<a href="/bio/eric-noggle">Eric Noggle</a> and <a href="/bio/tess-johnson">Tess Johnson</a> are participating in <a href="https://id2020.org/summit/2019-id2020-summit">ID2020 Summit 2019</a> along with stakeholders from across the digital ID ecosystem, including government leaders, technologists, civil society advocates and development organizations. Hosted by the ID2020 Alliance, this year's summit offers an opportunity to take stock of progress, evaluate our individual and collective roles in advancing good digital ID, and ensure alignment on key priorities.

Eric Noggle joins a panel, <em>Cities Driving Innovation in Good ID</em>, alongside speakers from the Open Society Foundations and the cities of New York, NY and Austin, TX.

The ID2020 Alliance was launched in 2017 to accelerate access to user-centric, privacy-protecting and portable digital ID -- and to do so through sustained, transparent public-private partnership. This year's summit will include intimate, candid discussions on:
<ul>
 	<li>Taking stock of progress and failings towards user-centric, privacy- protecting and portable digital ID</li>
 	<li>The heightened urgency of our work, particularly when increased interest in closing the ID gap - through any means - may be outpacing the #GoodID movement</li>
 	<li>The roles for regulators, market-based approaches, and funders in protecting privacy and spurring the adoption of user-centric, privacy- protecting and portable digital ID. The route from #GoodID to widespread adoption of digital ID solutions that meet - or exceed - our standards for “good”?</li>
 	<li>Trends towards decentralization in national ID programs and cities as catalysts for “good” digital ID</li>
</ul>

ID2020 Summit 2019

North America

United States

Enabling Environment

Policy, Regulation and Government Initiatives

Event

Earlier this month<a href="http://cfi.accion-staging.flywheelsites.com/the-next-cfi-challenge-financial-inclusion-for-sustainable-development/"><sup>[1]</sup></a>, we announced that <a href="https://content.centerforfinancialinclusion.org/people/mayada-el-zoghbi/">Mayada El-Zoghbi</a> is joining us as the new Managing Director of the Center for Financial Inclusion at Accion (CFI). Mayada is known for her extensive research in – and advocacy for – financial inclusion. As CGAP’s Lead for Strategy, Research &amp; Development, she coordinated CGAP’s strategy development and its research on women’s financial inclusion, financial services in crisis environments, and other emerging topics.

Prior to CGAP, Mayada founded and managed a development consulting firm, led numerous technical assistance, evaluation, and research assignments, served as a research director for a USAID initiative, helped develop several financial institutions, and lectured at Columbia's School of International and Public Affairs (SIPA).
<h4>CFI: What sparked your passion for financial inclusion, and what continues to propel it as you assume your new role at CFI?</h4>
<strong>Mayada</strong>: After graduating from college, I went to Morocco on a research fellowship with a program called Minnesota Studies in International Development (MSID). I lived both with a family in Rabat and spent a month in a rural community doing survey work on a rural credit research project with a professor from the Agronomy Institute in Rabat. This experience piqued my interest in financial services.

The project in Morocco was clearly not good practice and I was interested to learn more about what works. I decided to go back to graduate school to learn more about it, so I studied at SIPA. It was during a course on microenterprise development, taught by Heather Clark, who was heading UNCDF at the time and who is now a dear friend, that I knew for sure that this was a field that combined all of my interests in business, financial services, and sustainable development. Most importantly, it aligned with my social values.

The inclusive finance field has expanded so much beyond my initial exposure to an agricultural loan program in rural Morocco. The many ways in which this sector continues to evolve and expand is what continues to draw me in. I’m especially excited by our ability to shape responsible growth of the industry, and the role that organizations like CFI have in guiding both public and private sector actors in inclusive finance.
<blockquote>I’m especially excited by our ability to shape responsible growth of the industry.</blockquote>
<h4><strong>CFI</strong>: Why did you choose to join CFI? What about CFI resonated with you?</h4>
<strong>Mayada</strong>: I’ve worked on inclusive finance from many angles: managing institutions in the field, supporting donors on their strategies, conducting research, providing technical assistance to providers and other stakeholders. All of these experiences have been rewarding, but perhaps the role that I’ve enjoyed the most is thought leadership. I’ve been fortunate to do that at CGAP for the past 10 years.

With its convening power, independence, and ability to influence the private sector, investors and the broader inclusive finance community, CFI is unique. Its position as an independent think tank with deep expertise in consumer protection and a strong advocacy platform representing people living in poverty makes it an extremely compelling platform for me personally. At a time when digital platforms represent transformative opportunities to serve the poor and present serious risks for those who are the least able to withstand those risks, there’s no denying that a laser focus on consumer protection has to be front and center. Ensuring that the digital economy evolves in a way that’s both inclusive and protective is critical, and I believe that CFI is well positioned to lead the industry in such a way as to make that a reality.

Q and A with Mayada El-Zoghbi, CFI’s New Managing Director

Consumer Protection

Responsible Digital Finance

Rural Populations

Underserved Groups

Women

Blog Post

What counts as financial inclusion? Reporting the number of active accounts in a country is a common way to measure progress in financial inclusion. But as access to, and uptake of, accounts increases, we need more powerful indicators to help us understand the dynamics of how people use financial services, and digital financial services in particular.

At <a href="https://i2ifacility.org/">insight2impact</a>, we’ve spent the last four years exploring these questions and have tested our measurement frameworks and emergent indicators on both demand-side survey data and transactional data in Mexico and Nigeria. We also went further by linking the data sets for the same person to analyze a more complete picture of people’s financial lives, both within and outside of formal financial services. What we found was both curious and transformative for our thinking on how we measure financial inclusion.
<h2>Frequency as a Means to Track Digitization</h2>
The first step to financial inclusion is <a href="http://www.worldbank.org/en/topic/financialinclusion/overview">having access to a transactional account</a>. If I choose to take up an account, I’m able to store money or send and receive payments, but if I use my account very rarely, am I still financially included? Maybe I receive a payment and immediately withdraw it all at an ATM. What if all the transactions I need to do can only be done in cash?

Analyzing frequency of usage gives us an indication of how populations are (or aren’t) switching to digital channels for transacting. We analyzed bank transaction data in Mexico to better understand financial service usage patterns. Debit-card usage by customers was relatively high, with 78 percent using their cards weekly, but 60 percent of monthly card usage occurred at ATMs to withdraw cash, not for purchases via POS or online. The frequency of ATM vs non-ATM card usage paints a more realistic picture of digitization in Mexico. It’s a picture of incomplete digitization, with cash remaining central for most people.

Secondly, we linked the transaction data to survey responses to compare people’s online vs offline transaction behavior. This revealed that most people still use cash for their regular expenses, even if they have a bank account. The graph below shows both banked and unbanked people’s cash usage for regular expenses such as rent and bills, and daily expenses such as groceries and transport. Cash was ubiquitous, regardless of gender, socio-economic segment or account ownership. By only counting the accounts, we would miss the scale of non-digital financial lives.

Counting More than Accounts: What Can Frequency of Transactions Tell Us About Financial Inclusion?

Latin America and The Caribbean

Mexico

Nigeria

Sub-Saharan Africa

Access Usage Gap

Data Analytics

Financial Capability

Financial Technology

Payments

Personal Financial Management

As recently as 2011, more than <a href="https://globalfindex.worldbank.org/">2.5 billion adults globally</a> did not have a formal financial account. Since then, an astonishing 1.2 billion adults have obtained an account with a bank or mobile money service, representing great strides in escaping poverty and boosting prosperity. Progress has been most notable in <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2019/07/GSMA-Sub-Saharan-Africa-SOTIR-presentation.pdf">Sub-Saharan Africa</a>, where account ownership increased from 23 percent in 2011 to 43 percent in 2017. This great achievement can be attributed in large part to the incredible growth of mobile money.

Mobile money has emerged as the mainstay of financial inclusion in Sub-Saharan Africa. According to the latest <a href="https://globalfindex.worldbank.org/">Findex</a> report, the share of adults with a financial institution account (excluding mobile money) across Sub-Saharan Africa has risen by a modest four percentage points between 2014 and 2017, while the share with a mobile money account has grown twice as fast, increasing by nine percentage points. With 21 percent of adults in the region having a mobile money account, Sub-Saharan Africa is the global leader in the use of mobile money. This finding is confirmed by the GSMA’s own <a href="https://www.gsma.com/mobilemoneymetrics/">supply-side data on mobile money</a>, which shows that Sub-Saharan Africa <a href="https://www.gsma.com/mobilefordevelopment/africa/sub-saharan-africa-the-enduring-epicentre-of-mobile-money-part-1/">remains the epicenter</a> of mobile money.

What has underpinned this success? Regulation calibrated to enable low-cost services for the financially excluded has been crucial. In fact, we’ve found a clear correlation between countries in the region with high mobile money adoption rates and those with <a href="https://www.gsma.com/mobilefordevelopment/programme/mobile-money/introducing-the-mobile-money-regulatory-index-an-interactive-tool-to-measure-the-effectiveness-of-mobile-money-regulatory-frameworks/">more enabling regulatory environments</a>. Industry leaders in these markets adopted a myriad of strategies to drive adoption of mobile money services, but the successful strategies shared some fundamental business characteristics. The most foundational characteristic was investment in building a robust agent distribution network – a powerful model for extending the reach of financial services – which both disrupts and complements traditional “brick and mortar” banking. Mobile money agents across the region are more prevalent than any other channel, with approximately 60 agent outlets per 1,000 sq km, compared to only one bank branch and two ATMs in the same space.
<blockquote>Regulation calibrated to enable low-cost services for the financially excluded has been crucial.</blockquote>
Remarkably, and contrary to predictions, there has been a shift away from using cash toward digital payments. Across the region, people are increasingly using mobile money in diverse ways, extending beyond basic use cases such as person-to-person (P2P) transactions and airtime top ups. Today, millions of consumers are using mobile money in their daily activities: paying for children’s school fees, accessing loans to invest in their farming activities, saving for the financial future of their household, and mitigating financial risks and shocks. Innovative partnerships between mobile network operators and banks, MTOs, governments, and businesses have played a key role in digitizing payments and formalizing the economy across the region. Orange, for instance, has established partnerships with governments to offer a range of person-to-government (P2G) payments via mobile money across <a href="https://www.gsma.com/mobilefordevelopment/resources/championing-a-unified-digital-person-to-government-p2g-payments-strategy-lessons-from-orange-p2g-payments-in-africa/">five of its operations</a> in West and Central Africa (Senegal, Burkina Faso, Côte d’Ivoire, Cameroon and DRC). Another example is the partnership between PayPal and Safaricom, enabling users in Kenya to securely transfer funds between PayPal and M-Pesa.

Despite this progress, there is still a sizeable opportunity to further digitize the economy to drive efficiency and transparency, and to convert informal cash and non-financial assets into the formal financial system. This is where the shift towards a “<a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2019/02/Embracing-payments-as-a-platform-for-the-future-of-mobile-money.pdf">payments as a platform</a>” business model will have a demonstrable impact, not only in growing the ecosystem and incorporating more partners into the mobile money platform, but also in terms of deepening engagements with individuals and businesses. Industry-wide initiatives will also play a central role in driving the digitization of more complex use cases such as merchant payments and international remittances. <a href="https://www.gsma.com/mobilefordevelopment/uncategorized/unlocking-mobile-money-interoperability-and-merchant-payments-across-africa-through-mowali/">Mowali</a>, a joint venture between Orange Group and MTN Group to enable interoperable payments across the African continent, is a great example of industry collaboration enabling customers to seamlessly transact across borders.
<h2>Challenges Ahead</h2>
Sub-Saharan Africa has come a long way in the past decade, but there are still strides to be made in certain markers, and across the wider African continent. Africa’s three most populated countries, Nigeria, Ethiopia and Egypt – home to a combined adult population of over 242 million – have low rates of financial inclusion (below 40 percent) and limited availability of mobile money services. All three markets have had unfavorable conditions for mobile money uptake. We anticipate that recent reforms in these markets could spark a wave of adoption with the potential to unlock over 110 million new mobile money accounts in the next five years, offering a financial future to millions of previously financially excluded people.

Micro, small and medium-sized enterprises (MSMEs) play a major role in economic development across the region. According to the IFC, MSMEs account for roughly <a href="https://www.ifc.org/wps/wcm/connect/2c6289c3-df5e-4f90-b910-2a04e1000922/IFC+SME+Ventures+Final+low+res+30+Nov+2018.pdf?MOD=AJPERES&amp;CVID=mtQwg2S">90 percent of all businesses</a> across Sub-Saharan Africa, and contribute to 78 percent of the region’s employment. Despite this, financial institutions are not currently meeting the majority of MSMEs’ financial needs across the region. We see a huge opportunity for mobile money providers to bridge this gap and offer solutions that can help MSMEs with day-to-day management of their business and financing needs.
<blockquote>Mobile money providers can offer solutions to help MSMEs with day-to-day management of business and financing needs.</blockquote>
Over the course of the next decade, a dramatic rise in mobile internet usage and smartphone adoption is expected in Sub-Saharan Africa. This growth, alongside the shift to “payments as a platform” model, will empower millions of young entrepreneurs, innovators and small businesses to maximize new income generation opportunities and gain new skills. Increased access to financial services is a cornerstone of prosperity, and the future for financial inclusion in Sub-Saharan Africa holds much promise.

<em>Learn more by checking out GSMA's <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2019/07/GSMA-Sub-Saharan-Africa-SOTIR-presentation.pdf">State of the Mobile Money Industry in Sub-Saharan Africa</a> presentation.</em>

Sub-Saharan Africa Mobile Money: Diverse Use Cases, Enabling Environment Boost Adoption

Agent Banking

Credit

Delivery Channels

Mobile Banking

MSME/SME Finance

Fintech investment and growth are occurring in relatively limited areas and for a handful of high-profile companies. Enabling regulatory environments and well-informed investment flows are prerequisites to realizing the potential of fintech to achieve scale and impact. On October 23<sup>rd</sup>, as part of SAM 2019, <a href="/bio/boubacar-diallo">Boubacar Diallo</a>, Senior Africa Advisor, Smart Campaign, will present on a panel entitled <em>Fueling Fintech: Regulations and Investment for Scale and Impact</em>.

Key Questions
<ul>
 	<li>What examples do we have of successful legislation and investment environments to promote fintech development, and how can other markets replicate these successes to pave the way to more diverse and durable growth of digital financial services?</li>
 	<li>How can investors better evaluate investments with regard to the SDGs?</li>
</ul>
<a href="https://www.ada-microfinance.org/en/presentation-sam-2019">African Microfinance Week</a>/Semaine Africaine de la Microfinance (SAM 2019) is a biennial conference dedicated to the development of financial inclusion in Africa. The <a href="/about/what-we-do/the-smart-campaign/">Smart Campaign</a> will participate in this year’s conference, taking place October 21-25, 2019 in Ouagadougou, Burkina Faso, on the theme “Pathways Toward Impact: African Inclusive Finance for the Sustainable Development Goals.”

More details to come. Hope you can join us.

African Microfinance Week (SAM 2019)

The Smart Campaign

Burkina Faso

Financial Service Providers

Fintechs

Impact Investing

As readers of CFI reports and blog posts, you’ve probably noticed that we’ve been paying a lot of attention to “<a href="https://www.centerforfinancialinclusion.org/getting-data-right">getting data right</a>” over the last few months. We aren’t just hitching our wagons to the latest tech news trends. Data breaches can and do have negative impacts for vulnerable, underserved populations in developing countries. Those seeking access to financial tools and products to improve their lives, whether it’s starting a family business or sending their children to school, need safe and reliable digital financial services, and many financial inclusion practitioners would greatly prefer to focus on growing their markets and not have to worry about cyberthreats.

In January, our Managing Director, <a href="https://www.centerforfinancialinclusion.org/bio/elisabeth-rhyne">Elisabeth Rhyne</a>, wrote about how <a href="https://www.centerforfinancialinclusion.org/consumer-harm-from-data-breaches-is-a-black-box">hard it is to find public information</a> documenting the consequences of data protection shortcomings, their frequency or severity.

Following up on that post, Andriana Moskovska, a tech blogger and contributor, sent us a detailed infographic that can help non-expert readers wrap their heads around the ways data breaches work and how many people they affect. The infographic documents the <a href="https://hostingtribunal.com/blog/biggest-data-breach-statistics/">biggest breaches</a> over the past few years – the tip of the iceberg in terms of the absolute number of incidents.

What does this mean for the future financial inclusion? Are laws and technologies adequate to contain the threats? How can we protect both financial service providers and their customers?

Check out the infographic below, which <a href="https://hostingtribunal.com/blog/biggest-data-breach-statistics/">originally appeared</a> on <a href="https://hostingtribunal.com/">Hosting Tribunal</a>, a website that reviews and ranks hosting sites and receives support from affiliate marketing. Let us know what you think!

<img class="wp-image-35345 size-full aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/05/infographic-data-breaches-1.png" alt="" width="990" height="24754" />

Infographic: “75 Records Compromised Every Second”

Challenges and Crises

Fraud

Fueled by algorithms and software to assess credit worthiness, the financial technology industry’s growth has been such that regulators in the United States and elsewhere are <a href="https://www.ft.com/content/ae6a1186-9a2f-11e8-9702-5946bae86e6d">exploring ways for these companies to test new products</a> and innovate faster without jeopardizing the health of the financial system.

At the same time, however, there are <a href="https://www.americanbanker.com/opinion/occs-fintech-charter-is-a-mistake">calls from the traditional financial service sector</a> (especially community banks) to subject these companies to the same level of regulatory scrutiny banks face, while <a href="https://www.pymnts.com/news/b2b-payments/2018/bis-fintech-credit-business-p2p-lending/">questions</a> continue about their potential risk to the financial system.

In such an environment, it would be a big mistake for fintech companies to maintain a low profile and focus solely on delivering value to their customers and the financial institutions they partner with. Political risks, as well as opportunities, must be factored in.
<blockquote>It would be a big mistake for fintech companies to maintain a low profile and focus solely on delivering value to customers and partners.</blockquote>
Lawmakers responsible for oversight of the financial services sector have <a href="https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=401750">made it clear</a> that one of their priorities will be issues they consider to be critically important for the economic well-being of Americans. This includes encouraging what they consider “responsible innovation in financial technology,” as well as promoting diversity and inclusion in the sector. Given the heightened scrutiny on the industry from Capitol Hill, fintech companies should be actively seeking out opportunities to engage with key stakeholders in Washington, D.C. to demonstrate why their endeavors should be encouraged, not hindered.

The Federal Deposit Corporation’s 2017 <a href="https://www.fdic.gov/householdsurvey/2017/2017report.pdf">National Survey of Unbanked and Underbanked Households</a>, a report assessing "Americans’ access to safe, secure, and affordable banking services," is an example of a perfect educational opportunity.

The report notes that 18.7 percent of U.S. households were “underbanked” last year, meaning they had an account at an insured institution but also tapped alternative financial services such as: money orders, check cashing, international remittances, payday loans, refund anticipation loans, rent-to-own services, pawn shop loans, or auto title loans.

Many of the above options come with double or triple-digit interest rates, and that is one reason U.S. regulators have encouraged banks, rather than unregulated providers, to <a href="https://www.occ.gov/news-issuances/news-releases/2018/nr-occ-2018-51.html">make more small-dollar loans</a> to customers.

The FDIC report presents a great opportunity for fintech companies, in conversations with lawmakers, regulators, and media, to underscore the key role the industry plays in making loans to under-served borrowers and communities ignored by traditional banks - and without the predatory terms common in payday and title loans. As the report notes, the majority of households using alternative financial services were in a less-advantaged group: low-income, less-educated, younger, black and Hispanic, disabled, and with volatile income.

For banks to offer small-dollar loans to these customer segments in a cost-effective manner will require partnerships with technology firms. Fintech companies can provide access to a broader range of data and analytics, potentially helping banks to serve more consumers responsibly. Richard Cordray, the former director of the Consumer Finance Protection Bureau (CFPB), recently <a href="https://www.fastcompany.com/90318224/now-wanted-by-equifax-and-other-credit-bureaus-your-alternative-data">noted</a> how "alternative data from unconventional sources may help consumers who are stuck outside the system build a credit history to access mainstream credit sources."

Additionally, point-of-sale lending is popular with younger borrowers, who are reluctant to take on credit card debt, but are comfortable borrowing for specific purchases. Point-of-sale lending is being fueled by fintech firms, such as Affirm and GreenSky, which have the necessary technology and also relationships with thousands of merchants. They can connect banks with borrowers.

Point-of-sale loans are an important driver of consumer loan growth for banks at a time when many are cutting back on auto lending activity and demand for home equity loans has declined. Smaller, community banks, especially, can become overexposed to specific market segments, particularly commercial real estate. Offering these types of personal loans helps to diversify their risk.

Furthermore, U.S. retail banks <a href="https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/49360224">are closing branches</a> at the fastest rate on record – 1,947 in 2018 alone – as consumers continue to migrate to online and mobile banking options. Clearly, the future of banking is the internet, and community banks need to partner with fintech firms to keep up with the large Wall Street banks. More to the point, without fintech partnerships, many community banks may go out of business, creating banking deserts that would be a significant blow to greater financial inclusion.

An excellent example of community banks using fintech to compete with the big banks is <a href="https://globenewswire.com/news-release/2018/02/07/1335463/0/en/Radius-Bank-Mantl-Launch-New-Digital-Account-Opening-Platform.html">Radius Bank</a>, a $1 billion asset institution in Boston, which is <a href="https://www.americanbanker.com/news/fintech-partnerships-can-work-see-radius-bank">establishing long-term relationships</a> with fintech providers, and is finding them to be mutually beneficial. The bank is serving more customers, and standing out from the crowd by partnering with technology firms. The bank is trying to become the Amazon of banking, but according to the article, "It's hard for banks to reach Amazon-like levels of usability on their own."

Many U.S. lawmakers have been vocal about their desire to end predatory lending practices, and fintech companies (and businesses more generally) need to aggressively seize opportunities such as these to show how they are part of the solution.

<em>Image Credit: <a href="https://www.flickr.com/photos/ponyrojo/5637105898/in/photolist-9A8Dc1-2dkvzjP-bp9LdB-96Ht48-27CpeT9-4vhcKu-7EuRys-9KyKpy-5ZUyW1-8m4vvW-64LqPo-hqLSF-2beKjsV-SP3mQu-roCJtM-9i41MQ-6i2uAC-84xWrA-29RVSQ-8hJ4zN-7iRxSm-P3c5Y-c54Cjs-21dQrj1-9gAKEo-92AuVC-gMXTWR-4DbgiZ-5Gp5GJ-hqLQP-huPt-5x3P5Q-cDPYro-7wL6oK-5jPeF5-4NGwPF-rNw91C-hNRXw-64fGf6-ZdSeUE-ahPTgp-9vk1JA-2bQq4PY-JrFe1G-ohepF-9s5tkC-6JTkec-64rPAo-9cHsn3-ifNojx">pony rojo</a> /  <a href="https://creativecommons.org/licenses/by-nc/2.0/">CC BY-NC 2.0</a></em>

Seizing Opportunities for Proactive Public Policy Engagement on Fintech

Digital Financial Services

Payday Loans

<h2><strong>Panel Discussion</strong></h2>
There is a strong push on the part of card companies and some merchants to eliminate cash in retail, citing reduced transaction times, crime, and worker headcount. But could cashless commerce deprive millions of unbanked customers from access to food and other goods and services? States and municipalities are starting to push back with proposals to restrict cashless commerce in New York City, New Jersey, Philadelphia and San Francisco. We’ll use this latest skirmish as a starting point for a discussion on the ongoing battle for financial inclusion. What is the current status of efforts to provide financial services to the unbanked? Will mandating the acceptance of cash help or hurt these effort?

<b>
Moderator:</b>

Andy Lorentz, Partner, Davis Wright Tremaine LLP

<b>
Panelists:</b>
<ul>
 	<li style="text-align: start">Matthew Homer, Consumer Data Access, Control, and Portability, Plaid</li>
 	<li>Devina Khanna, Manager, Center for Financial Services Innovation</li>
 	<li style="text-align: start">Eric Noggle, Senior Director, Research, Center for Financial Inclusion at Accion</li>
 	<li style="text-align: start">Leon Perlman, Founder and head of the Digital Financial Services Observatory at the Columbia Institute for Tele-Information, Columbia University</li>
</ul>
<strong>
Registration </strong>
https://www.nypay.org/event/your-moneys-no-good-here-progress-and-pitfalls-in-cashless-commerce/

&nbsp;

&nbsp;

Your Money’s No Good Here: Cashless Commerce vs Financial Inclusion

Credit/Debit Cards

Trends

In the run-up to elections this year in Uruguay, an unusual petition has been circulating in cities and villages across the country. It’s a call for a plebiscite against “mandatory financial inclusion.”

Uruguay’s current government, the leftish <em>Frente Amplio</em>, has been energetically pursuing financial inclusion for the past several years, putting in place new banking laws that support the use of electronic payments, among other measures. This systematic approach to installing a regulatory framework for financial inclusion earned Uruguay a top ranking in the Economist Intelligence Unit’s <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">2018 Global Microscope</a>, which rates the quality of the regulatory and institutional environment for financial inclusion. Uruguay placed third out of 55 countries, a <a href="https://www.centerforfinancialinclusion.org/uruguay-leaps-9-spots-in-the-global-microscope-rankings">dramatic increase from its previous ranking</a>.

But Uruguay’s government may have been too eager.

Its recent changes to the banking law require all businesses to accept electronic payments and convert payrolls to electronic form. These provisions have been justified publicly largely in the name of crime prevention. Once a very safe country, the incidence of robbery and burglary has been growing, especially in the capital, Montevideo, and many Uruguayans point to the influence of drug money on criminal activity. ATMs have attracted their share of criminal attention: thieves go on weekend sprees to pull ATMs out of walls with pickup trucks, confiscating the cash (or perhaps it’s only an urban legend). This concern prompted banks to place most of their ATMs inside well-protected enclosures.

A first government move to reduce cash was the provision that gas stations could only accept electronic payments after a certain time at night, which was seen as a reasonable security precaution. But this has now been followed by the mandatory provisions mentioned above. And it’s clear that governmental motivations go beyond physical security to increased ability to monitor illicit economic activity and, very importantly, an increased tax base.
<h2>Plebiscite Petitions</h2>
Much of the population is unprepared to operate electronically, however, especially in the interior of the country. In a surprising move, merchants and small businesses, including those operating in provincial areas where ranching is the economic mainstay, are banding together to resist. These merchants and various politicians have created two petitions which seek to overturn the mandatory previsions of the banking law through a referendum. If one of the petition garners 260,000 signatures, a referendum must be held, as the gentlemen in <a href="https://www.facebook.com/noalabancarizacionobligatoria/videos/2306663086248516/">this eloquent video</a> explains (in Spanish).

In addition to the unpreparedness of the society, opponents of this financial inclusion measure cite high banking fees, unfair contract clauses, and invasion of privacy as concerns. An underlying mistrust of banks is behind many of the specific concerns, heightened by fear of banks and government teaming up against citizens, on the pretext of security. But the biggest complaint is the mandatory aspect of the law. One of the leaders of the protest, quoted in the newspaper El Pais, stated, “We say yes to the financial system, we say yes to the cards, we say yes to the banks….We say no to the obligation.”
<blockquote>Opponents cite high banking fees, unfair contract clauses, and invasion of privacy as concerns.</blockquote>
Sensing a way to undercut the <em>Frente Amplio</em>, which has held the presidency of the country for most of the past decade, nearly all the opposition electoral candidates have signed one of the petitions, which are said to have already secured over 200,000 signatures, although the deadline for getting the measure on the ballot is looming.

Meanwhile, in the same <em>El Pais</em> article, a government spokesperson, defending the new law, called financial inclusion “one of the most important structural transformations of the government.”
<h2>Commentary</h2>
While the organized opposition to Uruguay’s financial inclusion law may be unprecedented, many of the concerns and emotions behind it, prompted by a rapid transition to electronic payments, are bubbling beneath the surface in many countries around the globe: a sense that banks do not have customer best interests at heart, that they charge confusing and unfair fees, that the good old ways don’t need changing, and that electronic money creates a major threat to privacy. Governments and financial service providers everywhere would do well to recognize such emotion-laden concerns and work to build customer trust and confidence before moving too fast to transform the way money works.

Financial Inclusion Backlash in Uruguay

Uruguay

From Beth's Desk

“Does anyone here know how to code?”

At a recent meeting of about 100 banking regulators from around the world, this simple yet provocative question was asked. Now, you may be scratching your head wondering why this question popped up in a meeting on responsible digital finance held by two <a href="https://www.afi-global.org/">Alliance for Financial Inclusion</a> working groups (co-hosted by the Central Bank of The Bahamas). I certainly was. The point isn’t really about regulators’ ability to code, it’s a reflection that as a global society, we're at a crossroads between generations and technology – and that poses serious implementation questions for policy makers and regulators seeking to develop stronger frameworks for digital consumer protection.
<h2>The Digital Immigrant Dilemma</h2>
Others have <a href="https://www.centerforfinancialinclusion.org/on-data-lets-anchor-ourselves-in-practicality">reflected</a> on the old days when cell phones and the internet didn’t exist. Those who remember those days – so-called “digital immigrants” who were born before digital technologies <a href="https://www.centerforfinancialinclusion.org/on-data-lets-anchor-ourselves-in-practicality">transformed</a> how most of us live – have had to adapt to the digital age. In contrast, “digital natives” grew up in the digital age and are generally considered to be more comfortable with digital technologies.

Taking these classifications at face value, a dilemma unfolds in the context of financial inclusion: existing regulators, legal and regulatory frameworks and supervisory infrastructures may be unprepared and at risk of falling behind in an era of rapidly evolving financial technology. Innovations in financial inclusion policy tend to focus on collaborative sandboxes, accelerators and innovation hubs, as well as technical innovations by regulators like <a href="https://www.centerforfinancialinclusion.org/beyond-prototypes-donor-insights-on-regtech-for-inclusive-finance">regtech and suptech</a> for compliance and financial capability initiatives.
<blockquote>Regulators may be unprepared and at risk of falling behind in an era of rapidly evolving financial technology.</blockquote>
There are also interesting policy developments to support digital financial inclusion. As an example of the types of developments being observed globally, the Central Bank of the Bahamas is rolling out a digital currency in 2020 (<a href="https://bitcoinexchangeguide.com/bahamas-central-bank-shares-project-sand-dollar-details-as-a-new-digital-currency-pilot-with-nzia-and-zynesis/">Project Sand Dollar</a>), working toward tiered due diligence, and enhancing their national identification infrastructure to drive inclusion. Similarly, priorities in the development and philanthropic communities include real-time transaction monitoring, regulator-industry interoperability, and corresponding enabling regulations.

As promising as these initiatives are, they also raise a lot of questions. For example, how can “digital immigrant” regulators, supervisory authorities and systems learn fast enough in environments that are often resource and capacity constrained and where good practice standards continue to evolve? What type of practical training is relevant for them? Are the policy frameworks, approaches and tools being developed by the likes of the <a href="https://www.fca.org.uk/">Financial Conduct Authority</a> in the United Kingdom, the <a href="https://finreglab.org/">Fin Reg Lab</a>, and <a href="https://www.r2accelerator.org/">Regtech for Regulators Accelerator</a> translatable to less digitized environments?
<h2>Digital Consumer Protection</h2>
While regulators are busy learning to leverage technology to execute their mandates, there’s also more work to be done to promote strong digital consumer protection. The Smart Campaign’s forthcoming and much anticipated digital standards to protect consumers, the Campaign recognized the need to adapt traditional consumer protection standards to account for digital risks, including unregulated providers and agents, reliance on technology, risks to clients in environments that maximize data collection and use, and more complex value chains. The <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Global Microscope</a> highlighted that cyber security laws are often inadequate and data privacy safeguards require more development and better enforcement to support financial consumer protection. The Smart Campaign is working to update its guidance to regulators to reflect these insights.

As we begin to understand the potential for leveraging technology to develop effective consumer protection regulatory and supervisory mechanisms, we need to also understand how to support sound policy, technical capacity and solid infrastructure for the effective implementation of digital and data-driven efforts by regulators. Policy makers and regulators are essential to promoting an ecosystem for responsible digital financial inclusion. They need support to become better equipped to innovate in their policies and techniques.

How to Train Your Regulator to Code: The Next Step Toward Responsible Digital Finance

Financial Inclusion Strategy

Deborah Drake

Vice President, Investing in Inclusive Finance Program

Elisabeth Rhyne

Managing Director

Eric Noggle

Senior Research Director 

Mayada El-Zoghbi'ff "Quotes"

Tess Johnson

Ezra Mannix

Isabelle Carboni

Most of Mexico’s people lack access to a formal bank account. Accion has worked in Mexico for decades to create a thriving and competitive financial sector that embraces innovation and protects its clients.

Though Nigeria’s government has set ambitious goals for financial inclusion, the majority of its people lack a formal bank account. Accion has worked in the country since 2007 to expand access to financial services.

Nika Naghavi

Boubacar Diallo

Andriana Moskovska

Brai Odion-Esene

Jessica  Galimberti

How is the world – and the World Bank – doing on its campaign for <a href="http://ufa.worldbank.org/">Universal Financial Access</a> (UFA) by 2020?

With 2020 just a short year away, this question will be asked wherever financial inclusion is discussed at the World Bank Spring Meetings this week. Only so much can change in a year, so it is just a small leap to imagine the likely situation in 2020. During last year’s meetings, the World Bank cited a figure of 69 percent of adults in the world having accounts, according to the 2017 Global Findex data collection round. <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/09/FI_Hype_vs_Reality_Deconstructing_2017_Findex_Results-08032018-1.pdf">Our own look at the 2017 Findex numbers</a>, which removes fully dormant accounts, shows that only 48 percent of adults in low- and middle-income countries had accounts that they actually used.

We think this is the right number to focus on: it sets aside the many useless accounts that inflate the rolls and avoids the overly rosy picture that emerges from including high income countries where account access is no longer a relevant challenge. Based on what we’ve seen in the past several years, we could guesstimate that by 2020 active account access in the developing world will be somewhere between 50 and 60 percent of adults, still well short of universal. We won’t know the 2020 result until 2021, when the Findex 2020 data is published. The Findex team is gearing up now for that massive data collection and analysis effort.

The World Bank could declare victory, recognizing the enormous increases in account access that have occurred, and expressing confidence in the momentum around financial inclusion across the world, which will surely result in universal access within the next decade.

Meanwhile, the World Bank and its partners are focusing on upholding their institutional commitments to the UFA campaign. The bank pledged to contribute to the inclusion of one billion people. Many others have also made numeric pledges, including VISA, Mastercard, and GSMA (500 million people each), large mass-market-oriented financial institutions (Ant Financial, China, 100 million; Equity Bank, Kenya, 50 million; and Bank Mandiri, Indonesia, 50 million) and associations like the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/partnership-for-responsible-financial-inclusion/">Partnership for Responsible Financial Inclusion</a> (70 million) and the <a href="https://www.wsbi-esbg.org/About-us">World Savings Bank Institute</a> (400 million). I am aware first hand of the efforts of some of these organizations to take their pledges seriously, putting in both resources and high-level attention. This week we hope to see some of these partners report on the progress of their efforts.

With the departure of its former president, Jim Kim, who championed the UFA effort personally, one wonders how much attention the World Bank will continue to pay to financial inclusion. The new chief, David Malpass, begins his term with this weeks’ meetings. Malpass, a former Bear Stearns economist and Trump campaign advisor, has been <a href="https://foreignpolicy.com/2019/02/05/will-david-malpass-run-the-world-bank-or-ruin-it/">highly critical</a> of the World Bank. Understandably, World Bank watchers are speculating intensely over whether he will pursue his critiques of the bank, though in the lead-up to his arrival he softened his prior calls for the bank to end lending to upper middle-income countries like China and Brazil and affirmed the focus of the bank on elimination of extreme poverty and on economic growth. This sounds compatible with maintaining a focus on financial inclusion, though staff inside the Trump foreign policy world have reported that the administration does not often use the words “inclusion” or “inclusive”, preferring “market development.”
<blockquote>Unless the new president takes the World Bank in a radically different direction, it's hard to see his arrival affecting the UFA campaign greatly.</blockquote>
Nevertheless, unless the new president takes the World Bank in a radically different direction, it's hard to see his arrival affecting the UFA campaign greatly. Perhaps it will not receive the same spotlight it has enjoyed in recent years, but work will undoubtedly continue off stage. As bank staff members I recently spoke with noted, financial inclusion is embedded in many departments of the bank, with dozens if not hundreds of professionals working with individual countries to make progress every day. Barring a drastic turn in the World Bank’s mission, this will continue, regardless of who takes the helm.

The Outlook for Universal Financial Access in 2020

Privacy

<a href="/about/what-we-do/the-smart-campaign/">The Smart Campaign</a> will participate in the AFI Consumer Empowerment &amp; Market Conduct (CEMC) &amp; Digital Financial Services (DFS) Working Group Meetings March 25-29 in the Bahamas. Elisabeth Rhyne will speak on a joint working group panel entitled “Data Protection and Privacy in the Age of Data Driven Financial Services.” This session will examine how innovations in technology that resulted in the proliferation of data and why consumers need to be more aware than ever about the risks of sharing personal details, and why financial institutions need to start thinking about data protection seriously. The Campaign will also present on the <a href="/help-us-shape-standards-for-responsible-digital-lending">draft Consumer Protection Standards for Digital Credit</a> and forthcoming updates to the Model Legal Framework for digital financial services.

Alliance for Financial Inclusion Working Group Meeting

Rachel Morpeth

What would you do with an extra $500 a month?

Mayor Michael Tubbs of Stockton, California, posed this question to his constituents last year. In February, the city began its 18-month universal basic income (UBI) pilot. Through a privately-funded program, Stockton’s government will distribute <a href="https://www.huffpost.com/entry/stockton-california-universal-basic-income_n_5c697700e4b05c889d20203a">$500 on a monthly basis</a> (the first $500, pre-paid debit cards have been sent), no strings attached, to 130 of its low-income residents. <a href="https://www.ycombinator.com/about/">Y Combinator</a>, a California-based startup accelerator, plans to launch a similar trial this year in Oakland.

Tubbs knew there would be obstacles in getting this pilot off the ground; he would have to convince people across the political spectrum that it was a good idea. However, there was one segment he did not expect push back from: the people the program intended to help.

“There were conversations I had with folks who are one paycheck away from deprivation saying, ‘We don’t deserve anything,’ so really the challenge has been reshaping the conversation. This is not a handout. This is part of what you get as a citizen of Stockton. You are eligible for this not because you need anything, but because you are a citizen of this city, ” Tubbs explained in an <a href="https://iop.harvard.edu/forum/stockton%E2%80%99s-economic-empowerment-demonstration-guaranteed-income-initiative">interview</a> last year. He hopes that this program will empower people to have more agency.
<h2>Differences Between Stockton's UBI Pilot and Others</h2>
A UBI pilot like this has never been done in the U.S. before, so it’s difficult to hypothesize how the Stockton trial will turn out. While most pilots focus on the quantitative data – how funds are spent, whether employment rates changed, and the like – the Stockton pilot aims to <a href="https://basicincomepodcast.com/podcast/updates-stockton-basic-income-trial-feat-mayor-michael-tubbs-lori-ospina/">humanize the results</a>. Through surveys, qualitative interviews, and local artists, the city intends to engage participants more deeply and stimulate discussion more broadly.
<blockquote>Humanizing the results: Stockton's universal basic income pilot participants will be engaged deeply and stimulated by discussion.</blockquote>
Finland recently ended a <a href="https://www.nytimes.com/2018/05/02/opinion/universal-basic-income-finland.html">two-year trial</a> that awarded 2,000 Finns roughly $630 per month, but that was targeted exclusively at the unemployed.

The fact that it targeted exclusively the unemployed is important for a couple of reasons. First, it didn’t teach us how people who have a source of income, especially on the low or irregular end, would treat this extra funding. Second, the Finnish government changed its unemployment laws concurrently with the pilot such that if you could not prove you were actively seeking a job, you lost your government benefits. In the first three months, <a href="https://yle.fi/uutiset/osasto/news/finlands_activation_model_brings_benefit_cuts_for_94000_people/10145894">94,000 Finns saw their benefits cut</a>.

UBI is not meant to be contingent, and cutting other benefits shifts the financial liability for things like health care back to the individual. In many ways it’s similar to Clinton’s <a href="https://aspe.hhs.gov/report/personal-responsibility-and-work-opportunity-reconciliation-act-1996">Personal Responsibility and Work Opportunity Reconciliation Act</a>: among other things, it forces the unemployed to accept gig work, and businesses can lower wages because people have to accept a job or risk losing benefits.

The closest thing we’ve seen to a large-scale UBI is the Alaska Permanent Fund, which has been active since 1982. The fund receives most of its capital from the revenue of oil companies operating within the state; each year, payments of equal amounts are distributed to all Alaskan residents (generally between $1,000 and $3,000). A 2018 report found that this cash transfer program <a href="https://www.nber.org/papers/w24312.pdf">did not significantly decrease employment</a>. However, as climate change issues surge, there are growing concerns regarding the source of revenue of the fund. While some board members <a href="https://www.juneauempire.com/news/what-does-the-alaska-permanent-fund-have-to-do-with-climate-change-this-group-will-tell-you/">attempt to downplay</a> the percent of the portfolio invested in fossil fuels, its former Chair William Moran <a href="https://www.adn.com/opinions/2018/05/24/how-alaska-permanent-fund-investment-policies-fail-to-consider-the-changing-world/">noted</a> last year that “every last cent of the $65 billion initiative is a financial derivative of fossil fuel interests. ” This sends a message that if the price is right, oil companies can buy their way into operation.

The United States already has an antipoverty cash distribution program called the Earned Income Tax Credit (EITC), which is designed to support low-income Americans. The program differs from the UBI concept in several important ways, however. It primarily supports people with children, rather than focusing on individuals. The disbursal amount varies each year, and it is only distributed once a year. This means that recipients never know how much they will receive, and often spend it on overdue expenses. <a href="https://www.nytimes.com/2012/04/17/us/antipoverty-tax-program-offers-relief-though-temporary.html?hp">Critics argue</a> the lump sum would be more effective if dispensed in installments.

Given that less than 10 percent of the EITC payout goes into savings account, this points to the critical problem that people still can't survive on working wages alone. Research by economist Alan Krueger shows that <a href="https://qz.com/851066/almost-all-the-10-million-jobs-created-since-2005-are-temporary/">nearly all jobs created since the recession have been contract, part time, or contingent</a>. These types of jobs don’t provide the same benefits as a 40-hour per week role, and it is increasingly <a href="https://scholar.harvard.edu/files/lkatz/files/katz_krueger_cws_v3.pdf">less likely that your job will provide the security</a> that it did 20 years ago. Some of the most successful companies in the past decade,<a href="https://slate.com/business/2018/12/google-walkout-protests-contract-workers.html"> including Google</a>, contract more than half of their staff. In combination with the rising concern of job loss to automation, UBI could be an insurance policy for future downturns that require workers to accept less stable short-term or gig positions, especially for those who have dependents, less varied skillsets, or otherwise require a degree of employment stability.
<h2>Beyond Income: Work Isn’t Just Monetarily Rewarding</h2>
Some scoff at the idea of UBI, deeming it welfare for those too lazy to work and believing it would lead to workforce gaps. However, according to the Economic Policy Institute, nearly <a href="https://www.epi.org/publication/poor-people-work-a-majority-of-poor-people-who-can-work-do/">63 percent of poor people in the U.S. who are eligible to work are currently employed</a> full or part time, and many of those who aren’t – about 3.3 million – are actively seeking employment. Furthermore, work is generally not just about a paycheck; unemployment is enormously traumatic, and studies have shown that people <a href="https://harris.uchicago.edu/news-events/news/universal-basic-income-policies-dont-cause-people-leave-workforce-study-finds">find purpose in work</a>. When it comes to poverty, a willingness to work is not the problem, but rather that work itself is no longer the solution. The next big economic idea will have to consider a myriad of factors – from increasing digitization to the ever-expanding wealth gap – to push for a more economically-inclusive society.

The idea of universal basic income isn't just about social justice – it's about stimulating economic growth. The United States <a href="http://inequalityforall.com/wp-content/uploads/2014/12/A_Visual_StoryPDF.pdf">prospers most</a> when it has a healthy middle class; in 1940, it was almost guaranteed that a child would grow up to have a higher income than his or her parents. By the mid-1980s, that probability was <a href="https://www.brookings.edu/blog/up-front/2018/07/25/fewer-americans-are-making-more-than-their-parents-did-especially-if-they-grew-up-in-the-middle-class/">down by about half</a>. When those who have less do better, <a href="https://www.americanprogressaction.org/issues/poverty/news/2011/12/06/10771/10-reasons-why-cutting-poverty-is-good-for-our-nation/">everyone benefits</a>: health costs go down, innovation goes up, and social mobility improves.
<blockquote>Universal basic income isn't just about social justice – it's about stimulating economic growth.</blockquote>
While UBI alone is not a panacea for economic inequality, its time has come as a force for serious and meaningful economic prosperity, and a counter to the ballooning inequality from which the U.S. suffers.

Work Isn’t Just About Money: Universal Basic Income and Potential Benefits for U.S. Working Poor

Isabelle Barrès

Consumer protection is essential for ensuring that financial inclusion works for consumers and results in a healthy sector. That’s why the <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Global Microscope</a> includes indicators on the state of consumer protection regulation in its overall assessment of a country’s enabling environment. The <a href="https://www.smartcampaign.org/">Smart Campaign’s</a> expertise in consumer protection give its team an informed perspective on these issue. We sat down with Isabelle Barrès to get deeper perspectives on this relationship and her general reactions to the Microscope.
<h4>Did the Microscope reveal any surprises from a consumer protection perspective?</h4>
What stood out to me was the way consumer protection cuts across all of the domains in the Microscope framework. Indeed, while specific consumer protection and privacy regulations are key, as I look through the Microscope indicators, I’m struck by how nearly all of them contribute to minimizing consumer harm.

For instance, a favorable environment for consumer protection requires government and policy support and a solid infrastructure. Consumers stand a better chance of being protected if financial literacy programs enable them to make more informed choices and advocate for their rights. Thoughtful product design is critical to mitigate risks – for example in designing a loan product, it’s important to build in restrictions against excessive borrowing. The way agents and outlets are supervised can make a critical difference in the way clients are treated.

This 2018 Microscope has increased its weighting on cybersecurity one of the rising risks to consumers and the industry, which the Smart Campaign is tracking.
<h4>How do you get a robust regulating environment that doesn’t stand in the way of new players? Where’s the balance?</h4>
The Smart Campaign helped draft a <a href="https://responsiblefinancialinclusion.org/?page_id=2353">model legal framework</a> – a guideline for regulators – largely for this purpose. It builds on existing <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/28996/122011-PUBLIC-GoodPractices-WebFinal.pdf?sequence=1&amp;isAllowed=y">guidelines</a>, <a href="https://clmr.unsw.edu.au/sites/default/files/content_files/Regulatory_Diagnostic_Toolkit-June 2018.pdf">tools</a>, and <a href="https://www.itu.int/en/publications/Documents/tsb/2017-DFS-ConsumerExperienceProtection/mobile/index.html#p=1">recommendations</a>, and is drafted in a way that leaves room for regulators to factor in the level of competition in the market, the types of players, the level of maturity, prep regulation to support a balance between regulation and innovation. In developing standards for digital credit providers, we see a number of practices that, if we were looking at a traditional provider, we would have been very critical of (e.g., portfolio quality and pricing). While still very much focused on these issues, we recognize that many of these models are nascent and providers are still refining their models and need time to innovate and adapt. We are therefore providing space for early stage providers to innovate rather than have more stringent guidelines from the get go, as long as risks to clients are mitigated.
<h4>The Microscope states that, "in the best-performing countries, traditional consumer protections are coupled with data privacy and cybersecurity safeguards... strong performance on traditional consumer protection (countries that scored greater than 80) does not necessarily indicate that a country has a sufficient framework for digital consumer protection." What does this mean to you?</h4>
That means that countries have traditional consumer protections in place, but these are not sufficient to deal with newly arising risks. So just because a country has a good consumer protection framework, doesn't mean it's up to date with the emerging digital risks.
<blockquote>Just because a country has a good consumer protection framework, doesn't mean it's up to date with the emerging digital risks.</blockquote>
The main adaptations that we see needed for an adequate framework for consumer protection in a digital world are the need to account for 1) the increased reliance on agent networks for sales and service; 2) the reliance on technology and technical interfaces and the client risks linked to data collection, use and storage; and 3) more complex value chains. These are taken into consideration in the current <a href="https://www.centerforfinancialinclusion.org/partnering-with-providers-to-set-dfs-standards-for-client-protection">update</a> to the Client Protection Standards for digital services.
<h4>Would the countries that have done well in traditional consumer protection be well positioned to adopt digital consumer protection?</h4>
In some ways, yes. Digital consumer protection builds off of traditional consumer protection. The “traditional” consumer protection dimensions (appropriate product and delivery design, prevention of over indebtedness, transparency, responsible pricing, fair treatment, recourse) are still relevant, with adaptations needed for the new risks that come with low touch/ high tech models. The biggest changes from the digital revolution that affect consumer protection are linked to data: data privacy, data security and data use, and the confluence of industries that used to work independently: technology and finance. While data privacy and protection was part of the traditional consumer protection, the extent to which the data protection frameworks need to be extended to cover consumer risks in a digital world is considerable. Countries that have strong data protection policies and enforcement (e.g., The Philippines, Colombia) are getting a head start to address consumer protection issues in a digital world.

The extent to which countries are well positioned to adopt digital consumer protection also depends on the extent to which they embrace innovation, the extent to which non financial digital providers can be integrated to the financial infrastructure, and the extent to which telcos and banking regulators cooperate. As highlighted by the Microscope, The Philippines is a good example of a country making headway in building an effective digital finance ecosystem and increasing the collaboration between regulators and industry. Their work under the <a href="https://www.r2accelerator.org/bsp/">R2A program</a> in developing and testing technology based solutions that can support good consumer protection is an interesting example to follow.
<blockquote>The Philippines is a good example of a country making headway in building an effective digital finance ecosystem and increasing the collaboration between regulators and industry.</blockquote>
<h4>Are there any country-level assessments that especially caught your attention?</h4>
For Cambodia, in terms of key barriers to financial inclusion, the Microscope authors worry about the expansion in the number of MFIs and MBIs, and it does reference the surge of refinanced loans. In our work, we’re seeing self-organization efforts in response to a surge of lending and a fear of over-indebtedness that has been well documented through <a href="https://mimosaindex.org/living-on-the-edge-is-it-worth-it/">Mimosa</a>. We see ongoing efforts from investors to share information on their portfolios. There are industry efforts in the form of lending guidelines that have started. It’s an example of an industry-based initiative that is complementing what regulators are doing.

Kenya is another example. The Microscope highlights the Consumer Protection Act, which aims to protect consumers from aggressive lending. Yet, regulations are not yet going far enough, because of the proliferation of digital lenders that aren’t regulated. It would be great if the Microscope analysis could dig deeper into the institutional landscape.

<em>Read the <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Microscope</a> and let us know what you think!</em>

Digital Standards and Nascent Business Models: Smart Campaign Reacts to The Global Microscope

Global Microscope

Monica  Ballesteros Arias

In her <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-past-present-and-future">remarks</a> at CFI’s tenth anniversary symposium, Elisabeth Rhyne mentioned that more than technology itself, the growing number and variety of players involved in the financial inclusion space is the greatest change the sector has seen in the past decade.

This view resonated with the Global Microscope team. Earlier this year, we reviewed the framework for our annual ranking of countries on the enabling environment for financial inclusion. As we created a revised framework, we saw that technology is only part of the story: the diversity of stakeholders also presents a significant change from previous editions.
<blockquote>We saw that technology is only part of the story: the diversity of stakeholders also presents a significant change from previous editions.</blockquote>
The <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Global Microscope</a> started in 2007 as a study of the regulation of microfinance institutions (MFIs), but today it must address the enabling environment for MFIs, banks, insurance providers, money issuers, cross-border payment providers, fintechs, and banking agents.

There is no clear roadmap to navigate this broadening panorama, and from a regulator’s perspective, this might seem daunting. The temptation might be to limit the actors in the market and continue to operate business as usual. However, the diversity of players is actually key to creating more inclusive ecosystems.

In their recent essay “<a href="https://www.centerforfinancialinclusion.org/getting-policies-right-in-the-digital-era-competition-and-innovation-as-policy-objectives">Getting Policies right in the Digital Era</a>,” Ariadne Plaitakis and Simone di Castri argue that competition and innovation should be added to the policy mandates of financial authorities. When we compare the findings of the 2018 Microscope, which measure regulatory and policy inputs for financial inclusion, to financial inclusion outcomes, we see that greater competition is an important driver in the adoption of digital financial services.

The Microscope evaluated the regulatory frameworks of 55 countries to determine among other things, what are the legal market entry restrictions for e-money issuers. Most countries allow a wide variety of providers, including mobile transfer operators (MTOs), to obtain a license to issue e-money. However, in some countries (16 out of 55) authorities still restrict the type of players that can enter the market, which means that mobile providers have to partner with banks to enter the market.

When we compared the Microscope’s analysis of market entry barriers for e-money issuers to the results of the Global Findex, we found that countries that do not restrict the type of provider that can issue e-money have much higher rates of e-money adoption. The average percentage of mobile money accounts in less restrictive countries is 18 percent compared to a 9 percent average in countries where e-money issuers have to partner with banks. These results give a clear message: <strong>let a wide variety of providers operate</strong>.

As MTOs consolidate as dominant players in the provision of e-money, promoting interoperability is another key role that regulators can assume to foster greater competition. Peru and Indonesia, two of the Microscope’s top five countries, have made interoperability a cornerstone of their financial inclusion strategies.

Interoperability was also identified as major driver for the uptake of e-money in Madagascar, one of the “surge countries” identified by CFI in its most recent report on the Global Findex. In 2016, Madagascar became the second African country, after Tanzania, to roll out interoperable e-money services. Interoperability also exists at the agent network level, which allows agents to perform transactions for multiple operators.

Between 2014 and 2017, the percentage of adults with access to an account doubled, growing from nine percent to 18 percent. The percentage of adults with a mobile money account grew from four to 12 percent and the percentage of adults who had made or received a digital payment increased from five to 15 percent. The ease to transfer money created by interoperability has been, according to our interviewees, a major driver for financial inclusion in the country. We see a second key message for regulators: <strong>lead the market toward interoperability</strong>.

The regulatory approach that allowed e-money to flourish has been described as a “test and learn” approach. This means that regulatory authorities allowed these products to evolve with light-touch or ad-hoc regulation. In order to foster fintech innovation, some countries, including Argentina and China, have adopted an even more liberal “wait and see” approach, letting innovative products operate freely in the market. This flexibility has enabled innovation and has become a guiding principle to regulate digital financial services. In 36 of the Microscope countries, regulators have opted to let innovative products grow before setting the rules of the sector.

However, <a href="https://www.cgap.org/blog/competition-mobile-financial-services-move-past-test-learn">evidence from Kenya and Tanzania</a>, suggest that as emerging services mature, continuing the “test and learn” model can have adverse consequences for competition. For example, in Kenya, e-money providers were not subject to the same transparency rules as other financial services providers until 2016. Transparency requirements encourage providers to compete on quality and price and promote the entrance of new players that can bring lower costs. In the Global Microscope we found variations in market conduct rules between traditional and digital financial services in 22 out of 55 countries. A third key message emerges: <strong>keep market conduct rules consistent between traditional and emerging services</strong>.

The ascent of e-money gives regulators and policymakers useful insights that can guide decision making as they navigate an increasingly complex landscape. Technology has radically transformed the financial services industry and has a great potential to make services more accessible and tailored to users needs. However, as this year´s Microscope findings suggest, a greater variety of providers can help bring these innovations to populations that have been traditionally underserved.

Competition in Digital Financial Services: 3 Key Insights from the 2018 Global Microscope

Paul  Nelson

East Asia and Pacific

Philippines

On a recent trip to Asia, I visited the offices of a federation of cooperatives. The backroom where the cooperatives’ files were kept had the musty smell of a library, with stacks of paper and folders with wilted edges teetering toward the ceiling. The scene was a stark reminder of how captive many financial institutions still are to a paper-based reality, with data on customers or operations often buried or hard to access.

This year, I also heard a representative of a central bank in East Africa share how the lack of up-to-date data in-house, such as rates of access or the gender gap, forced it to ask financial institutions it supervised for data. The bank might then have to wait days for an answer, even for a potentially straightforward type of information.

Despite two very different environments, these two offices share a common challenge: the need for data and better ways to collect, store, and analyze it. This, in a nutshell, is what prompted the U.S. Agency for International Development (USAID), Bill &amp; Melinda Gates Foundation (BMGF), Omidyar Network, and BFA to launch the <a href="https://www.r2accelerator.org/">Regtech for Regulators Accelerator</a> (R2A) in 2016.
<h3>What We Did</h3>
R2A was a bet on both a set of topics (regulatory technology for regulators, or “regtech,” and supervisory technology, “<a href="https://static1.squarespace.com/static/583ddaade4fcb5082fec58f4/t/5bbf9a520d929792c05866e1/1539283556587/R2A+CNBV+Case+Study.pdf">suptech</a>”) and an approach to innovation (crowdsourcing ideas from start-ups to address challenges faced by financial authorities). The singular focus was to demonstrate, in collaboration with financial authorities and technology companies, how regtech could help overcome certain long-standing constraints to effective oversight and compliance, and in so doing, increase trust in formal financial services.

So after two years of innovation and collaboration, what did we learn?

In markets where millions of people are now using formal financial services through digital channels, the stakes for consumer protection and market integrity are getting higher. Yet this also means a commensurate increase in opportunity to use the data generated from these services to revisit standard methods for oversight and compliance. Tools like machine-learning, <a href="https://static1.squarespace.com/static/583ddaade4fcb5082fec58f4/t/5beb3a3b352f53a18862a9e1/1542142560572/R2A+API+Case+Study.pdf">application programming interfaces</a> (APIs), and natural language-processing are not merely buzzwords in this context. They are, in the right circumstances, viable engines for regtech applications in markets in the developing world.
<h3>Even Prototypes of Regtech Applications Can Drive Meaningful Progress</h3>
Looking over the last 20 months with R2A, our initial hypotheses seemed to hold true:

1. Financial authorities see value in adopting technology to the same degree as financial institutions;
2. Tech start-ups see commercial opportunity in serving financial authorities as customers; and
3. Initial testing of regtech applications developed jointly by startups and financial authorities with a competition model can demonstrate efficacy in resource-challenged environments.

Our lessons were drawn from three competitions held to prototype regtech solutions specifically designed to address challenges identified by financial authorities. Interestingly, dozens more regulators have since approached R2A expressing a desire for similar engagements. Our work with the Comisión Nacional Bancaria y de Valores (CNBV) in Mexico showed how a combination of artificial intelligence-powered analytic tools and better data dashboards might facilitate better insights for anti-money-laundering (AML) efforts. We anticipate that the tool prototyped by R2A and the CNBV is also anticipated to enable the CNBV to reduce the length of AML-related on-site inspections from 3 to 5 weeks to 3 to 5 days.

Likewise, our work with the Bangko Sentral ng Pilipinas (BSP) in the Philippines showed how the use of a <a href="https://static1.squarespace.com/static/583ddaade4fcb5082fec58f4/t/5beb3b2fb8a04525b8cabc6f/1542142794556/R2A+Chatbot+Case+Study.pdf">chatbot</a> might simplify and automate the receipt and resolution of customer complaints. This made technology a key access point for a fundamental consumer protection mechanism, not just a new way to access financial services. Finally, our work with the BSP on a second use case showed how an API for data-reporting might dramatically reduce the hours spent by both the financial authority and firms to validate data and correct errors each reporting period, resulting in higher data quality and timely compliance. By using the API, the BSP would be able to reduce the time to process data submissions from 30 minutes to 10 seconds. And similarly, it would enable the BSP to go from 29 reporting schema, many of which involve Excel-based reports, to one unified scheme.

All told, R2A received 31 applications from companies across 13 countries and 5 continents to collaborate with the BSP and CNBV, most of whom were new to engaging with financial authorities. This proved to us that even a field as staid as market oversight and regulatory compliance can pique the interest of technologists when public sector counterparts show a willingness to embrace innovation to overcome long-standing data challenges. Two notable factors contributed to this level of interest: concerted efforts to reach out to the tech community, and care taken by R2A and the financial authorities to clearly define the functional and technical specifications related to the underlying problem.
<h3>Preliminary Insights for Future Engagements</h3>
Finally, while our compressed timeline for engagement meant that R2A could not develop full-fledged solutions, R2A’s sprint nevertheless yielded promising initial results and succeeded in developing functional prototypes for each of the three chosen challenges. By prototyping working solutions in close collaboration with the financial authorities, R2A reduced the difficulty in taking the next step, should the financial authorities choose to do so through their standard procurement processes. We are especially encouraged by the stated intent of our financial authority partners to sustain and build on the gains made with R2A, whether in the form of investing their own resources in additional regtech solutions, identifying additional use cases for regtech, or fully integrating the prototyped solutions.

As we look toward the evolution of regtech, there are several important insights we gained from our investment in R2A:
<ul>
 	<li><strong>Regtech should serve, not co-opt, a broader strategy for oversight and compliance</strong>: An excellent starting point for approaching regtech applications is to focus on ongoing pain points. But in the long run, greater opportunity exists to rethink long-standing approaches for the conduct of market oversight and craft a strategy within which regtech can operate. In other words, start by focusing on incremental gains while still scoping out more transformative changes. Likewise, a more holistic approach to regtech can reduce the risk of it being perceived as an easy fix for weak governance. Regtech can be a vehicle for more transparent, accountable oversight, but only if a baseline level of human capacity and organizational readiness exists (or can be strengthened) for introducing regtech applications in a phased manner over time.</li>
 	<li><strong>In an ocean of newly-available data, more is not always better</strong>: A temptation with the greater volumes of accessible, analyzable data is to default to collecting as much as possible. But the focus should remain on precision and on collecting only the data that serves a clear need for a financial authority with the skills to collect, process, and analyze it.</li>
 	<li><strong>Data-savvy authorities depend on data-savvy financial firms (and consumers)</strong>: Many regtech applications focus specifically on improving the efficiency of information flows between firms and financial authorities. But in many markets, financial firms are equally early in their adoption of digital tools other than spreadsheets and email for operational and compliance purposes. This underscores the value of navigating the regtech landscape in a collaborative manner, where the adoption of new tools corresponds to the readiness of all market participants. This relates to another sector-wide concern: data protection and data security concerns that, if not accounted for, could impair the efficacy of regtech applications and trust in other digital interventions.</li>
 	<li><strong>Procurement practices may have an influence on the extent and type of technology solutions relied on by financial authorities</strong>: We think R2A's success is in part due to how it facilitated productive engagement between two groups (financial authorities and tech companies) that do not often interact closely. These interactions were crucial to helping the participant authorities better understand what problems they wanted to solve and which regtech applications might offer viable solutions. Moreover, they occurred outside the traditional processing of defining “specs” and issuing a request for proposals. R2A's focus was not on assessing how standard procurement processes used by either the BSP or CNBV select technology vendors. But the R2A experience hinted at how procurement processes can influence whether and how novel (and potentially better) technology solutions are integrated into the daily rhythm of oversight and compliance. Procurement aside, R2A demonstrated the value of “pre-procurement” exercises, like design-thinking workshops with industry, to uncover overlooked opportunities for improvement and bring new views to the table.</li>
</ul>
Our vision is to go beyond the prototypes that R2A pioneered. These preliminary insights, among many more, will help us do so. Whether we work with financial authorities to engage technologists through competitions, hackathons, bootcamps, or tried-and-true requests for information, we will continue to learn what works best for tackling challenges faced by partner financial authorities. In all cases, we will place a premium on tailoring the approach to regtrech to the capacity of the financial authority.

Without a doubt, the progress we have made with the BSP and CNBV was not merely a product of our assumption that regtech is here to stay. In fact, our initiative, R2A, had the benefit of working with highly dedicated financial authorities that were willing to take a chance on something new. And R2A itself has demonstrated the value of bringing to the table diligence, adaptability, and talent.

What does this mean for customers who rely on cooperatives in Asia or who live in a digitally vibrant Africa? We are not under any illusions that regtech applications will be a feasible reality tomorrow for every stakeholder. But we do believe that we can help chart out viable paths for incremental adoption of digital tools that are fit for purpose. Sooner rather than later, those stacks of disordered paper will give way to cloud-based storage of data, and those ad-hoc data requests from the central bank will be replaced by seamless flows of data and analysis.

Beyond Prototypes: Donor Insights on Regtech for Inclusive Finance

In the 2018 Global Microscope rankings of countries whose institutional and policy environments support financial inclusion, there is one newcomer among the prized top five: Uruguay checks in as third in the overall rankings. Only a few years ago – in 2014 – Uruguay languished in fourteenth place.

Changes in both Uruguay and the <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Microscope</a> itself account for this rapid jump. Uruguay is energetically implementing a financial inclusion playbook that seems to be taken directly from the 2018 Microscope’s increased focus on digital transformation. Since some of my favorite places and some of my favorite people are in Uruguay, I’m happy to have a chance to spotlight this small country that lately seems to be getting everything right.

Uruguay’s advance in financial inclusion exemplifies what a government-led approach can do if it is in sync with local capabilities. The government took a major step in 2014 when its new Law on Financial Inclusion strongly promoted a shift in the economy to digital payments. Among provisions too numerous to list here, two transformational measures stand out: first, the law requires employers to pay salaries electronically into accounts (to have been accomplished by mid-2017). Even gauchos working on cattle ranches are paid that way – or at least that’s what’s supposed to have happened.

Second, the law incentivizes the use of debit and credit cards through a 2 percent reduction in VAT (sales tax) for card-based purchases. With those changes in place, the average Uruguayan employee now receives money into an account and has a good reason to pay for things with a card associated with that account. These changes put Uruguayans well on the path toward a cash-light economy.

It’s not popular among everyone, however. “I’m fed up with this financial inclusion stuff,” complained my friend Mark. “I can’t buy gas at night anymore. The gas stations won’t accept cash.”

“What about using your credit card?” I asked him.

“I don’t trust the gas stations, so I’m not going to hand them my credit card,” he replied. Rather than switching, he simply stopped buying gas in the evening.

But even getting cash can be a problem. So many ATM robberies have taken place that the banks put less cash in them. “You have to go to the cash machine right after it has been filled,” he says.

Not all Uruguayans are as stubborn about cash as Mark. In fact, the Global Findex records that account ownership among adults there rose from 24 percent in 2011 to 64 percent in 2017, and the percent of people making or receiving electronic payments rose from 37 percent in 2014 to 59 percent in 2017.

Uruguay’s ability to make dramatic leaps is predicated on a number of enabling conditions that make the policy shifts actionable. The country already had widespread identification cards, well-functioning credit bureaus, and ubiquitous cellular connectivity. In one sense the digital financial inclusion push can be seen as a part of a larger digital drive covering realms from communications to education to finance. And in the private sector, the shift is enabled by a lively marketplace of software and fintech firms, some of which have organized into the Chamber of Fintech for dialogue with government. Government encourages innovation through test and learn approaches to regulation, and by avoiding placing barriers on the types of organizations that can enter the digital finance arena.

The Uruguayan approach to financial inclusion is focused on driving cash out of the system, more, perhaps than on actually extending financial services to the previously excluded. In the Microscope ratings, Uruguay’s lowest scores are on consumer protection, and the Findex results reveal a fairly significant gap in the inclusion of lower income people as well as a rural-urban divide. Most of the ranch hands on Mark’s farm cash out their earnings immediately to use cash in the local shops, so inclusion hasn’t yet become meaningful for them.

Uruguay’s experience underscores the need for the policy environment to mesh with the existing opportunities in the private sector. If policy gets out too far ahead of the private sector, even the most far-sighted policy may elicit little response from service providers. But as Chris Skinner argued in one of CFI’s <a href="https://www.centerforfinancialinclusion.org/series/getting-inclusion-right">10 Essays for 10 Years on Getting Inclusion Right</a>, when policy provides a well-conceived nudge that harmonizes with pre-conditions in the market, rapid change can follow. Hats off to Uruguay for putting it all together and to the Microscope for documenting the progress.

Uruguay Leaps 9 Spots in the Global Microscope Rankings

<em>This post originally appeared on the <a href="https://www.accion.org/">Accion</a> website.</em>

The Global Findex is crucial for pushing forward financial inclusion. With data from 150 countries, we can see progress toward bringing financial tools to everyone and even understand how people are using those tools. The driving force behind this research is Leora Klapper, Lead Economist in the Finance and Private Sector Research Team of the Development Research Group at the World Bank Group. Because of her exceptional leadership in advancing financial inclusion, Accion has chosen Leora as their <a href="https://www.accion.org/leora-klapper-to-receive-accions-edward-w-claugus-award-for-leadership-and-innovation-in-financial-inclusion">Edward W. Claugus Award honoree</a>. We took the opportunity to ask her thoughts on the Global <a href="https://www.centerforfinancialinclusion.org/new-global-findex-sixty-nine-percent-of-global-population-is-banked">Findex</a>, the financial inclusion gender gap, and how we can continue to build a world where all people have financial services that make a meaningful impact in their lives. CFI participated in a panel discussion with Klapper (pictured above) after the bestowing of the Claugus  Award. CFI's Beth Rhyne and Deb Drake participated, along with the Economist Intelligence Unit's Monica Ballesteros Aria.<em>
</em>

<strong>Q: Accion has selected you for our Claugus Award based on your contributions to driving financial inclusion. Are there moments of your career that make you particularly proud of the work you’ve done in financial inclusion?</strong>

A: I’m excited that the Global Findex has become a valued resource in the world of financial inclusion research and policy. Several places wrote previews before we released the latest Findex round, and then followed up with reviews after the data was published. People were treating the Findex like a Beyonce album drop. It was a little crazy but very encouraging. But seriously, we’re grateful that the Bill &amp; Melinda Gates Foundation had the vision to fund the Findex data collection and appreciate our great partnership with Gallup. It’s been a privilege to contribute to the policy dialogue with the credibility of data backing us up. Reporting to policymakers the number of millions of unbanked women receiving their welfare payments in cash or the number of government workers with bank accounts, still receiving their wages in cash, is a game-changer.

I’m proud that we moved the needle in highlighting the importance of collecting data not only on household heads, usually men, but on every adult member of the household — including women, young adults, and older adults. I’ve been on my soapbox since the first round of Findex data was published ranting about the importance for women to have their own account. I hope shining light on the gender gap in the use of financial services has helped more women get a safe place to keep their money.

<strong>Q: In your time at the World Bank, how have you seen financial inclusion’s role in eliminating poverty evolve?</strong>

A: When I started working at the World Bank, the overall thinking in development was that countries should generally focus on getting the macro picture “right” — through privatization, deregulation, and so on — so growth would take off and poverty would drop. Now there’s a greater focus on individuals and more recognition that financial services can help people better meet their goals in health, education, entrepreneurship, and so on, thereby driving <a href="http://SDG_Compendium_Digital_Financial_Inclusion_September_2018">development outcomes</a> overall. Each year, we get more Findex queries from a broader range of World Bank colleagues who see financial inclusion as relevant to what they do.

The focus of financial inclusion research has also shifted during my time at the World Bank. At first, it was almost exclusively about microcredit. Then new data sources, including financial diaries, showed us that even poor families that have small, unpredictable incomes lead complicated financial lives — but they often use informal, expensive, and riskier financial products. Now there are tons of studies on savings, payments, agricultural insurance, financial consumer protections, and more. It’s hard to keep up with all the new papers — which is a good problem to have.

[caption id="attachment_33558" align="aligncenter" width="1000"]<img class="size-full wp-image-33558" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/11/award-klapper-pose.jpg" alt="" width="1000" height="516" /> (L to R) Jim Mercadante of host Reed Smith, EIU's Monica Ballesteros Aria, Deb Drake, Leora Klapper, Beth Rhyne, Accion CEO Michael Schlein, Accion Board Director Tara Kenny, and Accion CDO Brian Clancy at the Accion Claugus Forum[/caption]

<strong>Q: What part of the most recent Findex results do you think has resonated most strongly with the industry and why?</strong>

A: I think our data on digital financial services has drawn the most attention. One of the great things about financial inclusion is that it appeals to so many constituencies. We attract the development crowd, of course, but also the tech geeks, big data aficionados, policy technocrats, women’s empowerment champions, financial industry titans, bitcoin zealots, blockchain evangelists, and many others. Our data is routinely cited in both the major international media and regional media across the developing world. People are looking at progress and setbacks in neighboring countries and seeing how they can apply lessons to their own countries.

<strong>Q: If we could do one thing to promote usage of financial accounts, what would it be?</strong>

A: Can I cheat and mention two? First, I would love to see wider digital payment acceptance among merchants in emerging countries. Second, the development advocate in me yearns for cheaper ways to send remittances. Every year migrants send home more money to the developing world than governments spend in aid. That money provides vital support for people in poor countries. But remittances are still crazily expensive: On average, they <a href="https://remittanceprices.worldbank.org/sites/default/files/rpw_report_sept_2018.pdf">cost</a> just beneath 7 percent of the amount being sent, and banks charge the most on average, at more than 10 percent. Our colleagues estimate that reducing costs by 5 percentage points could save up to $16 billion annually — money that could go to development needs.

<strong>Q: As we look beyond access to see whether financial tools are being used and improving people’s lives, what are some of the most important metrics to look at?</strong>

A: I’m quite excited about the research showing the impact of having an account on household spending decisions — like studies in Africa and Asia showing that offering woman an account leads to greater spending on healthcare, education, and nutritious food. In Bangladesh, we’re finding that paying women into an account increases their savings, decreases their impulse spending, and gives them greater say on how household income is spent. In other words, having an account gives a woman greater privacy, security, and control over her money — which gives her a more comfortable seat at the table.

The link between financial inclusion and productivity has been on my mind lately. We’re starting new work with tea pluckers and asking the question: If a woman gets paid directly into her own account, and sees the full payoff of her labor, will she work harder? Or be more productive? Will she be less likely to quit her job? I think this is an exciting new avenue of research to motivate the private sector to partner in our efforts to expand financial inclusion and digital payments.
<blockquote>If a woman gets paid directly into her own account, and sees the full payoff of her labor, will she work harder? Or be more productive?</blockquote>
A lot of financial inclusion analysts have raised the importance of financial health and how to measure it. I’m not yet sure what the best metrics are, but lots of smart people at IPA JPAL and elsewhere are thinking about that, and the results should be exciting.

<strong>Q: The latest data shows that the gender gap in financial inclusion persists. In your research, have you seen any particularly effective strategies for closing this gap?</strong>

A: India’s experience shows that policies can help close the gender gap. Three years ago, men were 20 percentage points more likely than women to have an account. Today, the gender gap has fallen to 6 percentage points, thanks to a government push to expand account ownership by drawing on biometric identification. That progress comes with a lot of caveats. Nearly half of accounts in India are dormant, and women are more likely than men to have a dormant account. But at least they have greater access to this basic financial service — and the potential is huge.

<strong>Q: As mobile phone usage continues to grow, how do we ensure technology can live up to its promise for driving financial inclusion?</strong>

A: Mobile phones can be tools for delivering fair, affordable financial services to the poor, and they can also be tools for defrauding the poor. The difference between the two has a lot to do with consumer protections. Recent CGAP <a href="http://www.cgap.org/research/publication/digital-credit-revolution-insights-borrowers-kenya-and-tanzania">research</a> on digital credit suggests that weak oversight has allowed companies to push predatory loans through mobile phones, leading to defaults and indebtedness. Policymakers need to make sure that regulations keep pace with digital innovation to ensure things like that don’t happen. Otherwise, people will distrust digital financial services, and development opportunities will be lost.

We also need to make sure that women have access to the technology and aren’t being left behind at the starting gate. As we increasingly leverage mobile phones and the internet to deliver financial services, we need to watch the 10 percentage point gender gap in mobile phone ownership across developing countries, and much larger in some regions.

<strong>Q: How will we know when financial inclusion has succeeded?</strong>

A: Ultimately, I’d like to see a situation where everyone has access to affordable and transparent financial services which they can use to meet their needs — whether for saving, investing, moving money, or hedging against risk. But I’m not sure if we’ll ever get to a situation where we can just declare victory and go home. Development progress is always uneven, and there will also be groups of people excluded from appropriate financial services. I think we’ll be working on financial inclusion for a while.

Findex Lead Discusses Gender Gap, Account Usage, and More

Global Findex