Global Partnership for Financial Inclusion Forum

28 Nov 2017

The Global Partnership for Inclusion (GPFI) Forum has become an annual cornerstone of the GPFI’s activities. At the Forum, the GPFI presents its work to a broader audience, going beyond its members. Usually taking place back-to-back to the GPFI’s plenary meeting, the forum offers a unique opportunity for reaching out and networking. In 2017, the GPFI Forum was hosted on 2-3 May in Berlin by the German G20 Presidency, paving the way to the G20 summit on 7-8 July 2017 in Hamburg, Germany.
The meeting provided a space for exchange and dialogue and attracted around 270 participants from more than 60 countries. In 12 sessions, experts from many different backgrounds reflected on the GPFI’s current priorities. Important stakeholders from G20 and non-G20 countries, from the private sector, from financial service providers and Fintechs, from government agencies and central banks, regulators and development experts gave important inputs that already have affected and will continue to influence GPFI’s scope of work.
The GPFI was created by G20 leaders at the Seoul Summit in 2010. The Partnership is committed to advancing financial inclusion globally by increasing access to and usage of sustainable formal financial services, thereby expanding opportunities to underserved and excluded households and enterprises. Despite a 20 percent increase 2011-2014 in the number of adults with access to formal financial services worldwide, there are still two billion people – more than half of the adult population – and 300 million businesses that are excluded from the formal financial system.
In 2017, the GPFI reviewed and updated its strategy. The 2017 G20 Financial Inclusion Action Plan (FIAP) aligns the work of the GPFI with the 2030 Agenda and the Addis Ababa Action Agenda and addresses the opportunities and challenges for financial inclusion through advances in digitization. These two central themes guided us through the two-day GPFI Forum. Financial Inclusion is a prerequisite for achieving many of the Sustainable Development Goals (SDGs) outlined in the 2030 Agenda. It is about “leaving no one behind”, it contributes to eradication of poverty and inequality, to gender equality and many other SDGs. The new FIAP puts a special emphasis on vulnerable and underserved groups, a focus we reflected on in the sessions dedicated to financial inclusion of youth, people in rural areas, and forcibly displaced persons – gender being a crosscutting theme in several of the discussions. We further wanted to show how financial inclusion contributes to the G20 Partnership with Africa. We were overwhelmed and humbled by the huge interest and great response and by the positive feedback we received from many participants at the forum. Our intention with this brochure is to summarize the main takeaways from the official panel sessions so that subsequent presidencies can refer to and build on the event.

Cashless Cities: Realizing the Benefits of Digital Payments

31 Oct 2017

Cities account for a large proportion of the global population and its economic activity. Today, over half of the world population lives in cities. By 2050, this number will increase to two-thirds. Currently, over 80% of global economic activity takes place in cities and it is expected that the vast majority of future economic growth will come from cities, largely spurred by digital payments.

This study is unique in that for the first time it looks at the net benefits associated with adopting digital payments and does so at the city-level. The assessment is carried out for 100 cities across 80 countries, segmented by stage of digital maturity, with these cities modelled to an “achievable cashless scenario”. This scenario is defined as the entire population moving to digital payment usage equal to the top 10% of the users in that city today. The findings provide compelling support for greater adoption of digital payments.

This study estimates that increasing digital payments across the 100 cities could result in total direct net benefits of US$470 billion per year. On average, these net benefits represent slightly over 3% of a city’s current GDP. Greater economic activity spurred by digital payments also supports higher employment as well as improvements in wages and workers’ productivity. This study also finds that on average, across the 100 cities, increased usage of digital payments could add 19 basis points to a city’s GDP and support over 45,000 additional jobs per year per city, while worker productivity and wages could increase by 14 and 16 basis points per year per city, respectively. To put the GDP growth number in perspective, the 19 basis points increase in economic growth per year across the 100 cities translates to nearly $12 trillion of total additional economic activity over the next 15 years – an amount exceeding China’s 2016 GDP.

2017 UNSGSA Report: Financial Inclusion Transforming Lives

31 Oct 2017

Financial inclusion is now firmly established as a powerful tool to improve lives and strengthen development. Each year, the Secretary-General’s Special Advocate for Inclusive Finance—Queen Máxima of the Netherlands—publishes a report that looks at what financial inclusion has achieved and where it is going.

The report discusses the contribution SMEs have on the economy – half of total employment and a third of the GDP. However, their opportunity for growth is severely limited due to inequities in credit and financing. Suggestions include having a national strategy for inclusive finance and building stronger credit reporting and reforms.

This year’s report lays out three priorities for action that could accelerate our momentum: ensuring development impact, promoting supportive policies for digital financial inclusion, and reaching neglected populations such as farmers, women, and small business people.

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.