Technology: While Building the Technology Infrastructure Rails, Consider the Passengersa
Technology is fast changing the landscape of financial services, and in dramatic ways, as the financial services industry builds the ‘rails’ that enable payment and transaction access. But providers, regulators and support institutions need to ensure that the financial services that follow provide value and quality to the passengers who climb aboard.
Our Assessment
Why It Matters

Without new developments in technology, there would be no financial inclusion movement today.

Technology is propelling inclusion in three main ways. First, and overwhelmingly the focus of most financial inclusion discussions, technology is creating cheaper financial service access, delivery, and transaction processing. Ultimately everyone, everywhere will be reached.

The more we learn about what’s happening in the field of technology for financial inclusion, the more we’re convinced that it will take us into a brave new world. However, we need to ensure that brave new world works well for customers.

Second, technology is changing how credit decisions are made and who can get credit, through innovations in underwriting based on data analytics (discussed in the FI2020 Progress Report on Credit Reporting) and other innovations such as pay-as-you-go technology and various forms of peer-to-peer (P2P) lending. These shifts may provide access to many new borrowers, and ultimately, it is hoped, at lower interest rates.

Third, technology is changing the way financial services providers interact with their clients. The controversial movement from a “high touch” to “low touch” approach has substituted technology for human-to-human interaction. Ironically, though, at this stage, we are seeing more, not fewer, human interactions because of the surge in agent banking. And with cheaper and more sophisticated technology, possibilities emerge for richer interactions that build customer capability, trust, and loyalty, while enabling providers to understand customers in greater depth (discussed in the FI2020 Progress Report on Financial Capability).

Most of the myriad financial technology (fintech) innovations that are springing up around the globe are variations on one of these three themes, but other innovations include back-office processes, biometric identification, and a newly developing trend known as “regtech,” which leverages technology to make regulation smoother.

The more we learn about what’s happening in the field of technology for financial inclusion, the more we’re convinced that it will take us into a brave new world. However, we need to ensure that brave new world works well for customers.

Progress to Date: Faster than a Speeding Bullet
Progress Index Score: 7

Workers the world over are fast laying the rails for technology-enabled financial services: they are installing good old ATMs, signing up banking agents and merchants equipped with point of sale (POS) devices, designing SMS-based transactions using cell phones, and finally, enabling online transactions through apps on smartphones and tablets.

Today, there are about 1,200 people globally per access point. By 2020, there will be only 600 people per access point thanks to ATM and agent growth.

The task of building the distribution network for financial transactions and linking it to several billion people has captured the imagination of many, making the World Bank’s plan to spread transaction accounts to everyone by 2020 seem almost inevitable.

All the main transaction channels (except bank branches) are on a steep growth path. There are now about 2,200 adults per ATM worldwide, and, if recent trends continue, this ratio will fall to about 1,500 adults per ATM by 2020 (see figure below). The number of banking agents today is somewhat lower than the number of ATMs, but within the next one to two years the lines will cross and there will be more agents than ATMs. Together they will move the financial inclusion sector from a figure of roughly 1,200 people per access point to something closer to 600 people per access point.

And that doesn’t begin to consider transactions through mobile devices or the Internet. Although successes with mobile money have so far been greatest in East Africa, if mobile phones become the dominant transaction channel, the access point ratio tumbles from one access point for every 600 adults to one access point for everyone, given that there are already more mobile phones in use than adults in the world.

There are half as many broadband connections to the Internet today as there are cell phones, but smartphones and tablets are spreading quickly with inexpensive new models.

The Gates Foundation is betting that almost everyone in the developing world will have a mobile money account within 15 years. And by then, most people will handle their own Internet-based transactions, a shift already well on its way in the developed world and now beginning to penetrate emerging markets. There are half as many broadband connections to the Internet today as there are cell phones, but smartphones and tablets are spreading quickly with inexpensive new models.

There are half as many broadband connections to the Internet today as there are cell phones, but smartphones and tablets are spreading quickly with inexpensive new models.

Global investment in fintech has more than quadrupled in the last year, growing from $3 billion in 2013 to over $12 billion by the end of 2014.

Another factor contributing to that high score is the enthusiasm for technology-enabled models among governments eager to promote financial inclusion. The Indian government has begun to move its large program of cash transfers into biometrically linked accounts, following similar shifts in many other countries. The Alliance for Financial Inclusion and the International Telecommunications Union sponsor working groups of regulators from around the world to promote enabling regulation for digital financial services. And at the national level, dozens of countries are crafting similar regulations. China, for example, is counting on innovation in technology to provide on-ramps for hundreds of millions of people.

Global investment in fintech has more than quadrupled in the last year, growing from $3 billion in 2013 to over $12 billion by the end of 2014. This explosive growth in fintech start-ups and new ideas is emblematic of the new ways that people are saving, investing, and managing their money. While fintech firms will unlikely replace traditional banking services, they certainly are challenging the status quo. Goldman Sachs estimates that the financial services providers that operate in fields susceptible to disruption by fintech generate annual global revenues of $4.7 trillion and profits of $470 billion.

The promises are big and the stakes are high, but we cannot justify a higher score because so much remains unfinished and there are many unanswered questions. Moreover, the impact so far is uneven, particularly regarding the base of the pyramid or BoP customer segment. While the sheer number of access points is rising, the coverage of rural and remote areas in many countries, especially the poorest, remains weak. There also remains a gender gap in the use of technology-enabled models. Myriad creative fintech start-ups abound, but scale is elusive. A few other big unanswered questions check our enthusiasm: Are the new channels and services adequately secure and private? Is access leading consistently to use? While technology promises lower costs for providers, will it lower prices for clients, too?

The future of financial inclusion will certainly be technology-enabled. Today the world is in a state of disequilibrium, with financial technology challenging the status quo. The new equilibrium – probably years away – will be more nimble, more inclusive, and more cost-efficient. It is difficult to predict, however, who will benefit – and what the risks will be for customers and institutions.

Everyone’s Been Working on the Railroad

In 2007, the M-Pesa initiative launched in Kenya with the slogan “Send Money Home,” ushering in a wave of innovation around the world and providing an expanded vision of what is possible in terms of reach and cost.


India has rolled out the world’s largest biometric ID program, named Aadhaar (meaning “foundation”). Through the program, each individual is assigned a 12-digit unique identification number (UID) after submitting their fingerprints, iris scans, name, date of birth, and address.

Fast-forward to the Mobile World Congress in 2015, when Nokia unveiled a $29 smartphone with a 29-day standby battery life. Targeted at consumers in many emerging markets, the phone signals a shift in smartphones from a customer base that is exclusively high-income to one serving the general population. This shift opens the possibility of app-based service delivery.


Effective regulation of mobile payments requires cooperation between telcos and banking regulators. Two international working groups have emerged to better define the role of different regulatory bodies.

A Rail-Building Agenda

Today’s rail builders are hard at work on several challenges. The current agenda for building delivery channel infrastructure includes the following:

Expanding the connectivity infrastructure. This crucial process occurs largely beyond the financial inclusion world, as mobile network operators expand their phone and Internet coverage or upgrade existing services to higher capacity. This part of the agenda is essential for reaching rural and remote areas and very low–income countries. It is also essential for the transition from SMS/USSD–based services to Internet-based services.

Expanding and strengthening agent networks. It is ironic that current technology-enabled models depend on large networks of humans (agents) to perform cash-in/cash-out transactions, and many companies are focused on building and managing agent networks. As these agents who perform banking transactions are still an emerging phenomenon, the rules governing safe and fair agent network operation are a prime subject for regulatory attention.

Connecting consumers. The race is on to sign up customers for basic transaction services. This occurs mainly as banks, mobile network operators, and others compete to expand their coverage, but governments also play an important role, as they have opportunities to create rapid mass sign-ups by converting from cash-based government benefit payments to payments performed electronically. Aadhaar, India’s national biometric ID program, is one of the best-known examples (see “Biometric Identity through Aadhaar”). And increasing merchant acceptance of these services, so consumers can use electronic payments for everyday purchases, is a necessary next step in making it worthwhile for customers to connect.

Enabling the fast track: government-to-person payments. The World Bank is relying in part on the promise of government-to-person (G2P) electronic payments to achieve its goal of connecting all consumers. Governments are the biggest payment generators in the world, with annual global volume predicted in 2010 at about U.S. $40 trillion, and they have strong incentives – improved efficiency, lower cost, reduced corruption – to switch away from cash. The Gates Foundation predicts that using digital rather than cash payments can significantly reduce costs. South Africa, for example, saw its costs of delivering social transfers drop 62 percent when it went digital. But the big promises have yet to yield the truly significant success stories: according to the World Bank, electronic payments would allow governments to give an additional 160 million people access to a bank account.

Getting the regulatory framework right. As governments increasingly move from initial regulatory frameworks into second-generation revisions and improvements, issues continue to command attention, such as supporting interoperability (without discouraging entry) and developing robust consumer-protection regimes that can adapt to changing technologies.