With the prospect of reaching billions of new customers, banks and nonbanks have begun to offer digital financial services for financially excluded and underserved populations, building on the approaches that have been used for years to improve access channels for those already served by banks and other financial institutions. Innovative digital financial services involving the use of mobile phones have been launched in more than 80 countries (GSMA 2014).1 As a result of the significant advances in the accessibility and affordability provided by digital financial services, millions of poor customers are moving from exclusively cash-based transactions to formal financial services. The benefits of this development include economic growth and stability, both for the customers and for the economies where they and their families reside. However, the use of digital financial services by formerly excluded customers brings not only benefits but also risks, due in part to the characteristics of a typical poor customer (inexperienced with formal financial services and unfamiliar with consumer rights). Some of the risks are new while others, although well known, may take on different dimensions in the financial inclusion context.
This Brief aims to provide national and global policy makers with a clear picture of the rapid development of digital financial services for the poor and the need for their attention and informed understanding. It proposes a concise definition of “digital financial inclusion” and summarizes its impact on financially excluded and underserved populations; outlines the new and shifting risks of digital financial inclusion models that are significant to regulators, supervisors, and standard-setting bodies (SSBs); and concludes with observations on digital financial inclusion issues on the policy-making horizon.