WSBI welcomes the growing consensus that improving financial inclusion is a key step towards global economic development, as witnessed also by the linkage of “financial inclusion” with the United Nations 2030 Agenda for Sustainable Development by the G20 Chinese Presidency. Financial inclusion is considered to be a key element of each country’s endeavour to realise sustainable development, and it is one of the key drivers for poverty eradication, which constitutes the top priority of the 2030 Agenda for Sustainable Development.
WSBI and its members have a strong history and tradition of active involvement in financial inclusion. More recently, in September 2015, WSBI and its members pledged to contribute 1.7 billion customers and 400 million new transaction accounts to the World Bank’s Universal Financial Access (UFA) 2020 goal, based on the current membership by the end of 2020. This commitment reconfirms the aims of its 2012 Marrakech Declaration– “an account for everyone”. To date WSBI and its members have exceeded their projections achieving 117 million new clients and 244 million new transaction accounts in 2015. These figures represent annual growth rates of 8.2% and 11.7% respectively.
In light of the above, WSBI welcomes the Chinese G20 Presidency decision to mandate the Global Partnership for Financial Inclusion (GPFI) to work on a set of high-level principles for action on digital financial inclusion. Digitisation is undoubtedly a very useful tool in overcoming obstacles to inclusion.
Digitisation can help to reduce the high cost challenge of financial inclusion. It can, in particular, be a delivery mechanism that permits banks to provide financial access beyond branches and agent networks in rural areas – i.e. reaching the last mile- in a sustainable manner. Digitisation in the form of small data and big data analytics can also enable banks to be more customer centric.
WSBI and its members are convinced that the adoption of a digitized banking universe can help the savings and retail banks that constitute the WSBI membership to achieve their longstanding commitment to financial inclusion. In parallel, they continue to maintain their long-standing tradition of adopting new technologies and incorporating them in their product and service offer.
Within this global wave of digitisation, it should however be clear that digitisation is not an end in itself and that the human factor, including the ability to promote and sustain trust in the formal financial services system, should not be neglected. WSBI does not believe retail banks will become pure “online banks”. The long-term trust that is the cornerstone of our proximity relationship is our key strength in a digitised world. The importance of this for WSBI and its members is witnessed by the Declaration “Taking the digital path, keeping a human touch” adopted by the WSBI World Congress in September 2015.
In this regard, WSBI also wishes to stress the importance of postal networks to foster financial inclusion. Postal networks, which roughly account for about a fourth of WSBI membership, can be key stakeholders and central players in promoting financial inclusion given their large network in rural areas where there is a higher unbanked rate. Postal financial service providers are however facing challenging times in terms of a rapidly changing environment and competitive pressures. This applies in particular to the postal financial institutions in West Africa where they face restrictions to offer a full range of financial services, on the one hand and weak governance and lack of financial autonomy, on the other. There is therefore a need for a radical overhaul of culture and organisations to understand customers and place them at the centre of their business.
The digitisation of financial services presents policymakers and regulators with as many challenges as it does for the banking industry. Digital financial services raise specific risk and trust factors and traditional responses may not be adequate in this new world. WSBI believes that policymakers, regulators and supervisors worldwide have the responsibility to guarantee that all financial services providers, whatever the distribution channel they use, operate in a level playing-field, to ensure that the relevant prudential and supervisory measures are in place to guarantee the security of transactions and the soundness of the institutions involved and to make sure that long term trust and protection of financial customers is specifically addressed.
Global standard setting bodies have interest in financial inclusion
Accordingly, WSBI welcomes the fact that international standard-setting bodies (SSBs) (such as the Financial Action Task Force, the Basel Committee on Banking Supervision and the Committee on Payments and Market Infrastructures) are taking an interest in financial inclusion and that the G20 Leaders and the Global Partnership for Financial Inclusion (GPFI) are actively encouraging the SSBs to embed the principle of proportionate regulation and supervision, which is so critical to financial inclusion, in SSB standards, guidance and thinking. Nevertheless, it is our impression that greater sensitivity is still needed amongst these bodies towards the challenges of financial inclusion in order to avoid any potential unintended consequences that could arise as a result of their initiatives and policies.
Examples include shadow banking, where it appears that measures under consideration could in fact hamper financial inclusion rather than support it, due to the definitions of what constitute non-bank financial institutions, and the detailed application in some countries of rules on capital, liquidity and leverage ratios and their potential impact on MSME funding. Another example is the de-risking of some activities by banks, including those in relation to Money Transfer Operators (MTOs) that provide international remittance services.
In conclusion, WSBI would like to stress that compatibility of the objectives of financial inclusion with integrity and stability of financial systems combined with consumer protection are all very important.
But it must also not be forgotten that banks need to manage and maintain a feasible business case in order for financial inclusion to be sustainable.
Enabling environment sought
Accordingly, WSBI calls on stakeholders, policy-makers and regulators to provide an enabling environment that boosts financial inclusion, also with the aid of innovation and technological solutions, rather than hampering it. Proportionate regulation is also required in order to enable the various actors involved in financial inclusion to provide access to finance to the masses in a sustainable manner, also in remote areas. Regulatory arbitrage should be eliminated to secure a level playing field.
WSBI also wishes to highlight the following policy support that is required to advance financial inclusion commitments:
Strengthen the role of government, in terms of policy guidance and incentives, to promote and accelerate the building of a financial inclusion ecosystem and providing an enabling environment for innovation in financial inclusion.
Lack of infrastructure, including financial infrastructure and also physical infrastructure (including internet and mobile coverage, interconnectivity and transportation) should be addressed by the government. Coordination should also be enhanced at national level, to make sure that central banks, ministers of finance and banking supervisors work hand in hand with national authorities and bodies in charge of non-financial areas, which play a crucial role in achieving financial inclusion. The latter are relevant, either because they work with the targeted groups of unserved people (e.g. social welfare, migration etc.), or in business sectors for which specific financial services are needed (e.g. agriculture, health etc.), or on the infrastructure aspects (e.g. telecommunications).
Financial education in emerging and developing economies should be directly connected to the debate on access to finance. The lack of knowledge on money issues and some possible misconceptions on the role of banks, including the development of the vital trust factor, could be a serious deterrent to financial inclusion. Accordingly, the development of a comprehensive national strategy, adoption of a multi-stakeholder approach and development of life-long learning programmes with a specific focus on children and youth is of crucial importance.