Boosting financial inclusion in developing markets will require work to broaden access to payment services, possibly through the creation of infrastructure modelled on Europe's new Target Instant Payment Settlement (Tips) and, in the longer term, the introduction of central bank digital currencies (CBDCs), says ECB executive board member Benoît Cœuré.
In a speech in Cape Town, Cœuré, who is also the chair of the Committee on Payments and Market Infrastructures (CPMI), talked up the progress made on financial inclusion in payments over the last few years.
In 2017, 69% of the global population, or 3.8 billion people, had an account at a financial institution or mobile money provider, an increase of seven percentage points since 2014. In Africa alone, between 2014 and 2017 more than 70 million adults opened a transaction account, as mobile phones revolutionised the market.
However, only seven African countries have achieved a 60% financial inclusion rate and in many states less than half the population has access to basic payment services. This threatens social cohesion, excluding huge swathes of people from credit markets, meaning less trade, less education, and fewer jobs.
It also leads to the rise of "shadow payments", informal P2P platforms and cryptocurrencies that lack operational robustness, risk management and consumer protection.
In order to broaden access to regulated payment systems, Cœuré calls for modernisation of existing retail and wholesale payment systems. He cites the ECB's Tips, which allows payment service providers to offer funds transfers to customers in real time and around the clock across Europe.
Says Cœuré: "Tips could be a role model for developing economies. It not only has the potential to help better prepare incumbents for the challenges arising from digital giants, such as Alibaba, Apple and Google, who are integrating payment services into their ecosystems; it also has the potential to be a catalyst for financial inclusion.
"Innovations like Tips have the potential to curb the use of 'shadow payments', in particular in the area of cross-border payments."
In the longer time, CBDCs could also help boost financial inclusion. Cœuré cites a recent CPMI survey which found that many central banks from emerging market economies are exploring their own digital currencies.
However, he suggests that we are "arguably" a long way off implementation and says that a lot of work still needs to be done on "how central banks aim to overcome the big hurdle of providing consumers with access to basic transaction accounts or a payment device".
In his speech, Cœuré also addresses the role of regulators, arguing that the rise of new technologies and new providers means that a new approach which focuses on activity, not entities, is needed.
He notes: "Entity-based regulation and supervision may not be effective in the digital age. Fintech is indifferent to conventional organisational forms. It cannot easily be covered by current regulatory conventions."
Activity-based regulation requires stronger international cooperation because fintech is borderless and regulatory arbitrage is a major threat.
Concludes Cœuré: "We have an obligation to bring the financial system closer to the people so that everyone benefits from access to credit, savings and insurance products. And we have an obligation to ensure that the benefits of innovation reach everyone and not just a portion of the population. We need to encourage fintech to be built “for the people” - old and young, rich and poor, expert and layman alike."
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