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Key fintech trends include publishing open APIs, which helps to expand customer bases and improve services offerings 

> Posted by Geraldine O’Keeffe, Chief Innovation Officer, Software Group

The following post is part of a blog series spotlighting perspectives and experiences from the Africa Board Fellowship.

Access to financial services in Africa is on the increase, up 10 percent from 2011 to 2014, according to the Global Findex. This change can largely be credited to digital financial services. New entrants to the financial sector such as telcos, fintechs, and in the near future bigtechs like Facebook and Google are all offering technology-centered financial services that are changing the landscape and posing a competitive threat to traditional financial services providers (FSPs). At the same time, new technologies can allow traditional FSPs to expand their outreach and radically improve operational efficiency.

Considering both challenges and opportunities, now, more than ever, financial institutions of all stripes have to accept that technology and innovation are integral to their business strategy. These changes require a shift in culture throughout the institution and among the leadership. Board members, for example, have to embrace this change, understanding the current industry trends, experiencing these financial innovations firsthand, and taking concrete actions.

Through our work with board members of financial service providers in the Africa Board Fellowship program, we have identified three key fintech trends especially relevant for institutions in Africa focused on financial inclusion.

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> Posted by Dylan Lennox, Partner, MFX

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After launching and operating mobile money businesses in a number of markets over the last ten years, I was aware of the necessity of protecting consumers. I knew it was a regulatory priority alongside important issues such as AML and interoperability, but that’s where I left it: in the compliance box, while I waited to be told what to do. All the consumer protection literature I read gave me the same heavy feeling, laden as it is with long lists of requirements: protect customer’s funds from loss and fraud, ensure proper disclosure and transparency, keep their data private, make sure customers can have their complaints resolved, and so forth. These looked like the core business processes I needed to implement anyway, so I felt we would be in fine shape if we were ever to have a supervisory inspection. I never looked any deeper.

In the days when enabling regulation meant “Please leave us alone to grow,” I kept my head turned firmly in the direction of my business goals, growing a base of active customers to reach scale, and then taking advantage of those network effects. After all, financial inclusion was also an objective we shared with the regulator, and as long as we were growing they maintained a light touch.

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> Posted by Elisabeth Rhyne, Managing Director, CFI

thumb_1EE16B47E5C149BC98E69E29C9CD8D11As regulators navigate the changes involved in financial inclusion, they must hold fast to first principles. The arrival of new technologies and new players, and in many countries, new mandates for financial inclusion and consumer protection, demand responses in regulation and supervision. Many of these responses are major departures from past practice. However, while the details of regulations and supervision may change significantly, familiar fundamental tenets remain to guide the way.

A task force of distinguished experts convened by the Center for Global Development under the joint leadership of Liliana Rojas-Suarez and Stijn Claessens puts forward three key tenets. First, if it quacks like a duck, treat it like a duck; second, let risk be your guide; and third, strike a balance between anticipation and reaction. (Of course, in regulator-speak these tenets sound different: functional similarity; proportionality; and a balance between ex-ante and ex-post regulation.)

The first principle suggests that regulators should look across providers of all types who are carrying out similar activities, whether banks, telcos, or small financial institutions, and ensure that one provider is not disadvantaged relative to another. This principle is especially important for regulators in determining whether mobile money should be telco or bank-led. It guides regulators towards a response that is agnostic about institutional form and focuses instead on understanding risks inherent in activities.

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The Basel Committee on Banking Supervision has requested comment on a draft guidance document that for the first time addresses the responsibilities of regulators and supervisors in the context of financial inclusion. Given the potential impact of this guidance on regulators around the world, we invited Daniel M. Schydlowsky to review and comment. Dr. Schydlowsky is a fellow at the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School, and the former head of the Superintendency of Banks and Insurance Companies of Peru.

The draft guidance issued by the Basel Committee is unquestionably an enormous step forward. It identifies, describes, and qualifies how supervisors should behave in relation to financial inclusion. It also describes numerous particular situations that supervisors have to confront and suggests responses. It thereby provides the representative supervisor with what amounts to an encyclopedia of supervisory wisdom.

The guidance is comprehensive, it treats (almost) everything. That is its strength. But, it did not create an effective hierarchy of importance to guide supervisors as they confront their new mandate to generate financial inclusion. In what follows, some central issues are raised, which, in the opinion of this author, need to be incorporated into the guidance or highlighted to denote greater relative importance.

The Dilemma of the Supervisors

  • Too much to do with too few resources: The supervisors have limited staff and many things to do, starting with making sure the financial system is safe, the books are kept properly, required information is supplied reliably and on time, and capital and other requirements are complied with. On top of this come new responsibilities related to financial inclusion. When reading the guidance, a whole second staff would appear to be needed to comply properly with what is suggested. It is absolutely imperative that the limited resources of the supervisor be factored into what is requested that they do.

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> Posted by Center Staff

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Yesterday marked the official launch of BiM, Peru’s groundbreaking nationwide mobile money platform. It’s been a historic collaborative effort between the country’s government, financial institutions, telcos, and other players. The platform enables fully-interoperable digital financial services across mobile networks and financial service providers in Peru. Yesterday was the public launch of the platform, following a soft launch within a control group in mid-December. The new mobile system presents a huge opportunity for Peru and for financial inclusion best practices the world over.

The project was spearheaded by Peruvian Digital Payments (PDP), a new service provider established in July 2015 by Peru’s government, financial institutions, telcos, and other stakeholders. PDP is co-owned by the Association of Banks of Peru (ASBANC) as well as many of its member banks and electronic money issuers. PDP developed the shared infrastructure for the mobile money service.

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> Posted by Mark Pickens, Senior Director, Visa

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The future doesn’t come with an owner’s manual saying how to set up, operate, or troubleshoot it. When we launched mVisa in Rwanda in 2013, it was the first interoperable mobile phone-based payment ecosystem in any emerging market. We didn’t know what was possible. But we knew what we were aiming at. We wanted to make mobile money work better.

Nearly all mobile money schemes are “closed loops”. They do not permit funds to be shared with users of any other scheme. Since consumers cannot transact with everyone they want or spend everywhere they go, they see mobile accounts as less useful than cash. Fewer make the switch from cash, the net financial inclusion impact is stunted, and commercial returns are blunted. The idea of mVisa is to connect the closed loops by routing mobile money transactions via VisaNet, the global software and data centers that process transactions by more than 2 billion account holders and sustain more than 30 million points of access in the Visa network.

We chose Rwanda to pilot the mVisa concept. A smaller market makes it easier to know and be known by key stakeholders. That is an important consideration when starting a multiparty ecosystem that requires all players to move in a similar direction in a similar timeframe. Rwanda fit the bill well.

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> Posted by Center Staff

The latest edition of the Financial Inclusion 2020 News Feed, our weekly online magazine sharing the big news in banking the unbanked, is now available. Among the stories in this week’s edition are a new publication from GSMA that outlines operational guidelines for mobile money providers offering interoperable services, the Bank of Ghana issuing logos to licensed microfinance institutions so that they’re discernible from unlicensed ones, and, in the United States, the Department of Housing and Urban Development (HUD) working with the Consumer Financial Protection Bureau (CFPB) to target incidences of redlining (the practice of lenders charging minorities more for products or excluding them from services altogether). Here are a few more details:

  • Account-to-account mobile money interoperability can bring significant benefits to providers and customers if conducted correctly, but weak implementation can bring a slew of negative ramifications; the new GSMA report highlights key requirements for effective interoperability and actions for providers to realize them.
  • To combat unlicensed microfinance institutions frauding clients in Ghana, the government revealed a new system of logos to be issued to licensed MFIs, helping clients know which institutions they can and can’t trust.
  • At a recent conference, officials from HUD and CFPB, citing recent cases of redlining, announced they had signed a memorandum of understanding to work together in sharing information and investigating mortgage lending discrimination.

For more information on these and other stories, read the latest issue of the FI2020 News Feed here, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to Eric Zuehlke at ezuehlke@accion.org.

> Posted by Rishabh Khosla, Senior Investment Analyst, Accion Venture Lab

The following post was originally published on SocialStory.

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The Indian financial services landscape is undergoing a tectonic shift. The last few years have seen a renewed public focus on expanding financial inclusion. Building off prior programs, the government has invested in regulatory reform, improvements to the banking system, payments, and ID infrastructure. They have also announced a series of programs targeting the bottom of the pyramid (BoP) and micro, small, and medium enterprises (MSMEs). Simultaneously, we are beginning to see real shifts in the adoption of digital technologies and banking services (such as basic savings accounts and smartphones), driven by compelling use-cases, such as government subsidies, delivered directly into bank accounts, and rickshaw-hailing apps that use mobile wallets. Together these trends are unleashing tremendous innovation with the potential to speed financial inclusion for millions.

As investors in early and growth stage “social” enterprises that are speeding financial inclusion around the world, we believe startups are uniquely positioned to navigate this shifting technological, regulatory, and competitive environment. Indeed, financial sector reform in India has had many false starts, and there are still many regulatory and structural hurdles to be overcome. However, we believe India is nearing an inflection point with changes playing out in three areas that are giving birth to exciting startup financial services models: MSME finance, digital payments, and consumer services.

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> Posted by Monica Brand Engel and Jackson Scher, Managing Director and Program Coordinator, Frontier Investments Group, Accion

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Innovative payment solutions are proliferating globally. Enabled by the exponential expansion of mobile phones, social media, “big data”, and internet access, financial players throughout the world are inventing new ways to complete transactions. Disruptive innovations such as prepaid options, NFC-enabled payments, and cryptocurrencies are gaining significant adoption and are changing the payments space. These trends are especially pronounced in emerging markets where many new entrants have chosen to “leapfrog” traditional, resource-intensive systems and dive directly into the seamless and nimble world of digital financial services. Although these exciting innovations in digital payments have the potential to increase convenience for customers and dramatically reduce costs, some challenges remain. Read the rest of this entry »

> Posted by Elisabeth Rhyne, Managing Director, CFI

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What are the most important unanswered questions in financial inclusion?

Last week I was fortunate to participate in the small, idea-packed Conference on Financial Inclusion at Harvard Business School, organized by Professor Rajiv Lal. The attendees were a high-level microcosm of the financial inclusion world, a sort of mini-Financial Inclusion 2020 Global Forum. A prime purpose of the gathering was to identify a potential research agenda.

Among the ideas emerging from very rich conversations, I identified three distinct areas of research: business questions that could be addressed through HBS’s famous case method; research focused on regulation; and social science research focused on consumers. Because what one says at HBS stays at HBS, I cannot identify who offered what idea, but here is a brief summary.

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Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.