Payment Services Directive II (PSD2) for FinTech and Payment Service Providers

29 Sep 2017

The introduction of the Payment Services Directive II (PSD2) will open up the payment services market by regulating the FinTech revolution currently happening on a community level. The EU-wide harmonization of online payments is aimed at increasing the security for payment transactions and account information and creating a level playing field to enhance competition. PSD2 introduces the Third Party Provider (TPP) as a definition to regulate new payment services. Two new types of TPPs are introduced, namely Account Information Service Providers (‘AISPs’) and Payment Initiation Service Providers (‘PISPs’).

Banks are obligated to open up their IT infrastructure to TPPs. Through the initiation of PSD2, innovative payment services companies are enabled to compete with the banks.

Both AISPs and PISPs will have to comply with the regulatory requirements under PSD2 and perhaps also to apply for a license under the PSD2. The PSD2 licensee is allowed to passport this license to other EU/EEA member states (single license regime), which allows them to provide their services in those countries. Without such license, parties qualifying as a TPP are prohibited to offer their services as per January 13, 2018.

Formalization of the governance and the risk management function is critical: a solid risk management framework needs to be designed and set up including a risk appetite statement, risk management policies and procedures, risk reporting and an internal control framework. This requires extensive strategic, risk management, compliance, IT, legal and HR knowledge and expertise.

Taking Blockchain Live: The 20 questions that must be answered to move beyond proof of concept

25 Sep 2017

In 2016, blockchain took giant steps forward in gaining wider acceptance, especially in areas such as cross-border payments and
post-trade in capital markets. However, as Deloitte’s Eric Piscini pointed out earlier this year in CoinDesk, the fear is that if you “poll anyone in the financial services industry, they will likely tell you that the technology is still in need of its break-out moment. If significant headway isn’t made—or real value delivered, whether in cost savings or new revenue generation—by the end of 2017, I suspect the technology will risk developing fatigue in executive suites.” So, despite a unanimous consensus about blockchain benefits, why haven’t we yet seen any use cases go live at scale?

Between Deloitte’s blockchain team—now comprised of more than 800 professionals
across 20 countries—and Blockchain Labs in Dublin and New York, we have developed over 30 proofs of concept (PoCs) and have
designed countless commercialization strategies with clients. We have found that there are 20 essential questions, summarized within Deloitte’s Blockchain Readiness Framework, that must be asked (and answered) to help determine either failure in an abandoned PoC or a successful new technology innovation, thanks to blockchain. By addressing these questions early, the chances of successfully harvesting the benefits of blockchain increase dramatically.

How Fintech is Reaching the Poor in Africa

25 Sep 2017

This note explores the way traditional banks and financial technology companies, or FinTechs, interact in Africa and Asia, and their ability to offer innovative digital financial services that grant unbanked individuals access to financial transactions. The FinTech sector is experiencing explosive growth in both continents, but while Asian banks have managed to efficiently integrate with FinTech solutions, African banks have been slower to adapt to this change. Still, the outlook for mobile banking remains positive, and its prevalence will boost the financial industry in both regions.

Fraud in Mobile Financial Services: Protecting Consumers, Providers, and the System

09 Sep 2017

This Brief highlights how fraud is impacting mobile money providers, agents, and consumers, as well as efforts to reduce risks and vulnerabilities to fraud in mobile money and related services. While it is not possible to remove fraud entirely from any service—mobile money included—the examples addressed here show that fraud is a major issue in several key markets for consumers and agents, and that there are simple steps providers can take to reduce their vulnerability to common fraud types.

These steps include improving internal controls, building agent capacity to protect themselves and their customers, and revisiting procedures such as account access and SIM swaps, where necessary, to prevent common fraud schemes. With the introduction of new products and delivery channels, the types of fraud will continue to evolve, which means that monitoring mechanisms, such as compliance checks and customer feedback channels, will continue to be key elements to effective fraud and risk mitigation.

Building a Secure and Inclusive Global Financial Ecosystem

08 Sep 2017

The 2017 Brookings Financial and Digital Inclusion Project (FDIP) report evaluates access to and usage of affordable financial services by underserved people across 26 geographically, politically, and economically diverse countries. The report assesses these countries’ financial inclusion ecosystems based on four dimensions of financial inclusion: country commitment, mobile capacity, regulatory environment, and adoption of selected traditional and digital financial services.  The report further examines key developments in the global financial inclusion landscape, highlights selected financial inclusion initiatives within the 26 FDIP countries over the previous year, and provides targeted recommendations aimed at advancing financial inclusion.

How Financial Institutions and Fintechs Are Partnering for Inclusion

01 Sep 2017

This report—produced as a partnership with the Institute of International Finance (IIF) and the Center for Financial Inclusion at Accion (CFI), along with technical advisory support from IFC and funding from MetLife—examines how partnerships between mainstream financial institutions (e.g., banks, insurers, and payment companies) and fintechs are addressing financial inclusion challenges and expanding access to the formal financial economy for underserved segments of the global population, particularly in emerging markets. It incorporates insights from 24 in-depth interviews with people at the frontlines of this innovation and highlights 14 partnerships focused on financial inclusion. Contrary to the popular narrative, financial institutions view fintechs as partners in innovation, not threats to their core business. By offering better, less expensive, and more innovative products, financial institutions can assert their continued relevance as customer-facing institutions with help from fintech partnerships.

Consumer Protection in Digital Credit

30 Aug 2017

Digital credit is a fast-growing phenomenon in many emerging markets. These tiny loans are having a large impact, allowing millions of low-income consumers to borrow money with just a few taps on a phone menu or clicks on an app screen. But digital credit also raises serious consumer protection concerns. Will borrowers really think through their decisions to borrow or just borrow on impulse because access is easy and payment instant? Do we really know enough about consumers to make sure we are sending the right offers to the right borrowers, and not encouraging reckless borrowing? Are we okay with loans that have annual interest rates above 100 percent?

This publication presents both the consumer protection risks and the opportunities for improved consumer use of digital credit. There is not enough being done to implement minimum standards in consumer protection for digital credit, and this exposes the industry and consumers to risks such as credit bubbles and mass-blacklisting of consumers in credit bureaus for just a few dollars of debt. Yet there is also a growing number of providers that are developing innovative new approaches to consumer protection for digital credit products. This Focus Note highlights evidence from CGAP experiments with a diverse range of digital credit providers, and provides clear and direct evidence that consumer protection is not only the right thing to do, but often a wise business decision.

This publication was originally published by CGAP.

Financial Stability Implications from FinTech

30 Aug 2017

Technology-enabled innovation in financial services (FinTech) is developing rapidly. With its emergence, there will be both opportunities and risks to financial stability that policymakers, regulators, supervisors and overseers should consider. This is particularly important as many innovations have not yet been tested through a full financial cycle, and decisions taken in this early stage may set important precedents. Policymakers should continue to assess the adequacy of their regulatory frameworks as adoption of FinTech increases, with the objective of harnessing the benefits while mitigating risks. In this regard, the German G20 Presidency, as part of its focus on digitalisation, has suggested that the Financial Stability Board (FSB) build on the monitoring to date and identify supervisory and regulatory issues of FinTech that merit authorities’ attention from a financial stability perspective.

Currently, any assessment of the financial stability implications of FinTech is challenging given the limited availability of official and privately disclosed data. It will be important to take into account materiality and risks in evaluating new areas. It will also be important to understand how business models of start-ups and incumbents, and the market structure, are changing.

To draw out the supervisory and regulatory issues of FinTech, the FSB developed a framework that defines the scope of FinTech activities and identifies the potential benefits and risks to financial stability. It provides a basis on which future analysis and monitoring can be made. As most FinTech activities are currently small compared to the overall financial system, the analysis focuses on conceivable benefits and risks. Nonetheless, international bodies and national authorities should consider taking FinTech into account in their existing risk assessments and regulatory frameworks in light of its rapid evolution. Indeed, many authorities have already made regulatory changes to adapt to FinTech activities.

Paving the Way for Digital Financial Services in Jordan

30 Aug 2017

CGAP engaged DMA to research the Jordanian remittances market to inform development interventions and pilots aimed at improving access to financial services for low-income Jordanians and Syrian refugees living in Jordan, leveraging international remittance flows into and out of the Kingdom.

Research took place between April and September 2016 and focused on assessing the supply of services for both the domestic and international payments market. Using the Committee on Payment and Settlement Systems (CPSS)-World Bank General Principles for International Remittances, a general assessment was completed on the market structure, regulatory and competitive environment, transparency and consumer protection. A detailed analysis of eight corridors, selected based on their size and potential for digitization, was also completed to assess the viability of launching a digital pilot in one of these corridors to test an end-to-end digital solution for international remittances. The five inbound corridors were from the UAE, Saudi Arabia, Qatar, the United States, and Germany to Jordan; three outbound corridors were from Jordan to Egypt, Palestine, and the Philippines.

The main findings are as follows. In the domestic market, the innovative new payments system of JoMoPay sits alongside a highly cash-based society. While the infrastructure and regulatory framework are sound and offer the potential for the rapid uptake of mobile payments, a concerted effort is needed to drive this uptake, both from a consumer and a service provider perspective. Consumer protection also needs to be addressed in the near term.

Opportunities and Risks in Digital Financial Services: Protecting Consumer Data and Privacy

31 Jul 2017

Responsible digital finance has continued to be a cross-cutting priority of the G20 Global Partnership for Financial Inclusion (GPFI) since 2014. A cornerstone of the Universal Financial Access (UFA) goals of the World Bank Group by 2020, responsible digital finance also seeks to help achieve the United Nations’ Sustainable Development Goals (SDGs) by 2030.

Representing the G20 Presidency in 2017, Germany heightened the importance of digitization, and the topic of data protection/privacy and security was embraced by key implementing partners and all four Sub-Groups of the Global Partnership for Financial Inclusion.

The Responsible Finance Forum (RFF VIII) in Berlin focused on Opportunities and Risks in Digital Financial Services: Protecting Consumer Data and Privacy. The event probed more deeply into the dimension of the G20 High Level Principles for Digital Financial Inclusion (G20 HLP), endorsed under China’s G20 Presidency in 2016.


Access Key Takeaways


This year, the Forum delved into the following areas:

Identifying opportunities, risks, and policy approaches needed to address data-enabled digital financial services (DFS). The Forum provided participants with the opportunity to discover the perspectives of diverse stakeholders, for example, retail providers, FinTechs, regulators, policy makers, consumer advocates, development partners. Discussions revolved around how to most effectively address the risks and opportunities of DFS as the basis for identifying common ground, and defining the roles and responsibilities for each stakeholder profile.

Unpacking big data innovations and the role of industry. The question of how various stakeholders (for example, industry, financial providers, FinTechs, banks, Mobile Network Operators, and so on) can acknowledge and respect consumer privacy while simultaneously advancing innovation and inclusion, was explored during the Forum’s meetings.

Translating insights into action. Focus Sessions captured participant insights and priority actions across four areas: Policy and Regulation, Industry Standards, Consumer Perspectives, and Development
Partners. These areas were addressed in relation to issues of privacy and data protection as linked to digital financial services. Remaining gaps in these focus areas were noted, particularly from the various stakeholder perspectives and roles.

Focus on shared goals and forging partnerships in moving forward. With increasing digitization, members of the G20, GPFI, and all stakeholders must promote measures that ensure responsible financial inclusion as applied to digital financial services.

We hope this report will serve as a call for action that will resonate among Forum participants and beyond. We invite new and ongoing partners to join us and stay engaged in advancing responsible digital financial inclusion.


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