The Benefits of Digitizing Payments

DRAFT Executive Summary

The G20s focus on financial deepening and financial inclusion directly contributes to the core
goal of achieving strong, sustainable, and balanced growth. Studies show that broader access to,
and participation in, the financial system can reduce income inequality, boost job creation,
accelerate consumption, increase investments in human capital, and directly help poor people
manage risk and absorb financial shocks.
Strong action for financial inclusion by G20 countries and other key stakeholders would
contribute significantly to key G20 policy objectives:
It will spur broader and stronger economic growth by deepening financial intermediation,
increasing efficiency of, and access to, payment, savings and credit services
It will increase life opportunities and economic benefits for migrant and diaspora
communities by enabling a sharp lowering of costs and increased transparency of
remittances
It will encourage female participation in the labor force and increase womens
engagement in the broader economy by enabling greater control over finances and
household incomes, and increased access to credit and financial systems
The rapid development and extension of the digital platforms and digital payments are necessary
to ensure these benefits occur on a massive scale.
In this paper, we review evidence that the widespread adoption of digital payments in all
their forms, including international and domestic remittances, can be instrumental in
reaching the goals of the G20. The opportunity of digitizing helps to overcome the costs and
physical barriers that have plagued otherwise valuable efforts, and offers the opportunity
to rapidly scale up using mobile phones, retail point of sales, and other broadly available
access points, by deploying financial services across digital platforms. The examples
demonstrate how this is already happening in many countries, and how this is benefitting
poor people and women.
There are real and complex challenges involved in developing a digital payments ecosystem, as
described in this paper. Governments must address regulatory concerns, and work with the
private sector to develop infrastructure that can reach rural areas, and to ensure interoperability
and competition among providers. Providers must consider consumers needs, and the
importance of gaining their trust. We have seen from successful innovations in digital payment
systems that consumers and small businesses rapidly learn how to be competent and comfortable
in using these systems when they are appropriately designed, convenient and efficient.
G20 governments should embrace the opportunity of a broad-based digital financial system
as a path to growth, greater participation of women in the labor force and economy, and
greater equity in payments, including remittances, and we propose several actions to do so:

There is an important regulatory agenda on which governments can engage. Many

regulators are still hesitant to embrace the digital financial revolution that is emerging,
and have reasonable concerns that need to be specifically addressed. Regulatory
authorities, however, need to be encouraged to enable this movement rather than treating
it as an unwelcome development. This means being willing to allow the regulatory
system to be more inclusive of new vectors of financial services. New business models
can address the critical concerns of anti-money laundering/counter-financing of terrorism
(AML/CFT) and related issues that confront regulators. Several countries are grappling

The Benefits of Digitizing Payments

DRAFT Executive Summary

with and successfully addressing these issues. Brazils approach with mobile payments
regulations that allow non-banks to offer payments and savings and to directly access the
central banks clearing and settlement system is paving the way for a number of new
commercial partnerships to go to the market. Mexico has pioneered the approach of tiered
know-your-customer regulations, proportionate to risk and volume.

Governments can dramatically reduce costs, and increase efficiencies and

transparency, by making their payments and social transfers digitally, which will a
help build volume and familiarity with digital payments, forming a foundation upon
which the private sector and person-to-person payments, such as international and
domestic remittances can build. For example, the Mexican government has cut spending
on wages, pensions, and social welfare by 3.3 percent annually, by digitizing payments.

There is an important opportunity to have public and private sector convergence

around the basic technical payment platform infrastructure across which providers
can compete on product development. Cheap, robust, and open payments platforms are
the connective tissue required to reach the 2.5 billion people left out of financial services.
Canada and South Africa are two examples of G20 countries that are leading in the
development of such infrastructure.

The private sector will respond and innovate, if provided an enabling environment.
Contributions made by financial sector players other than traditional banks should be
enabled. There is a real opportunity for strong private sector growth here, but if
regulation implicitly excludes a certain providers, we will miss a big opportunity. At the
same time, those providers need to be given incentives to be competitive, transparent, and
efficient. The private sector can advance successful business model innovations and
invest in scaling up agent networks for financial services, and part of this requires that
mobile network operators, payment and remittance service providers need to be able to
open accounts, as has been done in Brazil, and elsewhere.

By digitizing remittances, costs can be lowered for providers, senders and recipients
and the remittance can provide an entry point to formal financial services. Family
members sending international and domestic remittances can send more money home,
and sending and receiving through digital payments can be made and received into
accounts, rather than cashed out. In particular, this is important for women who migrate
for work. Women make up half of the migrant population, and research in this paper
shows they send larger amounts of remittances home, and over a longer time period.

To encourage stronger female participation in the labor force and broader economy,
the evidence indicates special steps governments can take to enable women to
participate fully. Digitizing wage payments is an important linkage to increasing female
labor force participation. Digital payments enable the confidentiality and convenience
women require in financial services. Opening an account can be an important first step
for introduction to the formal economy, such as a way for the woman entrepreneur to
formalize her small business. In addition social payments can provide the onramp to
financial inclusion and in many cases the first account that a woman has in her own name

The Benefits of Digitizing Payments

DRAFT Executive Summary

and under her control. It is especially important that women, who often lack formal
borrowing histories, gain access to accounts and begin to build financial histories.

The multilateral development banks and comparable agencies should ensure that
they are a source of comparative expertise on this emerging field, and should stand
ready to provide technical assistance and resources to emerging markets as they
undertake this agenda. It is particularly important that development banks pay special
attention to the importance of the role of women in the economy and should be
developing special advice on the economic resource presented by women.

There is now a great opportunity for the G20 collectively to develop robust, specific initiatives
under each of these action headings, building on the experience of digital financial development
already underway in individual G20 countries, such as those instanced above. Only governments
have the authority to be prime movers on much of this agenda, especially with respect to
regulatory reform and the incentive framework for the private sector.

By the Better Than Cash Alliance and the Bill & Melinda Gates Foundation
June 20, 2014