Basic Regulatory Enablers for Digital Financial Services

Abstract

Digital financial services (DFS) differ from traditional financial services in several ways that have major implications for regulators. The technology enables new operating models that involve a wider range of actors in the chain of financial services, from design to delivery. The advent of DFS ushers in new providers such as nonbank e-money issuers (EMIs), creates a key role for agents in serving clients, and reaches customers who have otherwise been excluded or underserved. This in turn brings new risks and new ways to mitigate them. For many years now, CGAP has been interested in understanding how these new models are regulated, and how regulation might have to adapt to enable DFS models that have potential to advance financial inclusion. This focus note takes a close look at four building blocks in regulation, which we call basic regulatory enablers, and how they have been implemented in practice. Each of the enablers addresses a specific aspect of creating an enabling and safe regulatory framework for DFS. Our focus is on DFS models that specifically target excluded and underserved market segments. The authors analyze the frameworks adopted by 10 countries in Africa and Asia where CGAP has focused its in-country work on supporting a market systems approach to DFS.

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