New technologies are rapidly changing the face of finance, breaking up financial services into smaller components digitally delivered by new players. Large retail chains, electronic money issuers and big technology and social media platforms such as WeChat, Apple Pay and Google are entering the financial arena, leveraging the vast amounts of data they harvest from consumers’ online purchases, text conversations or Facebook posts and combining them to deliver new financial services.
While these innovations offer great potential for expanding financial services to larger numbers of people especially the financially excluded, they raise new questions for policy making in an environment that was largely built for banks. Should the newcomers be regulated and supervised and by whom? What rules on market competition apply? How should data privacy be managed? Where is the balance between fostering innovation and protecting consumers? What risks are posed to market stability?
As financial services increasingly become modular, automated, disaggregated and transnational, CGAP believes that policy makers need a new approach. Successful financial inclusion requires a policy and regulatory framework that fosters responsible, inclusive financial systems and one that has the flexibility to adapt to rapid changes. Consumers must view the system as fair and stable, protecting their interests. Businesses must know there is a clear set of rules balancing innovation and stability while fostering appropriate competition and cooperation.
Agents play a crucial role in lowering the cost of delivery to reach the unbanked and underbanked population. An increasing number of countries, especially emerging markets and developing economies, allow a diverse array of banks and nonbank institutions to distribute digital financial services...