes for consumers (FCA 2022). The Payment Systems Regulator (PSR) used its competition objective to open access to payment rails (PSR 2016; PSR 2020) while the PRA used its competition facilitation objective to lower entry barriers for new banks, with more than 50 authorized since 2013 (PRA and FCA n.d.; PRA 2024). Notably, it was the competition regulator, the CMA, that enabled data portability by mandating Open Banking in 2017, giving consumers portable access to their own financial data for the first time (CMA 2017).

Advancing competition for financial inclusion does not require new powers.

Kenya's mobile money market illustrates what happens when no authority applies a competition lens, regardless of mandate. Three regulators had oversight of the mobile money market, each focused on its core remit. The Central Bank of Kenya understandably took an accommodative regulatory stance prioritizing financial inclusion, allowing M-Pesa to launch and scale under a letter of no objection rather than a formal licensing framework (AFI 2010). But that stance persisted long after the market had matured, even as competition concerns surfaced, including agent exclusivity arrangements, discriminatory access to Unstructured Supplementary Service Data (USSD)¹ infrastructure, and the absence of interoperability, leaving rivals unable to compete on equal footing. The Communications Authority, responsible for the telecommunications infrastructure over which mobile money services ran, focused on network access in technical terms and did not treat Safaricom's control over USSD channels as a competition problem until rivals complained of discriminatory pricing (CAK 2016). The Competition Authority had the mandate but engaged only ex post and reactively when Airtel formally complained about agent exclusivity arrangements (CAK 2014).

Despite competition concerns becoming visible early on and rivals finding themselves unable to compete effectively, no authority treated it as an urgent or shared priority, a challenge reinforced by political economy pressures that made decisive collective action difficult. By the time they started to act, Safaricom already controlled 80 percent of the country's mobile money agents and more than 95 percent of mobile money transaction volumes (CAK 2014; Mazer and Rowan 2016; CA 2017), cementing a market structure that left consumers with little choice and that subsequent interventions struggled to reverse. That dominance also means Safaricom has accumulated the largest store of transaction data in the market. Rivals seeking to develop data-driven financial services depend on access to data that Safaricom has accumulated over the years, with little commercial incentive to share.

Advancing competition for financial inclusion does not require new powers. Asking competition-relevant questions when making decisions authorities are already empowered to make is often enough to shape competitive outcomes, even while a formal mandate remains a worthwhile long-term goal.

2. Coordinate effectively: Competition issues slip through institutional gaps

In digital finance markets, where competition dynamics are cross-sectoral, competition decisions rarely fall within a single authority's remit. Digital finance products and the mechanisms that enable them span the jurisdiction of multiple authorities simultaneously, including telco regulators, financial sector authorities, data governance bodies, and competition agencies. In countries where there are multiple financial authorities, each holds distinct but overlapping responsibilities, from prudential to payments, as well as conduct oversight. No single authority has complete visibility into the competitive dynamics at play, and even when a single authority identifies a concern, it may lack the mandate, sectoral expertise, or bandwidth to act on it unilaterally. Coordination, across sectors as well as within the financial regulatory architecture, is therefore essential for effective oversight. It allows competition concerns to be identified early, establishes clear lines of accountability, and enables efficient follow-up by the authority best placed to act. Coordination between regulators and sector stakeholders, including providers and industry bodies, is equally important, as it keeps authorities attuned to market developments and helps detect emerging issues early.

Coordination takes many forms. Formal mechanisms may have a legal basis, such as statutory requirements to consult before rulemaking or concurrent powers of oversight and enforcement, or may be voluntary and structured, such as memoranda of understanding, participation in each other's governance, joint market studies, working groups, and staff exchanges. Informal mechanisms are less structured and light-touch, but equally valuable. They are easier to establish and more flexible. They include early cross-agency engagement, ad hoc consultations, information sharing, and professional networking, all of which build the relationships and shared understanding that allow issues to surface early. The test of effective coordination is not which mechanism is selected, but what follows: whether it produces clarity over who is responsible for what and ensures that the authority with the statutory powers to act does so. Coordination without follow-through diffuses responsibility without resolving competition concerns.

In South Africa, coordination between competition and financial authorities translated diagnostic findings into concrete policy reform. The Competition Commission's Banking Market Enquiry, launched in 2006, surfaced constraints to competition in retail banking. These included high market concentration; restricted access to payment rails for nonbank providers; transaction fees too complex for consumers to compare; and account-switching frictions that kept many customers with existing providers (CCSA 2008). Following the enquiry, the South African Reserve Bank brought payment system access arrangements under formal regulatory oversight, establishing rule-based access criteria that reduced incumbent discretion over terms and conditions (SARB 2007).

In parallel, the Financial Sector Regulation Act of 2017 restructured South Africa's regulatory architecture along the Twin Peaks model, separating entry decisions from conduct supervision and establishing the Prudential Authority and the Financial Sector Conduct Authority, clarifying institutional responsibilities (GovSA 2017). In the years that followed, both authorities drew on the enquiry's diagnostic foundation to pursue competition-focused reforms within their own remits: the Prudential Authority approved digital banks under proportionate licensing frameworks, broadening the range of providers in the market, while the Financial Sector Conduct Authority pursued fee transparency and conduct standards, helping consumers make more informed choices (GovSA 2017; FSCA 2023). The Intergovernmental Fintech Working Group, established in 2016 across the South African Reserve Bank, Financial Sector Conduct Authority, and National Treasury, provided the ongoing coordination forum that kept these parallel efforts aligned (IFWG 2016).

The United Kingdom illustrates how coordination can be embedded across an entire regulatory architecture rather than be built around a single reform. The FCA has a statutory competition objective and shares concurrent enforcement powers with the CMA, including powers to investigate and enforce against breaches of competition law in financial services markets. A formal Memorandum of Understanding between the FCA and CMA governs how cases are allocated between them, ensuring that only one authority investigates a specific case at any given time, while preserving the ability to act jointly where appropriate (CMA and FCA 2014a).

When coordination works, competition concerns surface early, ownership is clear, and markets remain contestable.

The FCA and CMA conducted a joint market study on SME banking, and the CMA's Open Banking order was implemented through the Open Banking Implementation Entity, which developed technical standards, certification, and security protocols in coordination with the FCA and Payment Systems Regulator (CMA 2017; CMA and FCA 2014b). When an independent review found the entity's governance inadequate in 2021, the FCA and Payment Systems Regulator established the Joint Regulatory Oversight Committee to guide the transition to a permanent open banking oversight body, the Future Entity, with stronger accountability and consumer representation (JROC 2023).

The coordination architecture extends into digital markets as well. Recent legislation establishing a Digital Markets Unit within the CMA to designate and regulate large technology platforms with strategic market status requires the CMA to consult the FCA on any such designations within the financial sector (UK Parliament 2024). More broadly, the Digital Regulation Cooperation Forum, established in 2020 and bringing together the FCA, CMA, Ofcom, and the Information Commissioner's Office, provides a voluntary standing forum for cross-sectoral coordination, promoting coherence across overlapping regulatory regimes and conducting joint work on emerging challenges at the intersection of finance, data, and digital markets (DRCF n.d.).

When coordination works, competition concerns surface early, ownership is clear, and markets remain contestable. When it fails, institutional gaps widen and become progressively harder to close.

3. Manage trade-offs: Competition and core regulatory objectives can coexist

Even where coordination works, financial authorities must still navigate the tensions that competition-oriented reform creates with their core objectives, and they tend to be cautious for good reasons. Intense competition typically compresses margins for incumbents, while smaller or more efficient competitors can perceive increased margins. When margins are thin, providers take on riskier assets and lower lending standards to maintain returns, dynamics that can threaten systemic stability (Beck 2008). Competitive pressure on prices can also erode conduct standards: products are mis-sold, fees are obscured, and consumers with limited financial experience are exposed to harm rather than protected.

As markets expand rapidly, new provider types, products, and distribution channels emerge in spaces where existing oversight frameworks do not reach, outpacing the regulatory perimeter and stretching supervisory capacity (World Bank 2022b; IMF and World Bank 2018). These are not hypothetical concerns but reflect regulatory experience across markets and explain why financial sector authorities have historically prioritized core objectives and treated competition reforms as potentially creating trade-offs. At the same time, healthy competition with appropriate oversight also reinforces those same objectives through greater efficiency, lower costs, and broader access to financial services (Beck 2008; Kumaraswamy and Kremnitzer 2025). The empirical record does not support a simple competition-stability trade-off, but a nonlinear relationship where outcomes depend on initial market conditions and how regulatory tools are calibrated (Calice 2025; Calice and Leonida 2018). For example, prudential tools such as capital requirements and licensing frameworks can either protect contestability or entrench incumbency, depending on how they are calibrated. Similarly, credible exit mechanisms such as resolution frameworks and deposit insurance matter as much as entry mechanisms in shaping competitive outcomes. What drives instability is more often weak supervision and gaps in the regulatory framework than competition itself.

These trade-offs are more often a consequence of how competition-oriented policies are designed and implemented rather than of any fundamental incompatibility between objectives. They are a routine feature of financial regulation, rooted in choices: a licensing regime that opens entry faster than supervisory capacity can keep pace; a data-sharing mandate that precedes adequate consumer and data protection frameworks; or a pricing intervention that resolves one distortion while creating another.

This also means that with the right approach, trade-offs can be managed, if not entirely eliminated. Regulators can achieve this by grounding policy action into evidence; anticipating unintended consequences at the design stage; coordinating and sequencing reforms in line with supervisory and institutional capacity; and monitoring market outcomes and adjusting course as needed. Trade-offs are not a reason to deprioritize competition or defer action. They demand that regulators design and implement reforms more carefully.

Trade-offs are not a reason to deprioritize competition or defer action. They demand that regulators design and implement reforms more carefully.

Cambodia illustrates what happens when market development outpaces supervisory capacity and introduces risk in the system. Cambodia's financial sector grew rapidly from the early 2000s, driven by the commercialization of microfinance, foreign investment, a dollarizing economy, and strong demand for credit. With less than 5 percent of adults holding an account in 2011, the National Bank of Cambodia (NBC) adopted a liberal licensing regime to expand financial access, increasing the number of banks and microfinance institutions more than fourfold, from 36 to 157, in 14 years (Maino 2014; NBC 2025).

This focus on market development outpaced NBC's ability to supervise the sector effectively. With many lenders competing for a small pool of borrowers, competition manifested through aggressive credit expansion, driving conduct failures and acute debt distress: the aggregate microfinance loan portfolio reached US$18 billion, or 40 percent of national gross domestic product, with average loan sizes exceeding US$5,800—or four times the median per capita income (NBC 2023; HRW 2025; IMF 2025). In response, the NBC introduced an 18 percent interest rate cap on all microloans in 2017, but the intervention neither fully resolved the problem it targeted nor avoided creating new distortions: lenders recovered margins through higher fees and shifted lending away from rural and small borrowers, reducing credit availability for the borrowers it was intended to help (NBC 2017; Heng, Chea, and Heng 2021; Aiba et al. 2020).

Liberal licensing also produced several thinly capitalized institutions with weak risk management, exposing the system to stability risks, while uneven enforcement enabled regulatory arbitrage and integrity failures that placed Cambodia on the FATF grey list (IMF 2025). By 2023, course correction began, with NBC revoking over 100 rural credit licenses, raising capital thresholds, establishing responsible lending frameworks, eventually exiting the FATF grey list, and considering whether to pursue consolidation, although no decisions have been taken yet (NBC 2023; FATF 2023; DFDL 2022).

If Cambodia's trade-offs stemmed from licensing decisions, India surfaces a distinct set of tensions in the pricing of payment infrastructure. Launched as an instant payment rail in 2016 to formalize a cash-based economy and expand financial access, Unified Payments Interface (UPI) processed more than 130 billion transactions annually by 2024, reaching over 500 million unique users and accounting for nearly half of all real-time retail payment transactions worldwide (NPCI 2024; RBI 2024). The Government of India has designated UPI a digital public good, keeping it free for individual users for peer-to-peer (P2P) and person-to-merchant (P2M) payments. For merchants, the policy mandates a zero-percent Merchant Discount Rate for bank-to-bank transactions, while interchange fees of 0.5 percent to 1.2 percent apply for payments made through prepaid wallets or credit lines (Ministry of Finance 2024; NPCI 2024).

Maintaining such large and complex infrastructure involves significant investments in technology, cybersecurity, compliance, and fraud management. Industry bodies estimate these costs at around US$1.2 billion annually, borne primarily by banks, payment service providers, and fintech firms, with the government partially offsetting them through an incentive scheme that has covered roughly one-fifth of estimated costs in recent years (Ministry of Finance 2024; Economic Times 2025). With no revenue from the transactions themselves, providers compete on customer acquisition and scale. Costs are recovered through processing fees and value-added services such as credit and insurance (Cornelli et al. 2024). The result is a funding gap the Central Bank has begun to reckon with, one deepened by the fact that zero pricing eliminated the payment-linked revenue lines the banks had previously relied on, including interchange fees, payment gateway charges, and ATM withdrawal fees.

While zero pricing has been instrumental in driving UPI adoption at scale, it also has shifted the cost burden of maintaining this infrastructure to industry and taxpayers, something that may not always be possible in other emerging markets that do not support such large volumes or have the fiscal space. The point is not that any particular pricing level is preferable for infrastructure access. Whatever pricing approach regulators select carries implications for competition, inclusion, and sustainability.

Trade-offs in promoting competition are rarely inevitable. They emerge from design and implementation choices that need to be assessed on an ongoing basis. Authorities who anticipate them early have far more room to manage them than those left to correct them later.

4. Leverage design and governance of financial infrastructure: They are powerful competition policy tools

Financial infrastructure is a fundamental enabler of competition, with its design and governance shaping downstream competition dynamics in outsized ways (Kumaraswamy and Kremnitzer 2025). Regulators across emerging markets are modernizing financial market infrastructure spanning payments, clearing and settlement systems, collateral management to support digital transformation, financial inclusion, market efficiency, and economic growth. In particular, they are building Digital Public Infrastructure that enables digital identity systems, shared payment rails, and data-sharing frameworks (Clark et al. 2025). Shared and interoperable rails lower entry barriers for new entrants, reduce the cost of serving customers, and shift how competition plays out: from gatekeeping proprietary networks to innovating on top of open ones. Where access to rails is closed, partial, or available on inequitable terms to new entrants—smaller providers or nonbank institutions—downstream competition remains muted, regardless of how many new providers enter the market or how many innovative products are developed. Financial market infrastructure is therefore not only a technical undertaking but also a policy decision that has competition implications, whether or not those are explicitly considered. Choices made at the outset about who can participate, on what terms, at what price, and how rails are overseen can shape market structure and competition dynamics; they tend to persist once infrastructure reaches scale and providers build around it, making reversal difficult and costly.

Financial infrastructure is a fundamental enabler of competition, with its design and governance shaping downstream competition dynamics in outsized ways.

Brazil's retail payment market in the late 2010s was fragmented, costly, and dominated by a small number of large institutions whose control over payment infrastructure limited the ability of smaller providers to compete on equal terms. In November 2020, the BCB launched Pix as a centrally governed instant payment rail, open to all licensed financial and payment institutions offering transaction accounts (BCB 2021). To ensure widespread coverage and scale, participation was mandatory for any institution with more than 500,000 active customers across checking, savings, and prepaid payment accounts (BCB 2020). Rather than delegating Pix's technical standards and governance to an industry body where incumbents might have shaped access rules in their favor, the BCB retained direct control over participation criteria, pricing, and system operation. The appropriate balance between regulatory control and stakeholder engagement will indeed vary by context, and will require structured dialogue with stakeholders to ensure fairness and buy-in; but the core principle holds: governance arrangements shape who benefits from shared infrastructure. Having opened access to payment rails through Pix, the BCB extended that logic to data, enabling new entrants to access customer financial data that had previously been locked within incumbent institutions.

It established Open Finance as a data-sharing mechanism, requiring large institutions to share standardized customer data across accounts, payments, credit, investments, and insurance, subject to consent (CMN and BCB 2020). To discourage free-riding, Open Finance imposed reciprocal obligations on participants, which meant that institutions seeking access to customer data held by others were also required to make their own relevant customer data available on the same terms (CMN and BCB 2020).

The results were significant. Pix drove transaction costs to near zero for consumers and merchants, catalyzed entry by new payment providers, and expanded financial access to millions of customers. Open Finance expanded consumer choice and enabled new entrants to design more relevant, data-driven financial products. Within five months of launch, Pix transaction volumes exceeded the combined volume of bank transfers, checks, and other instruments and, by 2025, it accounted for nearly half of all retail payment transactions, processing 68 billion transfers annually across more than 900 participating institutions (BCB 2025; Dias 2025; BCB n.d.). Open Finance followed a similar trajectory: by end-2025, more than 100 million customers had connected their accounts and authorized data sharing across 800 providers (Open Finance Brasil n.d.).

India took a sequenced approach, building successive layers of its financial infrastructure over more than a decade to enable competition. This began in 2009 with Aadhaar, a universal biometric digital identity system, designed to provide a verifiable identity to residents who lacked formal documentation and to improve the efficiency of government welfare delivery mechanisms (GovIndia 2016). It also enabled remote, instant, and low-cost identity verification for all licensed providers, reducing the cost of e-KYC by 99.5 percent, from US$12 to US$0.06 per transaction, lowering onboarding costs for all providers, including those without established customer relationships (Ministry of Finance 2024). Building on this foundation, UPI organized retail payments as shared public infrastructure open to all licensed providers, removing infrastructure access as a source of competitive advantage and forcing rivalry onto product quality, user experience, and innovation (EY 2025; Cornelli et al. 2024). Mandatory participation by large banks, standardized application programming interfaces (API), and interoperable QR codes opened access to payment rails to all providers, enabling the emergence of a fintech ecosystem of more than 10,000 firms across payments, lending, merchant services, and embedded finance (RBI 2020; EY 2025; Cornelli et al. 2024).

India's most recent reforms address the data layer. The Account Aggregator framework enables consent-based sharing of customer financial information across institutions, reducing the information asymmetries that had historically favored incumbents with proprietary data (RBI 2021). This has helped customers share their data to shop around for favorable loan terms and for personal finance management (Salman, Fernandez Vidal, and Paikine 2025). With 16 licensed Account Aggregators, more than 780 participating institutions, and over 112 million users by late 2025, the Account Aggregator framework has facilitated an estimated US$20 billion in loans during 2025 alone (Sahamati 2025; Kundu 2025).

Financial infrastructure delivers its full competition potential only when reforms span the entire stack. Opening only one layer while leaving bottlenecks in others limits how far competition can reach. This is evident in Pakistan, where the introduction of Raast in 2021 provided a neutral, low-cost payment rail, enabling nonbank providers to offer wallets and payment services by reducing dependence on incumbent-controlled infrastructure (SBP 2022; World Bank 2022a).

However, new entrants faced barriers in other layers of the stack. Pakistan adopted digital identity early through its National Database and Registration Authority, but the system was neither provider-neutral nor portable: each provider ran its own KYC process and customers could not carry their credentials from one provider to another (SBP 2019). Onboarding costs remained high, disadvantaging new entrants, while customers faced friction in switching between providers. With no operational data-sharing framework, incumbents retained their data advantages, constraining new entrants' ability to assess risk or design competitive products (SBP 2023). The broader fintech ecosystem has been slow to develop as a result, leaving consumers with a narrow range of providers, limited product innovation, and little ability to switch.

Financial market infrastructure is as much a policy instrument as a technical one, and is among the most powerful levers regulators have for shaping competition. Outcomes depend on how access, participation, and governance are designed across the stack, and whether reforms span the full infrastructure rather than on isolated layers.

5. Time interventions carefully: Competitive dynamics shift—and so do windows of opportunity

Digital financial services scale rapidly. Well-designed products with mobile-led distribution reach consumers quickly. Usage habits form fast. Providers compete hard for first-mover advantages. Early users tend to stay, transaction data compounds in value, and agent networks built around one platform are costly for rivals to replicate. Financial sector regulators have typically given markets room to develop before turning their attention to competition considerations and, in many cases, that sequencing has supported inclusion gains, allowing new technologies and business models to be tested before rules are written around them. At the same time, business models evolve rapidly and new risks can spiral quickly.

Calibration is key. Acting too early risks suppressing markets before they form. Waiting too long allows market structures and competitive dynamics to crystallize. When that happens, the tools available to regulators shift from upstream design toward competition enforcement, which tends to be slower, more adversarial, and more exposed to political economy pressures. This is not to suggest that action in mature, concentrated markets is futile, or that it is ever too late to act. Well-designed reforms can still create new competitive dynamics even where dominance is entrenched, through facilitating entry, expanding access to underlying infrastructure, or curbing incumbent advantages. The cost of course correction, however, rises over time, the range of available tools narrows, and entrenched market structures are slow to reverse.

Sequencing compounds this challenge. The order in which competition-oriented reforms are introduced determines whether each measure builds on a functioning foundation or arrives without enabling preconditions. For example, licensing new provider types without first ensuring fair access to infrastructure, or without strong consumer protection frameworks, can produce entry but without contestability. What matters is not any single prescribed sequence, but that reforms are introduced in an order that is internally coherent, each reinforcing the other.

The costs of delayed intervention are well documented in Kenya's experience. The mobile money market in Kenya expanded rapidly after M-Pesa's launch in 2007. Within six years, it had more than 10 million active users and annual transaction values of US$6 billion, equivalent to roughly 8 percent of gross domestic product (Safaricom 2013). This scale was enabled by Safaricom's structural advantages, including control over telecommunications infrastructure, USSD channels, and a growing agent network, reinforced by an accommodative regulatory stance that permitted M-Pesa to operate under a letter of no objection before any formal licensing framework existed (AFI 2010). Anti-competitive practices including agent exclusivity, discriminatory USSD pricing, and the absence of interoperability kept transaction flows and liquidity concentrated on M-Pesa, which, at its peak, accounted for 98 percent of mobile money transactions in the country (CAK 2014; Mazer and Rowan 2016).

Regulatory authorities responded only when rival providers filed formal complaints. Agent exclusivity was ended through a settlement with the Competition Authority of Kenya in 2014 (CAK 2014). Likewise, it was not until 2017 that the Authority required disclosure of standardized tariffs and lower USSD access prices, securing commitments from Safaricom to end discriminatory pricing practices (commitments yet to be fully met) (CAK 2016). Full interoperability does not yet exist, but progress has come in phases. Providers first established bilateral agreements for peer-to-peer transactions in 2018, eventually extending to merchant payments and bill payments only in 2022, 15 years after launch (CBK 2018; CBK 2022). By then the market had set. Transaction flows, liquidity, and consumer behavior were concentrated on M-Pesa. Consumers had little effective choice, and the structural conditions for rival providers had not meaningfully changed, an outcome consistent with the incentive challenges that arise when the state holds ownership stakes in the firms it oversees.

Similarly, Pakistan's trajectory points to how late reforms struggle to shift incentives once market structures have already crystallized around the status quo. Its digital finance market remained bank-led for more than a decade after inception, during which incumbents JazzCash and Easypaisa established a de facto duopoly, cementing control over agent networks (SBP 2008). The model entrenched agent-initiated over-the-counter transactions, in which agents rather than customers selected providers and executed transfers, limiting customer choice and slowing wallet adoption and the development of regular use patterns (MSC 2015).

When regulators act on competition issues matters as much as what issues they act on and how.

It was not until 2019 that nonbank e-money issuers were permitted to offer wallets and payment services without depending on bank partnerships, and only in 2021 did the SBP launch the payment rail Raast, both arriving well after provider and consumer incentives had hardened around the bank-led model (SBP 2019; SBP 2022; World Bank 2022a). Conduct rules, data-sharing arrangements, and merchant acceptance measures came later still. Successive reforms expanded the provider landscape and lowered transaction costs but did not materially shift the competitive dynamics or broaden who the system served. Consequently, Pakistan remains substantially financially excluded, with only 27 percent of adults—and only 12 percent of women—holding an account, while only a fourth of adults use digital payments (Klapper et al. 2025).

Time is of the essence in digital finance markets. When regulators act on competition issues matters as much as what issues they act on and how.

6. Get design and delivery right: Intent alone does not drive competition outcomes

A reform is only as competition oriented as its design and implementation, not its stated objectives. Effective reforms shift the incentives of providers and other market actors, change consumer behavior, and meaningfully alter the underlying conditions that give incumbents advantages or create barriers to new entrants. Incumbents have strong incentives to protect their structural advantages; new entrants rely on underlying infrastructure and distribution channels that incumbents control; and consumers have deeply ingrained habits, switching costs, and limited information. Reforms that do not account for these forces produce entry without contestability, diversity without meaningful choice, and access without deeper inclusion.

Translating this into practice requires specific design choices that account for how markets actually work. New entrants not only need proportionate licensing and supervisory frameworks, but also a sufficient scope of permitted activities to mount meaningful competition and remain financially viable. Where authorities seek to expand access to payment rails or data, meaningful participation by incumbents is not optional but a precondition for reform to work. Reforms must equally account for the consumer side of competition: whether consumers have the information, ability, and incentive to switch providers, including through measures such as clear disclosure and accessible digital interfaces. Equally, they must focus on the merchant side, ensuring it is commercially viable to accept new payment instruments over established ones. The same logic extends to implementation, as well. Authorities must actively anticipate incumbent resistance to proposed reforms and pay close attention to implementation frictions that disproportionately affect new entrants, whether onerous and lengthy authorization processes, evolving supervisory expectations, or high compliance costs. Where reforms fall short, the explanation is rarely in the objectives; it is in design and implementation.

This gap between intent and implementation is evident in Mexico, where reforms to open markets did not translate into meaningful change. Mexico's retail financial sector has long been concentrated with structural advantages entrenched through payroll arrangements that tie workers to a single bank account, with exclusive agent networks that limit consumer choice and create switching frictions. Furthermore, the expansion of Banco del Bienestar concentrates social transfers within a single state-owned institution and crowds out private branch infrastructure in municipalities where it has expanded rapidly (World Bank 2024; COFECE 2015). Mexico remains one of the least financially included countries in the region. The 2018 Fintech Law sought to address this, establishing a licensing regime for new providers and laying the foundation for an open finance framework to open customer data to new entrants (Cámara de Diputados 2018).

However, implementation fell short. Authorization processes proved lengthy and uncertain, with evolving supervisory expectations and a large backlog of applications that raised compliance costs and deterred smaller entrants. Technical standards for data sharing were slow to be issued while rules governing the sharing of customer transactional data remain pending (CNBV 2020). Open finance, while formally in place, has remained largely confined to product and pricing data, leaving the provisions most central to its competitive logic only partially implemented (Vixio 2023). More than 650 fintech providers entered the market, but they operate at the margins, leaving the structural advantages that mattered most unchanged.

The same dynamic is also visible in South Africa's PayShap. Cash dominates South Africa's retail payments landscape, particularly among small and informal merchants (SARB 2020), and payment services remain bank-led, with nonbank providers dependent on incumbents for settlement and processing, thus keeping costs high. PayShap, launched in 2023 as a low-cost, real-time payment rail open to all account holders, gained rapid traction, processing over 30 million transactions worth R 19.5 billion across 6 million registered users within 14 months (SARB 2023; BankservAfrica 2024). Yet cash remained dominant in informal retail because PayShap did not embed competition or inclusion in its design. It was primarily built for smartphone banking apps, while feature phone access over USSD—on which lower-income users and informal merchants depend—was left to individual banks, resulting in inconsistent coverage. Banks were also left to set transaction fees, which varied widely, with digital banks offering PayShap free while incumbent banks initially charged as much as R 45 (US$2) per transaction, comparable to traditional transfers. Some incumbents were reluctant to promote PayShap, since it competed with higher-margin products and fees fell only under market pressure from digital banks, not regulatory action (TechCentral 2025; AfricaNenda 2024).

The deeper gap was at the acquiring layer: incumbent acquirers structured merchant contracts around formal retail, with device rental fees, minimum turnover thresholds, and transaction charges unviable for small and informal merchants; as well as no guidelines on simplified onboarding, pricing, or acquiring-layer interoperability (SARB 2023; CCSA 2008). These choices were left to incumbents who had no commercial incentive to make them and who faced no regulatory obligation to change them.

While South Africa left incumbent participation voluntary, India mandated it. Large banks, which stood to lose proprietary control over customer relationships and transaction flows, had limited incentives to promote a shared payment rail that would expose them to competition (RBI 2020). The Reserve Bank of India required participation by large banks, not only to prevent incumbents from undermining the system but also to ensure sufficient network scale from the outset. Standardized APIs and interoperable QR codes removed infrastructure access as a source of competitive advantage. By 2024, UPI processed over 130 billion transactions annually, reaching more than 500 million users and supporting a fintech ecosystem of over 10,000 firms (NPCI 2024; EY 2025).

The tension between regulator-led and market-driven approaches also extends to data sharing. In the United Kingdom, Midata—an earlier initiative to give consumers easier access to their personal data—made little progress because incumbent banks had no commercial incentives to participate meaningfully and make data available to rivals (CMA 2016). The CMA's 2017 Open Banking Order replaced voluntary coordination with a mandatory requirement for the nine largest banks to share standardized customer data through standardized open APIs. Implementation was contested, with several banks missing the 2018 deadlines; however, enforcement action followed and the mandate was held. By 2025, over 13.3 million individuals and businesses were using Open Banking services (Open Banking Ltd. 2025). The contrast with the European Union's Revised Payment Services Directive Regulation (PSD2) is telling. Enacted a year later, the regulation similarly required banks to open customer data to third parties but left technical API standards to industry coordination, producing fragmentation across member states, multiple competing technical specifications, and inconsistent implementation (European Commission 2023; EBA 2023). The United Kingdom specified what incumbents had to do and held them to it. The European Union defined the objective and left the means to the market. The outcomes reflected that difference.

Good intentions do not make good policy. Reforms that do not embed competition in their design or fail to account for incentives in their implementation, produce unintended consequences at worst and muted impacts at best.

Section 3: Conclusion

This Focus Note draws on two decades of reforms across eight countries to offer emerging market financial sector authorities practical guidance on promoting competition in ways that advance financial inclusion. Across the cases, a consistent finding emerges—that competition outcomes in digital finance are shaped as much by regulatory conditions as by market forces themselves. The six considerations outlined in this note are not out of reach for any authority. The mandates, the regulatory toolkit, the institutional frameworks, and the relationships already exist. What is asked of them is the willingness to treat competition as part of their core regulatory practice. As digital ecosystems grow more complex and more integrated, and are marked by platform dominance and data advantages, the window to shape competitive outcomes in financial markets is rapidly narrowing. Financial authorities need to use it well. And they need to act now.

Annexes

Annex 1: Brazil

How the Central Bank Took the Reins on Competition

Annex 2: Cambodia

When Competition Outpaces Oversight

Annex 3: India

Digital Public Infrastructure as Competition Policy

Annex 4: Kenya

A Star of Inclusion, a Stress Test for Competition

Annex 5: Mexico

Diversification without Contestability

Annex 6: Pakistan

Where Competition Reforms Arrived Late

Annex 7: South Africa

Inclusion Gains, Competition Gaps

Annex 8: United Kingdom

A Whole-of-System Approach to Inclusive Competition

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