Competition for Financial Inclusion: A Conceptual Framework

Executive Summary

Fifteen years ago, nearly half of the world's adult population had no access to formal finance. That number has nearly halved, largely due to the spread of digital financial services. Progress, however, has been uneven. Over 1.3 billion people remain unbanked, with women, low-income households, rural communities, and micro and small enterprises still left behind. Even where access has expanded, financial services often remain distant, costly, or poorly suited to customer needs, thus discouraging sustained use and undermining the promise of true inclusion. For many customers at the last mile, there are still no reliable alternatives, since financial markets around the world remain dominated by large incumbents shaped by legacy regulation and structural barriers. In such concentrated environments, incumbent providers have little or no incentive to innovate or serve excluded segments while new entrants face steep challenges to entry and scale. Ultimately, consumers pay the price—facing high costs, limited options, and poor value.

At the same time, digital finance is rapidly reshaping market structure and competition dynamics. Technology-enabled models are lowering entry barriers, expanding reach, and driving innovation, but their speed, scale, and blurred regulatory perimeters raise conduct and consumer protection risks. Bigtechs, with their vast troves of data, cross-sector integration, and powerful network effects, can entrench market power, reduce contestability, and introduce new forms of systemic risk.

In this context, competition deserves a more central place on the regulatory agendas of financial authorities. Yet, in most jurisdictions it remains an afterthought, either because financial regulators lack a formal mandate to promote competition or because that responsibility rests with a separate competition authority. Still, financial regulators already shape market structure and dynamics in powerful ways, from licensing regimes and infrastructure governance to interoperability rules and supervisory standards. Unlike competition authorities, whose interventions are typically ex post, and once market power issues have taken root, financial authorities have the tools and opportunity to act, ex ante, to ensure that financial markets remain competitive.

This Working Paper addresses two key knowledge gaps. First, it synthesizes global evidence linking competition to financial inclusion, distilling five distinct outcomes for consumers. Second, it introduces a conceptual framework to assist financial authorities to reflect more systematically on how enabling regulatory approaches—when aligned with existing market characteristics—should trigger the competition dynamics necessary to deliver inclusive outcomes.

The five outcomes reflect distinct pathways through which competition will benefit consumers. As new providers enter the market, choice expands. Access improves as firms invest in physical and digital distribution channels. Data sharing mechanisms reduce information barriers, enabling more personalized services and greater control over personal data. Providers invest in innovation to differentiate themselves and operate more efficiently while yielding more relevant and user-friendly products. In addition, fierce price competition, in turn, makes financial services more affordable to consumers. Together, these dynamics enhance the breadth, depth, and utility of financial services as well as contribute to an inclusive and resilient financial ecosystem.

The conceptual framework, summarized below and set out in full at the end of this Executive Summary, unfolds in three stages:

• It first assesses the initial market characteristics to understand the structural features and regulatory environment that shapes market concentration and limit consumer choice. This diagnostic step helps identify where competition is constrained and where policy action is most needed.
• Within the second stage, financial authorities can leverage enabling regulatory approaches across five domains—financial infrastructure, market entry and licensing, prudential regulation, market conduct regulation, and competition policy. These approaches form a flexible toolkit to foster healthy competition without undermining stability, integrity, and/or consumer protection. As regulatory reforms take hold, they activate five pathways of competition dynamics, including diversity in providers and products; expanded access channels; reduced information barriers; innovation; and price competition.
• These pathways ultimately lead to the third stage: delivering inclusive outcomes. They are manifested at the consumer level with greater use, choice, relevance, control of data, and affordability, as well as at the market level with stronger stability and resilience, alongside improved conduct and trust in the system.

Financial authorities now face a timely opportunity to steer competition toward inclusive and resilient financial systems. These outcomes are not automatic; they depend on deliberate policy choices, institutional coordination, and a willingness to navigate trade-offs. This paper offers not only evidence but also a practical framework from which authorities will be able to recognize where competition is breaking down and how their existing toolkit of regulatory approaches can make markets more competitive and inclusive. While written primarily for financial authorities, it also will assist competition authorities and advocacy groups to engage financial regulators on market structure issues as well as guide funders and development partners on where technical assistance and policy dialogue can advance inclusive competition.

Competition is not a panacea. In an era of digital transformation, however, it must no longer remain a peripheral concern. Applying an intentional competition lens is not only timely—it calls for urgency.