The full potential of FinTech for financial inclusion may be realized with a strategic framework of underlying infrastructure and an enabling policy and regulatory environment to support digital financial transformation. Drawing from experiences in a range of developing, emerging and developed countries, our research suggests that the best approach is staged and progressive, focused on four main pillars.
The first pillar is building digital identification and e-KYC systems to simplify access to the financial system. Once these are established for individuals and businesses, they provide a solid foundation not only for finance but also for the development of the digital economy more broadly.
The second pillar is digital payment infrastructure and open electronic payment systems, the primary way to facilitate digital financial flows in an economy.
The third pillar combines the promotion of account opening and access with the electronic provision of government services, particularly for public transfers and payments, to scale up the use of digital finance and related services. By supporting access, payments and savings, together these three pillars provide a foundation for digital financial transformation and financial inclusion.
The fourth and final pillar – design of digital financial markets and systems – builds on the first three to support broader access to finance and investment, underpinning use cases including securities trading, clearing, and settlement, and other more sophisticated financial functions.
Finally, there is a need for regulatory approaches that support and adapt to these four pillars. This is a major journey for any economy, but one that experience increasingly suggests has tremendous potential to transform financial inclusion and support digital economic development.