Inclusive Payment Ecosystems

Photo Credit: Wim Opmeer

Kenya’s recent financial inclusion progress demonstrates how inclusive payment ecosystems can be a game changer for reaching and serving poor people and providing access to a range of other services.

When Kenya started its journey toward building an inclusive payment ecosystem eight years ago, less than one in five adults were formally financially included. Today more than two-thirds of Kenyans are included, driven primarily by the mobile money service M-Pesa. Since M-Pesa, many other financial services have been added, including M-Shwari, a digital savings and credit product launched by the Commercial Bank of Africa in 2012 that already has 10 million clients. Another example is M-Kopa, a start-up energy company that enables off-grid households to finance and install solar electricity home units that can be paid for via digital means.

Inclusive payment ecosystems have big benefits for the poor and financially excluded on their own, but importantly, they form backbones that enable new financial services to be created. CGAP holds that as countries move toward a level where more than half of all adults are actively using a digital account and payment service, many other financial inclusion-related services and benefits will emerge.

A woman works as laborers sago farmers. Photo taken by Iman Firmansyah. Photo Credit: Iman Firmansyah

There are five key components to a well-functioning, country-level inclusive payment ecosystem:

  1. Enabling regulations. Financial sector regulators adopt regulations that foster innovation and evolve as market conditions change. For example, allowing a diverse range of financial service providers to use agents or issue electronic money, making it easier for poor people to sign up for accounts, and creating level playing field rules that promote fair competition.
  2. Enabling infrastructure. The reach and quality of mobile telephony, the presence of reliable national ID systems, and well-developed agent networks that provide accessible transaction points can be significant determinants of how wide and deep payment ecosystems can reach.
  3. Dynamic service providers. Payment ecosystems go to scale driven by innovative new business models.
    • The foundation is businesses (banks and nonbanks, such as mobile network operators [MNOs]) that offer basic payment and account services. These front-line providers of basic payment accounts are the building blocks for reaching large numbers of people. They serve as the entry point for inclusive payment ecosystems, complemented by other kinds of businesses.
    • Traditional financial institutions, such as banks, nonbank financial institutions, or insurance companies that offer new services over the digital payments infrastructure through creative partnerships.
    • Agent network managers that oversee large-scale cash-in and cash-out points of service (POS) (human ATMs).
    • Aggregators that consolidate bulk payments, such as utility bills or salary payments.
    • Innovative start-up businesses that can find a foothold and even thrive in an active ecosystem.
  4. Payment interoperability. Key components of payment ecosystems are what connects various businesses to each other and to end customers. One such connector are applied programming interfaces (APIs), which are technical portals payment providers allow other businesses to connect with and use to make payments. A second connector is how different payment providers send payments to each other and the wider banking system in conjunction with agreement on business rules and the actual offering of products in the market. This is referred to as interoperability. As APIs open up and interoperability is established, more use cases emerge and new business arrangements result.
  5. Compelling use cases. Ultimately, inclusive payment ecosystems must offer compelling solutions. This includes basic payment services from one person to another, from a government to a person, and vice versa, as well as business payments. Other uses include new products such as digital credit and savings or services that provide access to electricity, water, or education that leverage the power of digital payments. Active use of digital payments and the appearance of new services are signs that value is being delivered to end clients. Greater use of payment services also generates revenue for business models and spurs further growth and innovation in the ecosystem.
Photo Credit: Kazi Mushifiq Hossain

These conditions do not come together easily or quickly. All these elements take time to build and work together. Building inclusive payment ecosystems requires sustained effort and even changes in direction as some things fail and others unexpectedly succeed.

CGAP has chosen to focus its inclusive payment ecosystems work in nine countries that were selected based on criteria that included their readiness to begin the journey, the opportunity they presented for CGAP to engage significantly and add value, and their potential for learning things that would be useful to a global audience. The nine countries are India, Pakistan, Bangladesh, Myanmar, Ghana, Tanzania, Kenya, Uganda, and Rwanda.

FY2015 Highlights/Outputs

Enabling regulations for digital financial services were adopted in Ghana and progress was made on new or updated regulations in Myanmar, Bangladesh, and Tanzania.

Governments in India, Ghana, Bangladesh, and Pakistan joined the Better Than Cash Alliance and also took further steps to digitize government payments.

Digital financial services saw significant growth in outreach in Tanzania, Ghana, and Bangladesh. View Infographic