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Payment Aspects of Financial Inclusion in the Fintech Era

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Payment Aspects of Financial Inclusion in the Fintech Era Committee on Payments and Market Infrastructures World Bank Group Payment aspects of financial inclusion in the fintech era April 2020 This publication is available on the BIS website (www.bis.org). © Bank for International Settlements 2020. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISBN 978-92-9259-345-2 (print) ISBN 978-92-9259-346-9 (online) Table of contents Foreword .................................................................................................................................................................... 1 Executive summary ................................................................................................................................................. 2 1. Introduction ....................................................................................................................................................... 4 2. Fintech developments of relevance to the payment aspects of financial inclusion ............. 6 2.1 New technologies ................................................................................................................................. 7 2.1.1 Application programming interfaces ......................................................................... 7 2.1.2 Big data analytics ............................................................................................................... 8 2.1.3 Biometric technologies .................................................................................................... 9 2.1.4 Cloud computing ............................................................................................................... 9 2.1.5 Contactless technologies .............................................................................................. 10 2.1.6 Digital identification ........................................................................................................ 12 2.1.7 Distributed ledger technology .................................................................................... 14 2.1.8 Internet of things .............................................................................................................. 14 2.2 New products and services ............................................................................................................. 15 2.2.1 Instant payments .............................................................................................................. 15 2.2.2 Central bank digital currencies ................................................................................... 18 2.2.3 Stablecoins .......................................................................................................................... 20 2.3 New access modes ............................................................................................................................. 20 2.3.1 Electronic wallets .............................................................................................................. 20 2.3.2 Open banking .................................................................................................................... 21 2.3.3 Super apps .......................................................................................................................... 23 3. Opportunities and challenges of fintech developments in driving access to and usage of transaction accounts .............................................................................................................................. 25 3.1 Transaction account and payment product design .............................................................. 25 3.1.1 Instant payments satisfy the demand for greater speed and end user control................................................................................................................................... 25 3.1.2 Open banking has the potential to augment the usefulness of transaction accounts ............................................................................................................................... 28 3.1.3 Digital ID simplifies customer due diligence ......................................................... 29 3.1.4 The design of central bank digital currencies can aim at providing universal access to a basic means of payment ..................................................... 30 3.1.5 Super apps cover a wide range of payment needs in their users’ daily lives ........................................................................................................................................ 31 Payment aspects of financial inclusion in the fintech era – April 2020 iii 3.2 Readily available access points...................................................................................................... 32 3.2.1 New products and services change the demand for physical access points and cash ............................................................................................................................... 32 3.2.2 Electronic wallets in combination with contactless technologies can expand the number of acceptance points at low cost ...................................... 33 3.3 Awareness and financial literacy ................................................................................................... 34 3.3.1 End users’ digital capabilities do not always keep pace with product evolution .............................................................................................................................. 34 3.3.2 Big data analytics can break down knowledge barriers or reinforce exclusion patterns ............................................................................................................ 35 3.4 Leveraging large-volume recurrent payment streams ......................................................... 36 3.4.1 Cross-border retail payments innovation can benefit from a mix of fintech developments .................................................................................................................... 36 3.4.2 Electronic wallets in combination with contactless technologies could support the efficient use of transaction accounts for transit payments..... 38 4. The role of the basic foundations in harnessing fintech’s opportunities while addressing the challenges ......................................................................................................................... 39 4.1 Public and private sector commitment ...................................................................................... 39 4.1.1 Fintech developments call for increased international and cross-sectoral coordination between authorities ............................................................................. 39 4.1.2 A collaborative approach to fintech is key to making an impact .................. 40 4.1.3 Regulators’ initiatives such as sandboxes, innovation hubs and innovation offices can foster the development of the fintech ecosystem ....................... 41 4.2 Legal and regulatory framework................................................................................................... 43 4.2.1 Adapted and new licensing frameworks enable new players to leverage fintech for innovative services ..................................................................................... 43 4.2.2 Data frameworks need to ensure privacy in the fintech era ........................... 45 4.2.3 Fintech developments may challenge the applicability of current oversight concepts and standards ................................................................................................. 46 4.2.4 Fintech developments should not compromise the effective protection of end user funds ................................................................................................................... 46 4.2.5 Regulatory technologies can support authorities in fulfilling their supervisory and oversight tasks and market participants in meeting requirements more effectively and efficiently ...................................................... 47 4.3 Financial and ICT infrastructures ................................................................................................... 49 4.3.1 Fintech developments highlight the opportunities and challenges of non- bank access to payment infrastructures .................................................................. 49 4.3.2 Fintech goes hand in hand with raising the bar for the cyber resilience of PSPs and financial infrastructures .............................................................................. 51 iv Payment aspects of financial inclusion in the fintech era – April 2020 4.3.3 Interoperability and geographical coverage of financial infrastructures can benefit from fintech developments .......................................................................... 53 5. Review of the PAFI guidance with focus on fintech ........................................................................ 55 6. Conclusions ..................................................................................................................................................... 61 Annex A: Members of the task force ............................................................................................................. 62 Annex B: Acronyms and abbreviations ......................................................................................................... 64 Annex C: References
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