Geneva, Switzerland, 4 December 2014

Digital Financial Inclusion: CGAP Initiatives on Demand, Supply,

and Enabling Environment

Kathryn ImbodenAdvisory Consultant, CGAP

kathryn.imboden@gmail.com

ITU Workshop on “Digital Financial Services and Financial Inclusion”

(Geneva, Switzerland, 4 December 2014)

What is CGAP?

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We Build Knowledge on issues such as customer needs and

business models

We Strengthen Markets so that promising services

can thriveWe Promote Policies and Regulations that allow services to

expand and reach unbanked populations

Four examples of CGAP initiatives addressing digital financial inclusion

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1. Robust provider ecosystems

2. Digital finance frontiers

3. Digital finance services plus

4. Global policy architecture

Example 1. Robust Provider Ecosystems

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1. Support for ensuring that basic regulatory enablers are in place, including rules governing:

E-moneyAgentsTiered KYCAllowing multiple types of institutions to deploy digital financial servicesConsumer protection

Example 1. Robust Provider Ecosystems

2. Support for government policies and practices that open up pathways to support use of digital payments services

3. Support for building provider ecosystems able to scale low-cost digital payments services

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Robust Provider Ecosystems: country-level work

Countries identified:Ghana, Kenya, Rwanda, Tanzania, UgandaBangladesh, India, Myanmar, Pakistan

Examples of work in progress:GhanaMyanmarInteroperability work

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Example 2. Digital Finance Frontiers

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Digital payments platforms are expanding around the world

As access barriers for payments are solved, other services can be added and delivered

BUT other barriers still exist to actual use of such products

To effectively serve the lower income market, need to address other

remaining barriers

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Low activity ratesWhile access barrier is solved, providers struggle reaching poor with meaningful solutions for everyday problems

Facilitate access close to where people work or live, at affordable cost

Little or no information about customers

Poor have many diverse needs

Low literacy (means difficult to communicate other than verbally)

Little or no trust in providers

Challenges providers face

Digital channel attributes may help address those barriers areas of

exploration for CGAP Attributes of digital channels and potential impact on solutions:

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Digital data trail

Digital data trail

Visibility of transactional data, beyond financial transactions helps providers learn about their customers, inferring characteristics of cash flows for credit scoring, segmentation

Real time interactions

Real time interactions

Two-way messaging creates opportunity to interact with customer at times when is important, delivering information and responding to questions creates confidence and proximity

Digital channel attributes may help address those barriers areas of

exploration for CGAP (con’t)Attributes of digital channels and potential impact on solutions:

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Graphic user

interface

Graphic user

interface

A rich user interface (e.g., involving graphics) helps customers relate more intuitively to financial services, improving understanding of choices, engaging more actively

Instant location

intelligence

Instant location

intelligence

This helps contextualize delivery of certain services such as in-store purchases, event-based insurance; validate KYC profile

Digital channel attributes may help address those barriers areas of

exploration for CGAP (con’t)Attributes of digital channels and potential impact on solutions:

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P2P social connectionsP2P social

connections

Cellphone as a tool helps to manage multiple financial relationships across social connections

Example 3. Digital Financial Services Plus

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Use of digital finance to increase accessibility to basic, essential services and utilities more accessibleFinance as a means to help solve significant development challengesIdentification of services that leverage established infrastructure of mobile paymentsPublic goods researchResearch partnerships

Digital Finance Plus: ExamplePay-as-you-go utilities in East Africa

Leveraging digital finance to deliver modern energy to the poor, sold on a pay-as-you-go basis Designed to be flexible and to fit well with the existing economic realities of the energy poor consumerResearch partnerships with three pay-as-you-go solar providers operating in East Africa

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Example 4. Global Policy Architecture: Digital Financial Inclusion

Digital transactional platforms and additional services they enable introduce new non-bank actors and shift risks among the new entrants and legacy players Key financial regulatory issues: agents, anti-money laundering and countering financing of terrorism (or “AML/CFT”), e-money regulation, consumer protection, payment system regulation, competition (but non-financial issues as well, e.g., USSD channel access) Combining financial & non-financial services calls for collaboration with non-financial regulators and standard setters (e.g., telco ministries & ITU)

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Global Policy Architecture: Digital Financial Inclusion

2nd G20 Global Partnership for Financial Inclusion (GPFI) Conference, Oct. 30 & 31: “Standard Setting in the Changing Landscape of Digital Financial Inclusion,” hosted by Bank for International Settlements (BIS) in Basel:“In the financial inclusion context, the standard-setting bodies . . . need to work together. But when it comes to digital financial inclusion, those represented in this room alone are not likely to cover all of the relevant landscape. In December, for example, the International Telecommunications Union will launch a new Focus Group on Digital Financial Services, and other collaborative forums are likely to emerge.”

Geneva, Switzerland, 4 December 2014 15- Jaime Caruana, BIS Gen. Manager

2014 CGAP Publications on DFS

CGAP blog: “The Seismic Implications of Digital Financial Inclusion [for Standard Setters]”

CGAP Brief: “bKash Bangladesh: A Fast Start for Mobile Financial Services”

CGAP blog: “5 Sources of Untapped Innovation in Digital Finance”

CGAP Focus Note: “Electronic G2P Payments: Evidence from Four Lower-Income Countries”

CGAP paper: “Access to Energy via Digital Finance: Models for Innovation”

CGAP Focus Note: “Serving Smallholder Farmers: Recent Developments in Digital Finance

See www.cgap.org Geneva, Switzerland, 4 December 2014 16