How safe and secure digital payments can contribute to financial inclusion was the main topic of discussion among regulators, policymakers, private sector players and other high-level representatives in Kuala Lumpur at a regulatory forum sponsored by MasterCard and the Bill & Melinda Gates Foundation on 4-5 August 2014.
The forum presented an opportunity to elevate discussion around the trends in the use of digital payments for financial inclusion purposes and risk management best practices for various forms of digital payments.
Bank Negara Malaysia (BNM) Deputy Governor Dato’ Muhammad bin Ibrahim used the occasion to highlight his country’s high mobile penetration rate and its importance in promoting and further supporting digital payments. In particular, he noted four necessities to drive financial inclusion through digital payments:
- Need to promote increased competition and ensure costs decrease;
- Need to ensure digital payment infrastructure is shared;
- Need to ensure strengthened transaction security;
- Enhanced consumer protection and education is key.
“We are living in an exciting time as e-payments can cater to the masses and support financial inclusion in ways not envisioned before,” said the Deputy Governor.
Debate also focused on the role regulators play in providing an appropriate enabling environment to support the expansion of digital payments for financial inclusion with examples from India, Indonesia, Tanzania, and the Solomon Islands. Focus shifted to how digital payments affect financial inclusion as well as benefits and identifiable future trends, including innovative card payments, the Internet, mobile, electronic, infrastructure and the importance of interoperability.
It became clear that even though banks and traditional players have been the main innovators in the digital payment space, there are also several newcomers that are innovating and having a dramatic impact and outreach in some markets. The important point is still one of convergence and how players can effectively move toward interoperability and effectively become interconnected. This will require continuous dialogue between regulators and the private sector with roles for everyone.
What was particularly important for regulators is to understand that interoperability and inter-connectivity of systems also bring with it greater risks as well as opportunities to minimize risks at the same time. As the number of interconnections across various players increases, especially with the entrance of new non-traditional payment providers, the entire payment value chain becomes as strong as its weakest link. Any risk or vulnerability in one of the player’s systems can affect others.
At the same time, international payment operators such as MasterCard and Visa bring along with them the ability to provide their own compliance standards that can provide a certain level of assurance to regulators overseeing new players and supporting interoperability. While this point was briefly discussed during the forum, it is this particular aspect of analysis, compliance certification and review by international payment operators that would be useful to discuss in the future in more depth.
This forum was just the start of what we hope will be a series of events to touch on the important issues of how safer and secure digital payments among multiple interconnected players can indeed provide for greater financial inclusion and we look forward to an ongoing public private sector dialogue to continue this process.
ABOUT THE AUTHOR
John Owens is the Senior Policy Adviser, Digital Financial Services & Financial Inclusion Policies, at the Alliance for Financial Inclusion.
Categories: Digital Financial Services