Responsible Finance Forum

Achieving Development and Acceptance of an Open and Inclusive Digital Payments Infrastructure – Guidance Note for the G20/GPFI Markets and Payment Systems Subgroup

20 Aug 2018

A report by the Better Than Cash Alliance for the G20 Global Partnership for Financial Inclusion

This guidance note serves as input for the GPFI Policy Guide developed under Argentine Presidency 2018 with the overarching topic of digitization and informality.

Developed for financial inclusion policymakers and payment service regulators, it proposes policy options and practical actions that can help moving toward developing open and inclusive digital payment infrastructures, while also incentivizing the acceptance and use of digital payments.

Endorsed by the G20 finance ministers, the note outlines the role of such infrastructures in the evolving financial services landscape, along with the issues in the establishment and beneficial use of such infrastructures. Additionally, a set of practical options is included to help guide government officials in crafting policies and actions for the progressive development of their national payment infrastructures.

Global Financial Development Report: Bankers Without Borders

20 Jun 2018

Perhaps no sector than banking better illustrates both the potential benefits and perils of deeper international integration. In the wake of the global financial crisis, the globalization trend has been partially reversed, as multinational banks from developed countries—“the North”—have scaled back their international operations. On the other hand, developing country banks continued their international expansion, accounting for 60% of the new entry into foreign markets. In particular, “South–South” transactions— from developing countries to other developing countries—started growing. However, international banking is no panacea for guaranteeing financial development and stability. Recent research suggests that for designing effective policies, it is important to keep in mind differences in bank characteristics and home and host country conditions.

Countries that are open to international banking can benefit from global flows of funds, knowledge, and opportunity, but the regulatory challenges are complex. Encouraging the right type of foreign bank presence or forms of capital flows without causing distortions is challenging. Regulation and supervision of international banking is complex and should involve extensive cross-border coordination. The rise of South-South banking and greater regionalization of banking comes with benefits but also possible risks. Fintech developments may have important implications for the global banking landscape.

Uganda country assessment on affordable and accessible remittances for forcibly displaced persons and host communities

20 Jun 2018

Although the market for providing remittance services to refugees is large, financial service providers have found it difficult to develop a business case for targeting them. The cost of reaching and ensuring liquidity at their remote locations, uncertainty regarding acceptable identification, and limited information about refugees’ needs and abilities have limited the business case, leaving them without access to convenient, low-cost remittance services. As such, many refugees depend on expensive, ad-hoc and, sometimes, risky solutions to overcome legal and logistical challenges to accessing remittance services. There is an opportunity for development agencies to intervene by supporting remittance and financial service providers, and influencing the policy environment to make serving refugees feasible and commercially viable.

The Uganda country assessment provides an overview of the demand, supply and regulatory constraints that FDPs face, especially, when accessing formal remittance channels and present key situation findings and reflections from a diverse set of stakeholders that will support humanitarian and development agencies to determine ways to improve access to affordable and reliable regulated remittance services and offer remittance and financial service providers the insights to assess whether or not there is a viable business case to link remittances to broader financial services such as credit, savings, insurance, or payment.

This publication was originally posted on UNCDF’s website.

The Future of Supply Chains: Why Companies are Digitizing Payments

15 Jun 2018

New report underscores benefits of shifting from cash to digital payments in corporate supply chains.

Drawing on data and interviews with around 40 companies and organizations, the report shows how digitizing supply chain payments is having a profound impact on global businesses, economies and individuals. For example, in Kenya, small Unilever retailers grew sales by 20 percent thanks to accessing digital working capital loans. In Bangladesh, when H&M, Marks & Spencer, Target, Li & Fung, Lindex, Debenhams and Fast Retailing partnered with HERfinance, the number of instances when a woman was unable to save dropped by almost 70 percent.

These companies’ experience underscores why digital payments are a key pillar of a strong business model, and the lessons documented in the report are designed to help other brands know how to get started.

This publication is available on BTCA’s website

Accelerating Financial Inclusion with New Data

25 May 2018

This report—produced in partnership with the Center for Financial Inclusion at Accion and based on in-depth interviews with banks, fintechs, and other actors—examines how new types of data and new data tools present an unprecedented opportunity for financial service providers to better understand and serve clients, especially credit-seeking “thin-file” clients who are otherwise excluded from the formal financial sector. There are many internal and external challenges that providers must address for the promise of new data to be fully realized. From getting the right culture and technical talent in place to engaging with regulators and partners on data sharing and management, there are numerous obstacles to negotiate in capitalizing on the explosion of new data to reach underserved and unserved markets with new commercially viable solutions.

Modelo Peru: A Mobile Money Platform Offering Interoperability Towards Financial Inclusion

25 May 2018

everal emerging markets around the world face numerous challenges in their attempts at increasing their provision of financial services. Beginning in 2015, Peru implemented a strategy called Modelo Peru with the objective of launching a mobile money platform to reach and better serve the unbanked and underbanked. This strategy gathers financial institutions, telecom companies, and the government in an effort to achieve interoperability among these three groups and attain scale and breed competition among e-money issuers.

However, two years after the implementation of the strategy the number and value of transactions has not reached its desired level. Important challenges to succeed include investing in a wider distribution network to better reach the unbanked, and building a strong digital ecosystem that makes the platform relevant and understandable to users. These challenges require better collaboration from all parties involved as well as strong political will. Absent those, mobile financial services in Peru will remain an alternative financial service rather than a tool for financial inclusion.

Digital Access: The Future of Financial Inclusion in Africa

23 May 2018

The launch and growth of digital financial services in Africa has led to an unprecedented increase in the number of people enjoying access to formal financial services. The continent is now home to more digital financial services deployments than any other region in the world, with almost half of the nearly 700 million individual users worldwide. Mobile money solutions and agent banking now offer affordable, instant, and reliable transactions, savings, credit, and even insurance opportunities in rural villages and urban neighborhoods where no bank had ever established a branch.

Asia’s digital banking race: Giving customers what they want

23 May 2018

Asia’s banking customers are migrating to digital channels in force. The challenge for the region’s banks is to deliver superior digital experiences before competitors do.

Smartphones in hand, customers across Asia are changing how they bank, growing more open to exploring and using digital channels for their financial needs. This openness to digital channels will reward those banks that can meet customers’ expectations; but it also represents a challenge to incumbent banks—because customers are also expressing a willingness to bank with non-traditional players such as fintechs and nonbanking payments players. Incumbent banks need a response to this changing landscape if they are to remain relevant and sustain growth.

The insights in this report are based on McKinsey’s Asia Personal Financial Services Survey, which addresses changes in customer behavior, reflecting themes like digital banking and the use of fintechs or nonbanking payments solutions. Conducted every three years since 1998, the most recent survey covered about 17,000 respondents in 15 Asian markets.

Above excerpt from McKinsey’s website.

Biometrics and financial inclusion: A roadmap for implementing biometric identity systems in sub-Saharan Africa

22 May 2018

The World Bank (2017) estimates that 1.1 billion people live without proof of identity. Nearly 50% of these people live in sub-Saharan Africa, where 454 million individuals are excluded from formal identify systems. In Nigeria, 78% of the population or 149 million individuals cannot prove their identity.

Lack of identity documentation varies in its severity as a barrier to exclusion depending on the country, but overall indicates a significant problem for financial services. For example, in Angola, 41% of financially excluded adults cited a lack of documents as the reason for being financially excluded, while in South Africa and Nigeria this figure was 14% and 12% respectively.

But why is proof of identity such a barrier to financial inclusion? The problem is that financial service providers (FSPs) require a multitude of documents to comply with their Consumer Due Diligence (CDD) requirements that many poor people lack access to. This includes basic identity documents with Proof of Address (PoA) tending to be the most problematic.

While consumers are often willing to go to these lengths to get access to a bank account, other solutions are emerging. For example, biometrics. Biometrics is a way to identify individuals based on physical or behavioural traits.

Although a number of studies have explored the potential of biometrics in addressing identity challenges, the adoption and use of biometrics in Africa have been slow and uncoordinated at best. This is confirmed by the gap between the various approaches and the current practices on identity and biometrics.

This note seeks to understand the “biometrics journey” of countries and financial service providers (FSPs) and to help them select and adopt biometric approaches that have a lasting impact on financial inclusion, financial integrity and broader national development objectives.

It discusses the concept of identity and the link between robust identity systems and financial inclusion, highlighting the role that lack of identity plays in facilitating financial exclusion in SSA. It defines biometrics, unpacking the role of biometrics in the identity space and how biometrics can be a strong identifier. It looks at the use cases for biometrics as well as the barriers to the successful implementation of biometric identity schemes in SSA. Lastly, it presents a roadmap for implementing biometric identity in Africa to guide regulators, industry players and donors on how to best go about the process.

This publication is available through Cenfri’s website.

ePRIVACY AND DATA PROTECTION – Privacy Matters: Navigating the New World of Data Protection

21 May 2018

We’ve lost control of our personal data”, Sir Tim Berners-Lee, inventor of the World Wide Web, said in March 2017. The widespread collection of data has led to the rise of data asymmetry and, consequently, consumer trust is low. Some would argue that it has led to the prioritization of profit over privacy. Consumers believe cybersecurity and privacy risks are amongst the biggest risks facing society.[1] The ramifications should not be overlooked by corporates and investors.

In our first Citi GPS report on ePrivacy and Data Protection (Who Watches the Watchers?, March 2017), we highlighted that the focus on data privacy is on the rise and forthcoming changes to regulation in the European Union (this year), will fundamentally alter the risk/reward of using data and, with it, alter the perception of the long-term opportunity from data.

In this follow-up GPS report, with Europe’s General Data Protection Regulation (GDPR) less than a month away, we consider how prepared consumers, corporates, and regulators are for the tightening regulatory landscape. More broadly, we consider what the potential implications could be as we move from an environment where organizations have become accustomed to untrammeled access to data, to one where data minimization and transparency presides, consumers are empowered to take more control of personal data, and organizations are forced to think carefully about their use of data. To investigate this we surveyed those involved in implementing the GDPR across a range of organizations and conducted a series of interviews with industry experts from Telefónica, Schibsted, Zalando, and specialist consultancies.

The majority of companies believe they will have to change how consumer data is used which brings with it rising costs (i.e., of compliance). Trust plays a fundamental role and unless consumers believe the value trade is beneficial, access to personal data could fall as consumers are prepared to use their enhanced rights. The application of the regulation (unintentionally) favors those closest to the consumer and large companies vs. small companies. Murky data supply chains are set to see a shakeout.

Advertising funded models have been one of the key planks supporting the Internet’s development and the online advertising industry appears to be right at the heart of the challenges that regulation presents. As one survey respondent commented: “The range of plausible outcomes includes total destruction of the online ad ecosystem in Europe all the way to a minor blip.”

Companies claim to be well prepared for the EU regulation change. The 25th of May is D-Day, when the regulation will come into effect, but this is not going to be the end of the process. In fact, it may well be the start of a step change in the approach to data protection regulation globally.  We worry corporates and investors are being complacent about the risks.