A  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE G20 POLICY RECOMMENDATIONS FOR ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE G20 POLICY RECOMMENDATIONS FOR ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE Global Partnership for Financial Inclusion 2023 ABBREVIATIONS AE advanced economies ACH automated clearing house AML/CFT anti-money-laundering/countering the financing of terrorism API application programming interface BIS Bank for International Settlements BSP Bangko Sentral ng Pilipinas (Central Bank of Philippines) CDD customer due diligence CPMI Committee on Payments and Market Infrastructures DEWG Digital Economy Working Group DFE digital financial ecosystem DFS digital financial services DPI Digital Public Infrastructure EMDEs emerging markets and developing economies FIAP financial inclusion action plan FPS fast payment systems FSP financial service provider G20 Group of twenty countries G2P government to person GPFI Global Partnership for Financial Inclusion GSMA Global system for mobile communications association HLPs G20 High-Level Principles for Digital Financial Inclusion ICT information and communication technology ITU International Telecommunication Union KYC know your customer MSME micro, small, and medium-sized enterprise OECD Organization for Economic Co-operation and Development P2P person to person POS point of sale RTGS real-time gross settlement SDG United Nations sustainable development goals SME small and medium-sized enterprise WEF World Economic Forum All dollar amounts are US dollars unless otherwise indicated. ii CONTENTS Abbreviations ii Acknowledgments v Foreword vii Executive Summary 1 1. Introduction and Background 5 2. DPIs and their role in the financial sector 9 3. How DPIs Can Effectively Advance Financial Inclusion and Productivity Gains 16 The Role of DPIs in Advancing Financial Inclusion 3.1  16 The Role of DPIs in Enabling 3.2  3.3 DPI Use Cases 23 3.3.1 Account Opening 23 3.3.2 Government-to-Person Payments 25 3.3.3 Remittances 28 3.3.4 MSME Finance 29 4. An Enabling Ecosystem to Foster the Impact of DPIs on Financial Inclusion and Productivity Gains 32 Digital Financial Ecosystem Enablers That Support Financial Inclusion and Productivity 4.1   Gains through DPIs 32 Risks and Challenges for DPIs in Achieving Financial Inclusion and Productivity Gains 4.2  35 5. Policy Recommendations 38 6. Potential Areas for Further Exploration 41 7. Country Case Studies 44 Digital ID, Digital Payments, and Data Exchange Infrastructure in Action: Country 7.1   Case Studies 44 7.1.1 Argentina 44 7.1.2 Bangladesh 44 7.1.3 Colombia 46 7.1.4 Ghana 47 7.1.5 Indonesia 48 7.1.6 Philippines 49 iii iv  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE 7.1.7 Rwanda 50 7.1.8 Saudi Arabia 51 Case Studies on Programs/Initiatives to Advance Financial Inclusion 7.2   52 7.2.1 Jan Dhan for Advancing Financial Inclusion: India 52 7.2.2 Designing Digital Remittance Solutions for Domestic Workers in Indonesia 53 7.2.3 Improving Digital Literacy in the United Arab Emirates 54 Annex A: Work Developed by the GPFI to Support Financial Inclusion 56 G20 Financial Inclusion Action Plan 2020 56 Applicable G20 Principles and Work Done under Previous Presidencies 56 Annex B: Interlinkages between DPIs and Implementation of the HLPs on Digital Financial Inclusion 59 Annex C: Additional Explanations for Voluntary and Nonbinding Policy Recommendations 61 Public and Private Collaboration 61 Regulation, Supervision, and Oversight 61 Building Inclusive Products and Services 62 Protection of Vulnerable and Formerly Excluded Users 62 References 64 ACKNOWLEDGMENTS This G20 Global Partnership for Financial Inclusion (GPFI) document has been prepared by the World Bank* as an implementing partner of GPFI with the guidance of and inputs from the G20 India Presidency represented by the Ministry of Finance (MoF) of the Government of India and the Reserve Bank of India (RBI). The team of MoF, Government of India, was led by Chanchal C. Sarkar, Adviser, and that of RBI was led by Ms. Sonali Sengupta, CGM. The Presidency would like to express its sincere gratitude to the G20 Troika and all the GPFI member coun- tries for their support and contributions, the GPFI Honorary Patron (UN Secretary General’s Special Advocate for Inclusive Finance for Development) for her valuable guidance, GPFI Implementing and Affiliated Partners and GPFI Co-Chair Magda Bianco for their active contributions and constructive feedback which have enriched the docu- ment significantly. The World Bank drafting team comprised of Oya Ardic, Guillermo Galicia Rabadan, Georgina Marin, Harish Natarajan, Thomas Piveteau, Nilima Ramteke and Arpita Sarkar with inputs from Vyjayanti Desai and Jonathan Marskell; Julia Clark (World Bank), Stefan Staschen (CGAP), Ghada Teima (IFC), and Alan Gelb (Center for Global Development) provided valuable comments and inputs; Jean Pesme (Global Director, Finance, Competitiveness and Innovation Global Practice, World Bank) and Christine Zhenwei Qiang (Director, Digital Development Global Practice, World Bank) provided overall guidance; Charles Hagner provided editorial assistance and Naylor Design Inc. designed the report. The Better Than Cash Alliance and Women’s World Banking drafted several case studies in the report. *The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of The World Bank concerning the legal status of any country, territory, city or area or of its authorities or concerning the delimitation of its frontiers or boundaries. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the informa- tion, methods, processes, or conclusions set forth. Nothing herein shall constitute or be construed or considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. v vi  ADVANCING FINANCIAL INCLUSION and PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURES Financial Inclusion and Productivity Gains through Digital Public Infrastructures FOREWORD G20 Global Partnership for Financial Inclusion Policy Recommendations for Advancing Financial Inclusion and Productivity Gains through Digital Public Infrastructures Her Majesty Queen Máxima of the Netherlands, United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development (UNSGSA) and Honorary Patron of the G20 GPFI T he G20 Global Partnership for Financial Inclusion’s (GPFI) and account aggregation. In just six years, it has achieved a policy recommendations on digital public infrastructure remarkable 80% financial inclusion rate—a feat that would (DPI) highlight a promising approach to fostering inclu- have taken nearly five decades without a DPI approach. Other sive economies and empowering vulnerable individuals for a nations, including Brazil, Estonia, Peru, and Singapore, have better future. similarly embraced DPI models, yielding tangible results that DPI, as interoperable, open, and inclusive systems supported underscore the efficacy of this approach. by technology, serves to provide essential public and private While DPI will vary by country, successful cases share key services for the common good. As the UN Secretary-General’s principles reflected in these recommendations: inclusivity, Special Advocate for nearly 15 years, I have witnessed firsthand openness, interoperability, and support for essential public and the transformative potential of inclusive DPI, even for the most private services. These DPIs should ensure that they prioritize economically challenged households and enterprises. safety, trust, and robust data protection. So, let’s continue shar- Safe, transparent, and interoperable systems for payments, ing experiences and learning from the best examples to extend identity, and data sharing have empowered millions of small these benefits. merchants, enabling them to easily manage transactions As Honorary Patron of the G20 GPFI, I am delighted with through their mobile phones. Inclusive DPI can spark digital the DPI policy recommendations crafted under the Indian G20 contracts and e-commerce, fostering efficient markets and Presidency. This report is essential reading for those embracing opening doors for previously marginalized individuals. digital transformation. The impact of DPI goes beyond inclusive finance—it can Uniting the public and private sectors through truly support health, education, and sustainability. Amid the COVID- inclusive DPI can drive progress toward the UN Sustainable 19 pandemic, DPI enabled emergency support to be directly Development Goals and bolster resilience for people and busi- delivered to the digital wallets of those in need as well as helped nesses. I anticipate the GPFI’s ongoing dedication to this topic facilitate swift vaccine distribution. and look forward to celebrating our achievements in the com- The India Stack exemplifies this approach, combining dig- ing years. ital ID, interoperable payments, a digital credentials ledger, vii Digital public infrastructure has the potential to help countries leapfrog their digital transformation. Increasingly, households and businesses can digitally access the services and products they need. EXECUTIVE SUMMARY This report was developed by the Global Partnership for In the rapidly evolving DFS1 landscape and against the Financial Inclusion (GPFI) under the G20 India Presidency. backdrop of widespread digital transformation across The G20 India Presidency is anchored in the overarching theme sectors, DPI has the potential to help countries leapfrog of “Vasudhaiva Kutumbakam” or “One Earth, One Family, One their digital transformation. Increasingly, households and Future,” which underlines the message of equitable growth businesses can digitally access the services and products they and a shared future for all. Guided by this vision, the GPFI has need. Financial lives and interactions with the government focused on leveraging Digital Public Infrastructure (DPI) in have also become progressively more automated and digitally advancing financial inclusion and productivity gains. The objec- enhanced. Leveraging DPI for financial inclusion not only can tive of this report is to analyze and present the role of DPI in contribute to closing these aforementioned gaps but also can advancing financial inclusion and productivity gains and formu- help countries leapfrog in their DFS journey, therefore rapidly late policy recommendations for how countries can best har- advancing financial inclusion. ness this potential. Each country will face different challenges and opportunities, given its specific context. However, the anal- DPI, generally understood as interoperable, open, and ysis and policy recommendations in this report aim to provide inclusive systems supported by technology to provide general guidance that can help authorities in promoting the essential, society-wide, public and private services, can development, ongoing functioning, and evolution of DPIs in a play a critical role in accelerating this digital transforma- way that contributes to advancing financial inclusion and pro- tion in an inclusive way. In this context, “system” should be ductivity gains rapidly. interpreted broadly to include protocols, frameworks, and gov- ernance arrangements that market players rely on and use to Powered by digital financial services (DFS), there has provide products and services to their customers. Conceptu- been progress globally on financial inclusion, but several ally, DPIs could be seen as a core set of foundational systems challenges remain. About 1.4 billion adults remain financially that enable intensive use and provision of digital services across excluded, over 50 percent of which are in seven emerging mar- a range of economic and social interactions and actors. What kets and developing economies (EMDEs). Globally, pockets of constitutes a DPI could vary by country context, but, in general, exclusion and limited usage of financial services (for example, includes digital ID, digital payments, and data exchange in the payments, savings, credit, pensions, insurance) persist. More- financial sector. Examples of DPIs, all of which play a leading over, there is a large and increasing financing gap for micro, role in the advancement of financial inclusion in many coun- small, and medium-sized enterprises (MSMEs), with 40 percent tries, are (i) digital ID systems, such as India’s Aadhaar, Singa- of formal MSMEs in EMDEs having unmet financing needs and pore’s Singpass, the Philippines’ PhilSys, and the United Arab women-owned MSMEs accounting for 34 percent of the gap Emirates’ UAE-Pass; (ii) digital payment systems, especially ($1.9 trillion). It should also be noted that this financing gap is much wider when informal MSMEs are accounted for. Overall, Digital financial services are financial services that rely on digital technologies 1.  the unmet MSME financing needs are 1.5 times the existing for their delivery and use by consumers. See World Bank (2020c). supply of financing to MSMEs. 1 2  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE fast payment systems, such as Brazil’s Pix, India’s UPI, Türkiye’s ment time scales. For example, in India, the implementation FAST, the European Union’s TIPS, and Thailand’s PromptPay; of DPIs such as Aadhaar (a foundational digital ID system), and (iii) data-exchange platforms, in particular those incorpo- along with the Jan Dhan bank accounts and mobile phones, rating trust and consent, such as India’s Digilocker and Account is considered to have played a critical role in moving owner- Aggregator, Estonia’s X-Road, Singapore’s MyInfo, Australia’s ship of transaction accounts from approximately one-fourth Customer Data Right, and the United Kingdom’s Open Banking. of adults in 2008 to over 80 percent now—a journey that it is estimated could have taken up to 47 years without DPIs.2 DPIs can have a multiplier effect on the gains achiev- While DPIs’ role in this leapfrogging is undoubtable, other eco- able through DFS by accelerating financial inclusion and system variables and policies that build on the availability of closing the existing gaps. DPIs, if well managed, can lower DPIs were critical. These included interventions to create a transaction costs, catalyze innovation, foster competition more enabling legal and regulatory framework, national poli- and interoperability, enhance individual user experiences cies to expand account ownership, and leveraging Aadhaar for and choice, and, through their design, provide new avenues identity verification. to address many of the risks inherent to DFS. These effects may translate into faster progress in financial inclusion and However, DPIs may also introduce new risks or exacerbate enhance productivity over and above that which can be existing risks. These include (i) operational risks, which can achieved by DFS provided by financial service providers oper- be amplified in the context of DPIs, given that they are deeply ating without such shared infrastructure. In this report, four interlinked among themselves and with other infrastructures in use cases of financial inclusion are studied to illustrate the the financial system; (ii) legal and regulatory risks, which are role of DPIs and the critical considerations that determine challenging to address in a multisectoral structure such as DPIs their effective use: account opening, government-to-person (there may be legal uncertainty and loopholes, which can be payments, international remittances, and MSME finance. The exacerbated when DPIs interlink, and new technologies adopted policy recommendations in this report are derived from this by DPIs may also make existing legal frameworks obsolete); (iii) analysis, keeping in mind the overarching G20 High-Level insolvency risks, which can endanger the ecosystem at large if Principles for Digital Financial Inclusion (HLPs). some of its critical components, including entities that manage DPIs, were to become financially unsustainable; (iv) exclusion DPIs are similar to other digital and financial infrastruc- risk, which can be reinforced if DPIs are not designed follow- tures but, depending on country context, could differ on ing good principles and global standards; and (v) financial account of DPIs being foundational and cross-cutting consumer protection risks, which can be heightened by the while also having an emphasis on serving key public policy misuse of DPIs and if exploitative practices are adopted by its objectives. They are called public because of equal, fair, and operators or by financial service providers that distribute their transparent access to all relevant users in accordance with the services using DPIs. Moreover, if data governance is not well rules of governance. Even though DPIs in practice can be devel- managed, financial consumer protection risks may instead be oped by the public or private sector, the “public” in DPI refers to amplified due to the use of DPIs for the provision of DFS. At the their focus on advancing public policy objectives, such as eco- same time, while DPIs enhance competition at the DFS service nomic welfare and financial inclusion. Depending on the coun- provider level, if not well governed, competition in the provision try, DPIs could differ from traditional financial infrastructures, of DPIs could be affected, and this lack of competitive pressure such as automated clearing houses (ACH), and credit reporting could lead to lack of continuous innovation. However, this may systems, in terms of the following: a cross-sectoral nature and not necessarily be a disadvantage for DPIs due to minimalism use across a wide range of economic and social interactions, and the culture of innovation embedded in DPIs. As DPIs are having been designed for the digital context, being more widely designed with a minimal core function, enabling services and accessible, and an emphasis on serving public policy objectives. functionalities to be layered on top in addition to the premise on innovation, lack of competitive pressure would not inhibit inno- DPIs can be combined to unlock even more innovation vation or render a DPI obsolete, provided that the DPIs are well and extend further benefits to users and the market. For governed and adequately regulated. example, in Singapore, a person can use a digital ID to exercise consent over the sharing of personal data from official sources The policy recommendations proposed in this report are to apply for a loan, thanks to the three current DPIs coming indicative, voluntary, and nonbinding and seek to com- together—digital ID, digital payments, and data exchange. DPIs can also allow countries to leapfrog traditional develop- 2. D’Silva et al., 2019 3  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE plement the existing guidance. The G20 HLPs for Digital and data-exchange DPIs—but are framed broadly enough to Financial Inclusion advocate for a holistic approach to finan- be applicable to other types of DPIs. cial inclusion, and as such, they remain relevant, as do the standards and guidance from various bodies covering indi- The policy recommendations (box 1) are grouped around vidual DPI components. To realize the full effects of DPIs, sev- five key dimensions that collectively seek to ensure that eral of the enablers identified in the HLPs for Digital Financial DPIs adhere to a basic set of principles for achieving the Inclusion and other standards and guidance (for example, following: (i) enabling and fostering the use of DPIs in accel- the Principles on ID for Sustainable Development, the CPMI- erating financial inclusion; (ii) fostering well-designed DPIs IOSCO Principles for Financial Market Infrastructures, and and the enabling environment; (iii) implementing appropriate the General Principles for Credit Reporting Systems) need regulation, supervision, and oversight; (iv) ensuring sound and to be in place. The policy recommendations are intended to effective institutional and governance arrangements by DPIs; help authorities support the development, functioning, and and (v) protecting customers and leaving no one behind. The evolution of DPIs according to their jurisdictions and country policy recommendations are aimed to encourage policy mak- circumstances in a way that maximizes the potential of DPIs ers, which could comprise different arms of the government, to advance financial inclusion and productivity gains. The pol- sectoral regulators, and/or other relevant agencies, to lever- icy recommendations have been drafted keeping in mind the age DPIs to implement specific financial inclusion use cases, three current examples of DPIs—digital payments, digital ID, depending on the country context. BOX 1 Indicative, Voluntary, and Nonbinding Policy Recommendations for Advancing Financial Inclusion and Productivity Gains through the Use of DPIs in the Financial Sector The policy recommendations for advancing financial inclusion and productivity gains through DPIs are intended for use by public authorities but could have relevance for other stakeholders, as the recommendations seek to advance financial inclusion and productivity gains through DPIs rapidly. The policy recommendations reflect good practices and should be read in conjunction with the G20 High-Level Principles for Digital Financial Inclusion, as well as with estab- lished standards and good practices for the individual DPIs as established by the relevant standard-setting bodies. POLICY RECOMMENDATION 1: Enable and foster the use of DPIs to accelerate financial inclusion and productivity gains. POLICY RECOMMENDATION 2: Develop well-designed DPIs and the broader enabling environment through a widely accepted set of good practices. POLICY RECOMMENDATION 3: Encourage appropriate risk-based regulation, supervision, and oversight arrangements for financial-sector use of DPIs. POLICY RECOMMENDATION 4: Promote sound internal governance arrangements. POLICY RECOMMENDATION 5: Enable DPIs to offer products and services in a way that no one is left behind and the interests of the consumer are safeguarded. 4  •  DIGITAL PUBLIC INFRASTRUCTURE Financial lives are becoming increasingly automated and integrated—from individuals opening an account with- out leaving home, to emergency social assistance that transfers into an account shortly after an account holder applies through an SMS text, to individuals transferring funds by a simple click on their phone, to micro, small, and medium-sized enterprises accessing credit using their transaction history data as proof of creditworthiness. 1 BACKGROUND AND INTRODUCTION Digital transformation is changing the way the world preted broadly to include protocols, frameworks, and gover- interacts and transacts. Financial lives are becoming increas- nance arrangements that market players rely on and use to ingly automated and integrated—from individuals opening provide products and services to their customers. Conceptu- an account without leaving home, to emergency social assis- ally, DPIs could be seen as a core set of foundational systems tance that beneficiaries receive by a transfer into their account that enable the intensive use and provision of digital services shortly after applying through an SMS text, to individuals trans- across a range of economic and social interactions and actors. ferring funds to relatives with a simple click on their phone, to What constitutes a DPI could vary by country but, in general, micro, small, and medium-sized enterprises (MSMEs) access- includes digital ID, digital payments, and data exchange. Exam- ing credit using their transaction history data as proof of cred- ples of DPIs, all of which play leading roles in the advance- itworthiness. ment of financial inclusion in many countries, are (i) digital ID systems, such as India’s Aadhaar, Singapore’s Singpass, the Digital transformation has also brought Digital Public Philippines’ PhilSys, and the United Arab Emirates’ UAE-Pass; Infrastructure (DPI) to the forefront as an enabler that (ii) digital payment systems, especially fast payment systems can facilitate foundational functions at a societal scale, (FPS), such as Brazil’s Pix, India’s UPI, the European Union’s for better and more inclusive service delivery and innova- TIPS, and Thailand’s PromptPay; and (iii) data-exchange plat- tion across sectors. From individuals accessing and sharing forms, in particular those incorporating trust and consent, such their health records across providers to businesses applying as India’s Digilocker and Account Aggregator, Estonia’s X-Road, remotely for licenses, countries are embracing this digital Singapore’s MyInfo, Australia’s Customer Data Right, and the transformation, shifting toward efficient, paperless, and remote United Kingdom’s Open Banking. interactions that increasingly leverage technology. As in the past, when the original protocols underpinning the internet In the financial sector, DPIs have the potential to create new (TCP-IP, SMTP for interoperable email, HTTP, and so forth), as opportunities to advance financial inclusion and enable well as the open standards behind globally interoperable mobile productivity gains. DPIs such as interoperable FPS can have networks (GSM, LTE, and the like), provided the foundations to a truly transformational impact on financial inclusion outcomes. drive transformative innovation, the use of DPIs can help accel- Digital financial services (DFS) models, such as mobile money erate digital innovation. They have the potential to enable cost and platform ecosystems, have already been contributing to a reductions, promote innovation, and create opportunities to significant advancement in financial inclusion across developing improve services for wide segments of the population. countries. However, there are still gaps, especially when trying to reach MSMEs and underserved populations. DPIs have the DPI, generally understood as interoperable, open, and potential to help bring DFS to the next stage by promoting com- inclusive systems supported by technology to provide petition, unlocking barriers to financial inclusion, and catalyzing essential, society-wide, public and private services, can further innovations in the DFS space that respond to the needs play a critical role in accelerating this transformation in of currently un(der)served populations. In doing so, DPIs can an inclusive way. In this context, “system” should be inter- help individuals and businesses participating in a DFS ecosys- 5 6  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE tem to tap economic efficiencies, leading to productivity gains. In encourage fair competition and propel market participants to adopting DPIs to further enhance financial inclusion, countries continuously develop customer-centric innovations that assure may follow the guiding principles laid down under the High-Level customers of a better user experience. This not only leads to Principles (HLPs) for Digital Financial Inclusion. (See box 2.) better and more innovative solutions but also improves the long-term sustainability of the ecosystem. DPIs can, individually, have a significant impact on finan- cial inclusion, but when collectively integrated into a dig- The report builds on the work done on digital financial ital financial ecosystem (DFE)3 and jointly leveraged, they inclusion by the GPFI and its implementing and affiliated can generate powerful multiplier effects. The three cur- partners under previous G20 Presidencies. It seeks to pro- rent examples of DPIs—digital payments, digital ID, and data vide guidance on how DPIs can be harnessed to advance finan- exchange—have two roles in the provision of financial services: cial inclusion and increase productivity gains by building on the as self-standing infrastructures whose core services can be lev- solid foundations of the G20 Financial Inclusion Action Plans eraged for a specific process within the provision of a financial (FIAPs) and the HLPs for Digital Financial Inclusion (annex A product, and as components of broader financial and nonfinan- and annex B).4,5 cial digital infrastructures, working together to reduce frictions for users and automate the processes carried out by financial This report also complements the work done by the service providers (FSPs). Digital Economy Working Group (DEWG) under the G20 India Presidency. One of the priority areas for the DEWG Further, when well-designed DPIs are leveraged as part of this year is to develop a suggestive framework and descrip- the foundations of a DFE, they can contribute to creating tion for DPI that outlines core principles. This framework has a level playing field and promote market innovation, entre- informed, and is complemented by, the financial sector focus preneurship, and increased customer adoption. They can in this report. 3. For the purposes of this note, the definition of a digital financial ecosystem 4.  The HLPs articulate the need for a holistic approach to financial inclusion. Nota- will be consistent with the definition of a DFS ecosystem provided by the bly, they call for the implementation and expansion of infrastructures, such as ITU (2016). The definition of a DFS ecosystem has been adapted as follows: payment infrastructures and digital ID systems, which can be considered foun- The DFS ecosystem consists of users (consumers, businesses, and govern- dational DPIs. The HLPs also call for a strong public- and private-sector com- ment agencies) who have needs for digital and interoperable financial prod- mitment; a conducive legal, regulatory, supervisory, and oversight framework; ucts and services; the providers (banks and nonbanks) that supply those and active engagement by a range of stakeholders. All of these are also relevant products and services through digital means; the financial, technical, and for DPIs to be effective. Annex B provides a summary of the key interlinkages other infrastructures that make them possible; and the governmental poli- between DPIs and the implementation of the HLPs (GPFI, 2016). cies, laws, and regulations that enable them to be delivered in an accessible, 5.  The GPFI has placed special emphasis on women, youth, and small and affordable, and safe manner. medium enterprises (SMEs) as groups requiring targeted policy interventions. 7  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE BOX 2 G20 High-Level Principles for Digital Financial Inclusion, 2016 PRINCIPLE 1: Promote a Digital Approach to Financial Inclusion. Promote DFS as a priority to drive the develop- ment of inclusive financial systems, including through coordinated, monitored, and evaluated national strategies and action plans. PRINCIPLE 2: Balance Innovation and Risk to Achieve Digital Financial Inclusion. Balance promoting innovation to achieve digital financial inclusion with identifying, assessing, monitoring, and managing new risks. PRINCIPLE 3: Provide an Enabling and Proportionate Legal and Regulatory Framework for Digital Financial Inclusion. Provide an enabling and proportionate legal and regulatory framework for digital financial inclusion, taking into account relevant standards and guidance from the G20 and international standard-setting bodies. PRINCIPLE 4: Expand the Digital Financial Services Infrastructure Ecosystem. Expand the DFS ecosystem— including financial and information and communications technology (ICT) infrastructure—for the safe, reliable, and low-cost provision of DFS to all relevant geographical areas, especially underserved rural areas. PRINCIPLE 5: Establish Responsible Digital Financial Practices to Protect Consumers. Establish a comprehen- sive approach to consumer and data protection that focuses on issues of specific relevance to DFS. PRINCIPLE 6: Strengthen Digital and Financial Literacy and Awareness. Support and evaluate programs that enhance digital and financial literacy in light of the unique characteristics, advantages, and risks of DFS and channels. PRINCIPLE 7: Facilitate Customer Identification for Digital Financial Services. Facilitate access to digital financial services by developing, or encouraging the development of, customer identity systems, products, and services that are accessible, affordable, and verifiable and accommodate multiple needs and risk levels for a risk-based approach to customer due diligence. PRINCIPLE 8: Track Digital Financial Inclusion Progress. Track progress on digital financial inclusion through a comprehensive and robust data measurement and evaluation system. This system should leverage new sources of digital data and enable stakeholders to analyze and monitor the supply of—and demand for—digital financial services, as well as assess the impact of key programs and reforms. Data exchange DPIs can enable fast and seamless sharing of information bringing in efficiency and reduction in cost of services. 2 DPIs AND THEIR ROLE IN THE FINANCIAL SECTOR DPIs are generally understood as interoperable, open, example, the Pan-Canadian Trust Framework and France- and accessible infrastructure supported by technology Connect), if not even completely decentralized (for example, to provide essential, society-wide, public and private ser- the European Union’s proposed model based on verifiable vices digitally such as identification, payments, and data credentials). exchange.6 When used responsibly, DPIs help address tra- y Digital payments: Digital systems that enable individ- ditional challenges of financial inclusion, promote public and uals, businesses, and governments to transfer money private innovation responsibly, and lead to productivity gains. between one another easily and securely. Different types Below are three current examples of DPIs: of payment systems could be operating as DPIs—that is, y Digital ID: Digital systems and ecosystems that generate, they are accessible and support interoperability across store, and enable individuals and entities to obtain a digital all types and segments of payment service providers, and ID and have it securely verified. These identity systems and they are reasonably priced and offer open interfaces for ecosystems are often augmented by complementary ser- market innovations of various payment methods. FPS in vices, such as electronic signatures, digital authentication, particular operate as DPIs, with easy access and inherent and verifiable credentials. These different use cases can interoperability features. For example, Brazil’s Pix, India’s integrate into multiple workflows and facilitate access to and UPI, the European Union’s TIPS, Türkiye’s FAST, and Mexi- usage of financial services, notably for account-opening and co’s SPEI allow individuals, businesses, and public author- authentication purposes, therefore contributing to financial ities to collect and deliver payments around-the-clock and inclusion. Digital ID systems can be centralized (for exam- with immediate availability of funds to the beneficiaries. ple, Japan’s MyNumber and India’s Aadhaar) or based on These features spur wide participation, competition, and federations of public- and/or private-sector ID providers (for innovation in the market, enable novel transaction-initia- tion approaches, remove frictions, and result in enhanced services and experiences delivered to end users at lower Not all data exchanges would necessarily have all these characteristics and 6.  therefore qualify as a data exchange. costs, thus fostering financial inclusion. 9 10  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE BOX 3 Fast Payment Systems FPS are characterized by 24/7/365 transfer services and carry out instant credit transfers (SCT Inst) at any time and the immediate availability of funds for the payee. They at a low cost—TIPS operates on a full cost-recovery and generally support a wide diversity of use cases, from not-for-profit basis. TIPS was developed as an extension of cross-border remittances to the distribution of social TARGET2, the real-time gross settlement (RTGS) system, assistance to vulnerable populations during emergencies and ensures the settlement of transactions in euros in less and crises. Data indicates that fast payments are being than 10 seconds, using central bank money. Other non- embraced by various countries and regions across the euro jurisdictions in the region also expressed interest in globe, from different geographies and income statuses. participating in the TIPS framework, such as Sweden, Den- Currently, more than 100 jurisdictions have implemented mark, and Norway, and discussions are ongoing to allow FPS, and several others have announced plans to go live in TIPS to settle fast payments in other currencies, such as the next few years.7 In some countries, such as Brazil and Swedish krona. Depending on the solutions they use, Euro- India, adoption has been particularly quick and transfor- pean citizens can make and receive instant credit transfers mative. Nonetheless, it should be noted that in most juris- via the internet, mobile banking, or using other initiation dictions, FPS are still in the early stage of their evolution. methods, such as QR codes. The uptake of instant credit transfers has been growing slowly in the past few years, Brazil with significant differences between countries. In October Brazil’s fast payment system Pix was launched by the 2022, the European Commission adopted a legislative pro- Central Bank of Brazil in November 2020. It allows fund posal on instant payments composed of several measures transfers between all types of transaction accounts in the to harmonize and accelerate the rollout of this service. Brazilian market, creating a payment service ecosystem with low acceptance costs and high levels of usability. Pix India aliases, which inform the account data to start a transac- India’s Unified Payments Interface (UPI) is an instant, tion, are as simple as an e-mail address or a mobile phone real-time fast payment network in India that can map number. The platform also actively uses QR codes as the payment accounts to a single payment identifier, which access channel. Since its launch, Pix has grown rapidly: can be a virtual payment address (VPA) or as simple as By December 2021, approximately 109 million consum- one’s mobile number. UPI started with bank accounts, but ers and 7.6 million businesses, mostly MSMEs, were active now payment can be made from wallets and even credit users of the platform. That includes about 45 million cit- cards. The UPI payment system is built as an interopera- izens who previously did not have access to DFS. Some ble protocol. This allows anyone to build an app providing of the main drivers behind the adoption rates have been payments as a service to all customers of participating the single name and brand, building recognition and trust banks. It supports various payment methods, such as QR in the system; the mandatory participation of big banks, code–based payments, UPI Lite, UPI123Pay, UPI credit, creating network externalities and scale; low transaction and so forth. It facilitates seamless real-time fund routing costs, compared to other retail payment instruments and merchant payments, and it offers a convenient way (transactions are free for end users); an improved and to schedule and pay P2P collect payment requests. UPI standardized customer experience; and a multiplicity of has been widely adopted, benefitting from a user-friendly use cases, including P2P transfers, tax and bill payments, interface, open banking features, and private sector par- online, and card-present purchases. ticipation. The UPI platform has gained significant popu- larity in India; more than 9.41 billion transactions valuing European Union about Rs 14.89 trillion were transacted in May 2023 alone. The TARGET Instant Payment Settlement (TIPS) is a fast For the fiscal year 2022–23, the total value of UPI transac- payment system introduced by the Eurosystem in Novem- tion was nearly 50 percent of India’s nominal GDP. ber 2018. It enables customers of financial institutions to 7 World Bank, “Project FASTT,” https://fastpayments.worldbank.org/. 11  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE BOX 3, continued Indonesia compared to 140,000 merchants accepting cards with BI Fast is a fast payment infrastructure that refers to a 480,000 traditional point-of-sale (POS) devices. method of transferring funds or making payments that is characterized by its speed and efficiency, 24/7, 365 days Türkiye for bank and nonbank customers by direct and indirect The Instant and Continuous Transfer of Funds System membership model. It is built by Bank Indonesia (BI) to (FAST), developed in-house and operated by the Central facilitate near-instantaneous transactions, allowing indi- Bank of the Republic of Türkiye (CBRT), was launched in viduals or businesses to send and receive money quickly. January 2021. Originating from a demand from end users BI Fast methods can include instant bank transfers, and banks, this new infrastructure paves the way for the mobile payment apps and digital wallets. These systems reduction of cash usage and significant improvements in aim to provide convenient and swift financial transac- the payment ecosystem in the country. FAST offers con- tions, enhancing the speed and convenience of everyday tinuous availability, enhanced speed, and a diversity of use commerce. Since its launch on 21 December 2021, the cases and access channels. In addition, a range of overlay total number of BI-FAST participants has reached 122 services, such as QR codes and aliases (a service called participants as of March 2023, representing 94% of the Easy Addressing), aim to enrich the user experience. There share of national retail payment system. are plans to complement these features in the near future with other functionalities, such as request to pay. These Thailand overlay services are created and operated by the Interbank PromptPay is a fast payment service with real-time clear- Card Center (BKM), which is jointly owned by the CBRT ing and settlement combined with a proxy look-up service and major commercial banks and has proven experience that securely maps a national ID number, corporate tax in the development of customer-facing solutions. Nonbank ID, or phone number to a bank account. PromptPay was payment service providers are eligible to become direct launched in January 2017 and by mid-2019 had enrolled participants in the system, even though none is participat- 70 percent of the population. Banks charge no fees for ing for the time being. Since its launch, FAST has seen a using the service, and they have deployed an interopera- rapid uptake, reaching an average of 8.8 million daily trans- ble QR code system that has resulted in a shift from cash actions in June 2023. transactions to digital. By mid-2019, more than 3.7 million merchants were accepting PromptPay QR payments, Source: This box includes contributions by India, Indonesia, and Türkiye. y Data exchange: Digital systems that enable the seamless processes. When this data exchange involves personal data, and secure sharing of data based on consent, as required, DPIs can help enable the securing of the consent of the per- between entities—for example, businesses or govern- son to whom that data pertains, in addition to establishing ments—and across systems.8 For example, data-exchange other data protection and trusted data sharing safeguards. DPIs can enable providers to obtain more easily the informa- Examples of data exchange DPIs include India’s Data tion they need to provide financial products and services or Empowerment and Protection Architecture (DEPA) and also to fulfill regulatory requests, such as risk management Account Aggregators, Estonia’s X-Road, and Singapore’s MyInfo and APEX. In the financial sector, open finance ini- tiatives that build on previous open banking efforts are now 8. Consent is typically required only for the disclosure of personally identifi- motivating discussions on open data—which is another able data to third parties. There are instances where obtaining user consent for data sharing would not be appropriate or necessary. For example, in framing for data exchange. The open banking regime pur- cases where the data being shared does not include personal data (such as suant to the European Union’s revised Payment Services when the data is anonymized), then consent is not necessary. Furthermore, obtaining consent would not be appropriate when sharing data with author- Directive (PSD2) is an example of an efficient and secure ities for the purposes of monitoring AML/CFT or fraudulent behavior (often data exchange framework that does not involve centralized required by law) or when using public datasets to assess social assistance eligibility. infrastructure. 12  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE BOX 4 Open Finance and Open Banking Arrangements Brazil India The Open Finance framework in Brazil allows the follow- India’s Account Aggregator (AA) Framework aims to ing products and services to be offered: (i) data on prod- strengthen India’s data infrastructure, enabling con- ucts and services, such as branch location, access points sumers and enterprises to share their data only with that customers can use, terms and conditions, and fees; their consent through an electronic consent framework. (ii) customer data, including information about deposit Acting as consent managers for the consumers, AAs accounts and credit; and (iii) payment services, such as enable the sharing of digital financial data from the exist- payment initiation and payment for products and ser- ing financial institutions of the consumers where they vices. already have an account to prospective financial institu- tions where they have applied for a new financial product. The Brazilian open finance ecosystem is coordinated by This ecosystem, regulated by the Reserve Bank of India the private sector in compliance with rules established by (RBI), involves four key participants: the AAs, the finan- the central bank and is supported by a centralized plat- cial information provider (FIP), the financial information form that covers several functions. These include a ser- user (FIU), and the citizens. The AA network ensures vice desk through which technical support is provided to the security of data and grants customers complete participants, a compliance test suite where participant control over their information. It allows the consumers compliance with functional and security requirements to link their multiple financial accounts to the Account can be tested, an intelligence threat platform, where infor- Aggregator handle and give their consent to share their mation related to cybersecurity incidents is shared, and data simultaneously from the multiple linked accounts, a dispute-resolution module, where end users can raise either for their own use or with prospective financial disputes and follow up on such disputes. institutions for availing a loan, insurance, pension, or a wealth management service. By acting as a consented, Hong Kong, SAR China digital, single channel access for all financial account In 2018, the Hong Kong Monetary Authority (HKMA) statements of a consumer, it allows an aggregated pic- launched the Open API Framework for the Hong Kong ture of the consumer’s finances to be presented, mak- banking sector. The framework is to be implemented in a ing it particularly beneficial for those seeking loans, as it phased approach consisting of the following four stages: facilitates access to authentic data and provides a com- (i) product information (deposit rates, credit card offer- prehensive profile for loan providers to be able to sanc- ings, service charges, and other public information), (ii) tion a loan. Currently, a total of 1.13 billion cumulative customer acquisition (new applications for credit cards, accounts are enabled for data sharing through Account loans, and other products), (iii) account information Aggregators with customer consent. The cumulative (account balance, credit card outstanding balance, trans- number of consents raised through Account Aggrega- action records, credit limit change, and others), and (iv) tors has reached 13.46 million in June 2023, registering transactions (payment and transfers). a monthly growth rate of 28 percent. The number of new The HKMA leaves the strategy of adoption of Open API consents successfully fulfilled in June was 2.9 million, to banks but mandates that those that chose to move which translates into 97,000 consents per day. As of forward should ensure that a commensurate level of June 30, 2023, the total number of entities that were live protections and suitable governance arrangements for on AA was 248, with 75 FIPs, 231 FIUs, and 11 AAs with third-party providers are in place, with appropriate, clear NBFC-AA licenses from RBI. contracts to define responsibility, liability, control, and customer protection. 13  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE BOX 4, continued Philippines United Arab Emirates (UAE) In 2021, the Central Bank of Philippines, Bangko Sentral The UAE’s “DIFC Open Finance Lab Initiative” which pro- ng Pilipinas (BSP), published its strategy to develop an vides opportunities to demonstrate the positive impact open finance framework. For such purposes, BSP estab- of open finance on businesses, customers, and the econ- lished a roadmap to deploy the framework. omy. It allows for collaboration among banks, fintech companies, regulators, and the industry to explore new The deployment strategy includes a pilot, to be con- data-driven innovations and business models. ducted in the second half of 2023, in which financial institutions can participate on a voluntary basis. Selec- The lab also provides avenues for knowledge sharing, tion of use cases to be tested during the pilot will be done technical guidance, and engagement through workshops, before the start of the pilot and can cover the following forums, and events such as Open Finance Week, to sup- categories or tiers: public information, subscription and port banks, regulators, and industry and further public account opening, account information, payment initia- policy objectives, including financial inclusion and eco- tion services, and others. nomic opportunities (DIFC 2022). Source: This box includes contributions from India and UAE. DPIs are similar to other digital and financial infrastruc- market. For example, in Singapore, citizens can use their dig- ture, but depending on country context, differences could ital ID to consent to the sharing of their personal data from arise on account of DPIs being foundational and cross-cut- official and private-sector sources to apply for loan, freeing ting, and modular, and oriented towards achieving key the FSPs from having to develop digital authentication ser- public policy objectives, and them supporting various dig- vices separately. ital services. Below are some of their features:9,10 y Public benefit: DPIs are labeled “public,” as they have y Foundational and cross-cutting: DPIs can provide essen- been designed to allow equal, nondiscriminatory access in tial services that often have applicability across multiple accordance with specified governance rules. The “public” sectors at society scale. For example, identity verification in DPI also indicates their focus in advancing public policy and payments are at the core of different types of transac- objectives, such as economic welfare, financial inclusion, tions across many sectors. DPIs, being foundational infra- enhanced competition, and innovation. structure, allow multiple sectors and applications to reuse y Digital services: DPIs support the adoption and usage of dig- them, thus avoiding each sector from having to reinvent the ital services and help advance the digitalization of the econ- wheel. This is an important distinction between financial omy. DPIs services are designed to be provided to end users infrastructures that support only transactions within the through digital access channels, such as mobile devices. Fur- financial sector and DPIs.  thermore, DPIs’ services can be used in access channels that y Modular: DPIs are designed to be interoperable, allowing provide non-digitalized financial services. For example, agent them to be integrated into workflows so that customizable networks that provide cash-in and cash-out transactions can new offerings can be rapidly deployed. Market participants also leverage DPIs to offer instant payments. can leverage these DPI features to streamline operations and encourage innovation while fostering a competitive DPIs have the potential to advance financial inclusion by building on existing relevant financial infrastructures. Where DPIs are built in a manner that is compatible with a 9. Desai et al. (2023) jurisdiction’s existing financial system, they can help integrate 10. Natarajan (2023) defines financial infrastructures as the institutions, infor- mation, technologies, rules, and standards that provide the underlying foun- existing financial infrastructure into seamless digital work- dation for the financial system and enable financial intermediation. flows. For instance, centralized and federated open banking 14  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE and open finance platforms enable the execution of processes However, DPIs are not without their risks and challenges. from third-party payment initiation to authentication of end For instance, building an effective DPI is not always easy or fea- users to the access or validation of data. The data sources that sible to achieve. Additionally, country contexts may differ a lot; can be accessed include financial infrastructures (such as therefore, a given DPI model might not be replicable in a differ- collateral and credit registries); government and private data- ent context. DPIs may also introduce new risks or new manifes- bases, such as authentication, know-your-customer (KYC), or tations of existing risks in the financial system. These include anti-money-laundering/countering the financing of terrorism operational, legal and regulatory, insolvency, and exclusion (AML/CFT) databases or even databases of utility service pro- risks, as well as new manifestations of consumer risks (includ- viders; data held with other FSPs; and fraud and cybersecurity ing data risks) and risks for competition and obsolescence, information-exchange arrangements with authorities. which are discussed in section 4.2 of this report. Use of DPIs for productivity gains, taking everyone along. 3 HOW DPIs CAN EFFECTIVELY ADVANCE FINANCIAL INCLUSION AND PRODUCTIVITY GAINS The Role of DPIs in Advancing Financial 3.1  from regulated financial institutions in the previous 12 months, Inclusion including by using a credit card. However, this varied greatly between high-income economies (56 percent) and developing Global progress toward financial inclusion has been sig- economies (23 percent). nificant. In 2021, 71 percent of adults in developing economies had a bank account, up from only 56 percent a decade earlier. The lack of financial and digital literacy also exacerbates The pandemic, coupled with the increased availability of digi- vulnerabilities among underserved groups. For instance, tal solutions, served as a catalyst for an increase in digital pay- 64 percent of unbanked adults in developing economies ments worldwide. (Fifty-seven percent of adults in developing declared being insecure about managing an account without economies used them.) And for the first time in a decade, the help in 2021. Women are five percentage points more likely gender gap in financial inclusion declined. than men to need help using their mobile money account. This lack of digital and financial literacy may exacerbate vul- Despite this progress, challenges persist to the contin- nerabilities among underserved groups and new users of ued advancement of financial inclusion. Although there has financial services. been promising growth in account ownership, 1.4 billion adults, most of them women, are still financially excluded, and there A combination of demand- and supply-side constraints are significant gaps in usage. The lack of financial resilience— perpetuates the existing gaps.13 The following barriers exist which may be attributed to the slower pace of usage of finan- in varying degrees across countries: cial services despite account ownership—is also a concern. For y Demand-side constraints, such as volatile and small example, only about 55 percent of adults in developing coun- incomes, geographical barriers, a lack of digital and financial tries were able to access emergency money without difficulty literacy, and a lack of trust in the financial sector, as well as within 30 days of being faced with an unexpected expense. informality and lack of documentation Borrowing has increased but at a pace that remains uneven y Supply-side constraints include high operating costs and between high-income and developing economies. MSMEs, legacy business models, as well as limited competition and especially in developing countries, face significant challenges innovation in accessing credit, with a financing gap of $5 trillion.11 This gap has increased over the years, highlighting the need for targeted DFS models, such as mobile money, already solve, to some interventions to support MSMEs—with the COVID-19 pandemic extent, most of these constraints. Many models introduce having further increased their vulnerabilities.12 In 2021, 53 per- a different pricing model that allows operating costs to drop; cent of adults worldwide reported having borrowed money they leverage agents as a new business model that does not 11. IFC (2017).  orld Bank. (2020c) discusses these constraints in detail, as well as how DFS 13. W 12. IFC (Forthcoming). can address them. 16 17  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE rely on brick-and-mortar access points14 and thus allows for relationships—to be able to compete for and offer innovative greater geographical reach; and they create a new type of pro- products. DPIs can level the playing field and, in doing so, sig- vider, thus introducing competition to the market. In addition, nificantly reduce incumbent advantages, pushing all providers DFS also offer digital solutions for simplified customer due dil- to offer better services to retain customer loyalty. igence (CDD), user authentication, and transaction initiation. Finally, the platform ecosystem DFS model—that is, bigtech One aspect that makes DPIs unique, and that can further platforms—has also been leveraging digital transaction data reduce existing constraints, is their ability to complement and alternative sources in several countries to compensate each other or be integrated in end-to-end workflows. Sys- for information asymmetries to expand access to credit, tems using application programming interfaces (APIs) can be insurance, and savings, albeit with challenges, such as vendor configured with appropriate channels and products to reach lock-in and limited competition. However, the lack of digital the poor when the APIs are underpinned by a digital ID system and financial literacy, coupled with a lack of trust in the finan- and facilitate interactions between governments, businesses, cial system, can continue to be barriers to greater adoption and citizens. One such service that is enabled by the interac- of DFS. tion of open APIs and digital ID systems is the e-KYC or remote authentication services. For example, in India, the Aadhaar However, in some jurisdictions, these models alone may biometric identification system, which covers over one billion not be enough to bring DFS to the next stage of usage, people and supports APIs, enables remote identification and and DPIs can play an important role in reducing persistent authentication. FSPs can thus authenticate an individual’s iden- constraints and positively disrupting the DFS market. DPIs, tity remotely, even by using selfie-based mechanisms to substi- under the right conditions, not only can expand the potential tute for in-person CDD verification requirements. offerings that mobile money operators provide but also can improve existing services by introducing more competition and bolstering usage. DPIs, such as data exchange platforms and The Role of DPIs in Enabling 3.2  FPS, support the interoperability of mobile money solutions. Productivity Gains This interoperability allows new entrants to calibrate invest- ments in agent models, as their clients would have the ability to Digitalization in the financial sector brings in many advan- use agent and merchant networks of other providers as well.15 tages in the form of productivity gains and economic This lower investment has the potential to foster a higher and growth. To quantify these, the McKinsey Global Institute (2016) faster rate of new entrants to the market, effectively promoting estimated that delivering financial services via mobile phones competition. It also allows new entrants to focus on developing could benefit billions of people by spurring inclusive growth innovative products and services that better cater to the unmet that adds $3.6 trillion to the GDPs of EMDEs within a decade.16 market needs, thus creating new value propositions for the The GPFI adopted the HLPs in 2016, recognizing the poten- excluded. tial of digital technologies, and especially DFS, in accelerating financial inclusion. DPIs can promote the availability of consumer data, allow- ing multiple FSPs to offer personalized and innovative However, DFS could also introduce several disadvantages, financial products, thereby increasing competition. The specifically in the form of augmenting inequalities for availability of such data relevant for determining consumer those who have been unable to participate in the digital creditworthiness can enable alternative credit scoring and economy due to demand-side barriers. For example, pro- empower individuals to access tailored credit products. For moting DFS without dealing with persistent gaps in digital and example, India’s DEPA empowers individuals by giving them financial literacy could become counterproductive. Well-de- ownership over their data (rather than being controlled by the signed DPIs strengthened by a calibrated policy framework service providers who collect this data) and allowing them to can effectively address these inequalities and accelerate and share it across providers to enable access to tailored products deepen the adoption of DFS in accordance with the HLPs, espe- and services. This means that new entrants do not need a high cially HLP 4. Box 5 provides examples of how DPIs can add initial investment—in this case, in the form of pre-existing client value to the private sector.  hysical locations may still be considered relevant and important in many 14. P 16. McKinsey Global Institute (2016). cases, including for customer relationship management and building greater trust in the financial system through direct, in-person customer interface. For example, the Aadhaar Enabled Payment System allows individuals to use 15.  Aadhaar as their identity to access a bank account and perform such trans- actions as deposits and fund transfers through an agent. 18  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE BOX 5 DPIs’ Potential Added Value for the Private Sector Private-sector entities, including FSPs and MSMEs, 3. ACCESS TO NEW MARKETS: Cross-border interopera- could benefit from DPIs through (i) increased opportu- bility of payment DPIs can open international markets nities for innovation, (ii) higher efficiencies and produc- for ecosystem participants. For instance, Thailand’s tivity gains, (iii) improved access to credit, and (iv) better PromptPay has established cross-border payments access to markets for existing and new products, where with six countries—Cambodia, Indonesia, Japan, the extent of these benefits would depend on country- Malaysia, Singapore, and Vietnam. The platform is lev- specific conditions. eraged to develop a digital trade platform for exporters and importers to send and receive electronic docu- 1. OPPORTUNITIES FOR INNOVATION: The use of DPIs in ments for international trade.19 the financial sector can enable emerging technology and other digital tools to be harnessed effectively to 4. ENABLING ACCESS TO CREDIT: DPIs can help address create inclusive and innovative financial solutions. the credit gap faced by MSMEs and enable access For instance, the Singapore Financial Data Exchange to loans by individuals. Acquisition costs for lenders (SGFinDex) has enabled a multinational bank, DBS, to are reduced through the seamless sharing of finan- build the AI-powered DBS NAV Planner, which offers cial and nonfinancial data. For instance, through financial and retirement planning solutions to all Sin- open APIs, India’s Open Credit Enablement Network gaporean residents, including low-income segments. (OCEN) enables MSMEs participating in digital mar- kets to secure credit by using information about their 2. HIGHER EFFICIENCY: DPIs can enhance efficiency for business history, rather than pledging physical assets private organizations through reductions in the com- as collateral.20 Fintech and e-commerce providers plexity, cost, and time spent on business operations. developed a methodology for determining the credit For some nonbank financial companies (NBFCs) in risk of a consumer by using multiple consumer data India, the AA ecosystem enabled an 8 percent higher inputs related to creditworthiness, shared by consent conversion rate in SME lending, a 65 percent savings in of the consumer, and accordingly provide a small depreciation costs, and a 66 percent reduction in costs short-term loan to enable online purchases on credit related to fraud detection.17 According to industry esti- for the first time. mates, banks’ costs of onboarding customers in India decreased from $23 to $0.1 with the use of DPI.18 Source: This box was contributed by India. 17. Sahamati (2022, November). Expected Evolution of Account Aggre- 19. Ping(2023).https://www.theasianbanker.com/updates-and-articles/ gator Ecosystem 2023-2027(based on Industry stakeholder inter- thailands-national-itmx-promptpay-could-have-the-most-real-time- view). Retrieved February 10, 2024 from https://sahamati.org.in/ cross-border-linkages-in-the-world expected-evolution-of-account-aggregator-ecosystem-2023-2027/ 20. Kotak (2022). https://www.kotaksecurities.com/pdf/indiadaily/india 18. Alonso et al. (2023) daily06062022hl.pdf DPIs can enable productivity gains for furthering financial First, the integration of one or more DPIs with the finan- inclusion. This report defines productivity gains as increases cial ecosystem can enable seamless end-to-end digital in output that result from a more efficient use of inputs and processes, thereby reducing frictions and inefficiencies technology to deliver, access, and use financial services.21 in the provision of financial services. This goes beyond the Financial inclusion itself, in turn, facilitates further productivity mere automation of existing processes to a complete recon- gains. Figure 1 illustrates the two transmission mechanisms for figuration of the process workflows, improving the reliability of this purpose. information, lowering costs, and increasing the speed of trans- actions. DPIs address the supply-side barriers (as identified 21.  Digitalization of the economy also creates productivity gains, but its impact in annex 3) of high operating costs, legacy business models, has proved to be uneven. See OECD (2019) and Anderton, Botelho, and and limited competition and innovation. By making it easy for Reimers (2023) for further details on this issue. 19  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE new users to open accounts and use payment services, DPIs Second, DPIs can create conditions for improved com- enable access to other financial services, such as savings, petition and, hence, bring about shifts in the market credit, and insurance. These result in productivity gains in the structure, providing a level playing field and promoting form of increased efficiencies for the government as well as for innovation.24 In doing so, they may enable new business FSPs. For example, research from the Inter-American Develop- models and encourage providers to continuously innovate and ment Bank shows that digitalization allows speed of delivery offer new and better services to their customers, improving to increase in about 74 percent of public services, and such their user experience. By enhancing competition and encour- services are 95 percent cheaper than equivalents.22 Of course, aging new and innovative business models, DPIs can improve it is also possible to consider additional effects on productiv- productivity gains. ity down the chain, assuming the government can potentially use the increased efficiencies to make further investments for DPIs for consented sharing of data can empower users to further productivity gains. Another example of increased effi- access financial products tailored to their needs. Figure 1 ciency due to digitalization is the lower cost of international also shows the importance of citizen empowerment through remittances when sent digitally. For instance, in Q4 2022, the the use of DPIs that reinforces and amplifies the effect of DPIs global average cost of digital remittances was recorded at 4.71 in facilitating the flow of reliable information and driving innova- percent (of the send amount, $200), while the global average tions for financial product development. cost of non-digital remittances was 6.91 percent.23 Thus, send- ing $200 digitally is $4 cheaper on average. Any reduction in These advances can allow financially included individuals the cost of sending remittances directly increases disposable and MSMEs to more easily access the tools they need to incomes of remittance families, and cost reduction is one of the increase their productivity and participate in the digital UN Sustainable Development Goals (SDG 10.c). economy, bringing additional productivity gains. Various FIGURE 1: DPIs Can Enable Productivity Gains for and through Financial Inclusion Productivity gains: those increases in output which result from a more e cient use of inputs and technology to deliver, access and use nancial services Improved Productivity gains for More investments by reliability of the public and private the government for 1 Reduced frictions information sector further productivity and ine ciencies via gains enabling digital end- Lower cost Digital and Increased e ciencies to-end processes nancial literacy for the government Increased speed Increased e ciencies Citizen Financial inclusion DPIs Empowerment for nancial service Catalyze demand providers for DFS by individuals and MSMEs New business models ❏ Access and use DFS Market transaction accounts/ ✓ Productivity gains to deliver DFS 2 Structure payments for individuals and ❏ Access and use other MSMEs More competition DFS such as savings, ✓ Participation in the among DFS providers credit and insurance Denotes the path to productivity gains via route 1 digital economy Denote potential additional productivity gains via route 1 Source: Authors’ own elaborations. 22. IDB (2022) While the narrative in this section and figure 1 focuses on the effects of DPIs 24.  World Bank, Remittance Prices Worldwide Database, Quarterly Report, Q2 23.  on the DFS market structure, DPIs will also affect the market structure in the 2022. A digital remittance must be sent via a payment instrument in an online financial services overall. or self-assisted manner and received into a transaction account—that is, a bank account, a transaction account maintained at a nonbank deposit-taking institution (say, a post office), or a mobile money or e-money account. 20  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE studies have shown a positive relationship between digital Recent country experiences in rapidly addressing gaps in financial inclusion and economic growth while also stressing financial inclusion have highlighted the critical role played the importance of individual country circumstances in deter- by DPIs. Box 6 provides examples of how countries have lever- mining policy priorities.25 DPIs lower costs and dependence aged DPIs to advance financial inclusion and increase produc- on legacy models of suppliers by using generic hardware and tivity gains. software components to build adaptable digital infrastructure. On the demand side, this helps remove adoption challenges to first-time users and increase availability of public knowl- edge about usage of DFS—for example, by amplifying word-of- mouth effects. BOX 6 Nusuk Hajj:26 An Exceptional Example of Application in the Nonfinancial Sector from Saudi Arabia In the realm of digital transformation, the Nusuk Hajj plat- fostering digital infrastructure for economic and social form stands out as an excellent example of how a DPI can development. The platform effectively eliminates the address unique challenges, particularly those associated need for pilgrims to approach third-party agencies, offer- with managing large-scale annual events or public ser- ing a unified portal to purchase service packages and vices. Instituted by the Saudi government, Nusuk Hajj has procure visas. redefined the nuances of the Hajj pilgrimage, one of the Global pilgrims are provided with an extensive array of world’s largest annual gatherings, during which millions more than 120 services, ranging from flight arrangements of Muslims from around the globe are welcomed to the and accommodations in Mecca and Medina to trans- holy city of Mecca. portation and catering. Additionally, the platform gives Nusuk Hajj’s infrastructure operates with two primary access to tour guides and continuous support through- goals: enhancing the spiritual journey for pilgrims and out Hajj, peace of mind with secure payment methods, ensuring their safety. By leveraging this platform, pilgrims and assistance in validating documents required for visa can invest their time in spiritual pursuits by minimizing issuance. wait times and streamlining the completion of necessary In conclusion, the Nusuk Hajj platform is a shining exam- rituals. The platform’s efficiency contributes significantly ple of a DPI that employs technological advancements to to enriching the overall experience of the pilgrims. address seemingly insurmountable challenges. It lends a Importantly, the platform also equips authorities with new dimension to public services management and rein- the capability to monitor the movements of the pilgrims forces the potential of digital infrastructure to enhance in real time. This feature helps prevent overcrowding and not only national but also global social experiences. Not ensures the safety and wellness of the pilgrims, demon- only does it streamline the organizational aspects of Hajj, strating the clever application of smart technologies to but it also enriches the spiritual journey of millions of manage such a large-scale event. global Muslims, ensuring that they navigate their pilgrim- age with ease and tranquility. Introduced as a part of Vision 2030, the Nusuk Hajj plat- form reflects the Saudi government’s commitment to Source: This box was contributed by Saudi Arabia. 26. Ministry of Hajj and Umrah, “Nusuk Hajj,” https://hajj.nusuk.sa/. 25. See, for example, Khera et al. (2021); Ozili, Ademiju, and Semia (2022); and Azimi (2022). 21  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE BOX 7 Examples of DPIs in Singapore and the United Arab Emirates (UAE) Singapore UAE The Government of Singapore introduced Singpass in UAE-PASS was launched in 2018 through a collaboration 2003 to enable Singaporeans to access various govern- between Digital Dubai, the Telecommunications and Dig- ment services online. In 2017, Singpass evolved to be ital Government Regulatory Authority (TDRA), and the part of Singapore’s national digital ID service stack built Abu Dhabi Digital Authority as the national digital ID and on public key infrastructure cryptographic security tech- signature solution. UAE-PASS enables citizens, residents, niques. Services include authentication, digital signing, and visitors to create a secure digital ID that provides and biometric verification. Singaporean residents and seamless access to public and private digital services in businesses can use Singpass to transact digitally with the country. UAE-PASS enhances digital transformation, both the government and the private sector in a conve- eliminates paper transactions, and creates a seamless nient and secure manner. and secure digital ID system across government and pri- vate-sector entities. The Singapore Financial Data Exchange (SGFinDex) is a DPI that uses Singpass and a centrally managed online The UAE-PASS allows for streamlining of online services consent system to enable individuals to understand their by providing a trusted digital ID through users’ smart- overall financial health better and plan their finances holis- phones and eliminating the need for multiple usernames tically. With SGFinDex, individuals can provide consent and and passwords. It enhances convenience for users and retrieve and view their financial information held across dif- reduces administrative burdens for service providers. ferent government agencies and financial institutions (that The integration of UAE-PASS into the private sector is, banks, insurers, central depository) on a single applica- expanded its reach and usability, promoting a unified dig- tion of their choice. The government has also developed a ital ecosystem.28 free digital financial-planning service named MyMoney- Source: Contributions from Singapore and UAE Sense, allowing citizens to improve their understanding of their finances via SGFinDex and take action to improve their financial well-being across different life stages.27 1 2 Myinfo Financial nancial planning platform data singpass SgFinDex Financial user consent Encrypted data data package Access www.mymoneysense.gov.sg Retrieve your nancial information from participating nancial institutions or any participating bank/ and Myinfo securely insurance platform to connect Provide consent to retrieve your personal data through SGFinDex your nancial institutions to SGFinDex SGFinDex passes encrypted data to the nancial planning platform, which You may disconnect any decrypts and displays the data for you linked nancial institutions at any time Government of Singapore, “MyMoneySense,” https:/ 27.  /www.mymoney-  nited Arab Emirates, “The UAE Pass App,” https:/ 28 U /u.ae/en/about- sense.gov.sg/. the-uae/digital-uae/digital-transformation/platforms-and-apps/the- uae-pass-app. 22  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE Properly designed and implemented, DPIs can support providers. For example, in India, the implementation of various countries reach the next stage of DFS usage. The evolution DPIs is considered to have played a critical role in the increase of DFS in an economy could be stylistically seen as progressing in account ownership from just one-fourth of adults in 2008 through four stages (see figure 2), though not necessarily in a to almost 80 percent a decade later—a journey that it is esti- sequence and not necessarily for all individuals and MSMEs. mated would have taken up to 47 years without DPIs.29 Simi- The binding constraints to transitioning from one stage to larly, in Brazil, the introduction of Pix has accelerated the usage the other are different, and as such, countries can sequence of digital payments beyond any trends observed earlier. Fifty their reforms accordingly. DPIs can be particularly effective million individuals made transfers through Pix when they had in moving from stage 1, where there is widespread access to not made any account-to-account transfers in the 12 months accounts, to stage 2, where usage of payment services is pick- prior to its launch.30 ing up, usually on the back of DFS offered by a few innovative FIGURE 2: Phased Approach to Development of DFS Stage 1 Stage 2 Stage 3 Stage 4 Basic access to More intensive Moving beyond Widespread transaction usage of transaction payments to other adoption and usage accounts accounts for digital DFS products (e.g., of DFS by individuals payments credit, insurance) and MSMEs FULLY Increased penetration of and usage of digital financial services FULLY CASH Increased need to enhance regulatory and supervisory frameworks and capacity DIGITAL BASED Enabling •  Foster good •  Well functioning •  Establish credit Support universal broad- •  financial penetration of payment systems infrastructure and band connectivity and digital mobile phones and and enabling enhance coverage of Foster high penetration •  infrastructures connectivity interoperability credit relevance data of smartphones Ancillary •  Foster good •  Enhance financial •  Establish and expand Enable automated •  government penetration of management system coverage of digital ID access to digitized support systems mobile phones and to support intensive Government data connectivity shift of G2P pay- platforms ments to digital Conducive legal Allow non-bank •  Adopt payment •   • Establish compre- Adopt legal measures •  and regulatory insurance of systems law hensive regulatory to enable open finance frameworks emoney Enable non-banks •  framework for DFS •  Implement simpli- access to payment providers fied CDD systems • Adopt comprehensive •  Enable develop- Robust consumer •  legal measure for ment of wide- protection framework data protection and spread agent in place privacy network Develop and imple- •  • Open APIs/Open ment competition banking policy Source: Adapted from World Bank (2020c). 29. D’Silva et al. (2019) 30. Duarte et al. (2022) 23  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE However, for DPIs to be effective, individuals and MSMEs Beyond the objective of identifying and enrolling cus- should have sufficient digital and financial literacy. While tomers, account-opening procedures also originate from DPIs can help expand the offering and reach of innovative DFS AML/CFT requirements. In some cases, these requirements products and services that are better targeted at the currently are adapted, depending on the risk profiles of end users.33 The financially excluded segments of the population, individuals depth and rigor of the account-opening procedures vary by the and MSMEs must be adequately empowered to take advan- type of features offered; more advanced features (for exam- tage of them. Until potential users feel confident and empow- ple, higher transaction limits and cross-border transactions) ered to use DFS, their interaction with the financial system will require additional steps beyond just validating identity—for be limited. example, validating sources of funds and requiring the provi- sion of additional documents. 3.3 DPI Use Cases Leveraging DPIs Account opening can be done remotely through digital In this section, four financial sector use cases are analyzed means (for example, using a mobile phone) to simplify to illustrate how DPIs can play a role in advancing financial access to basic transaction accounts for individuals and inclusion and productivity gains. Each use case includes a MSMEs and constitute an entry point to DFS at large. In short description of the service, the processes involved, and the last few years, a pivotal aspect of financial inclusion strat- the specific way in which DPIs can be leveraged. egies in many jurisdictions has been the introduction of basic transaction accounts—offered by either banks or nonbanks— 3.3.1 Account Opening with simplified CDD procedures for account opening (including simplified ID requirements), coupled with strict limits on the Context number and value of transactions. In several countries, these Account opening is a prerequisite to using regulated measures have been underpinned by a digital ID and a data financial services; making it easy for citizens to open sharing framework. These DPIs can make in-person account new accounts significantly expands financial inclusion. opening in branches and agents significantly quicker, or they Hundreds of millions of adults worldwide have opened an can even enable a fully remote end-to-end digital account account in the past decade. The global account ownership opening. Bangladesh and India have used digital ID to increase rate grew from 51 percent of adults in 2011 to 76 percent in account ownership rapidly (box 8). 2021.31 During account opening, prospective customers are required to provide credentials to establish their identity, so By leveraging digital technologies and the extensive that the FSP can carry out KYC procedures.32 This allows the availability of mobile devices, DPIs can be used to give provider to use information gathered from other documents end users an easy and integrated way to prove their iden- and sources (such as credit bureaus) to validate the creden- tity when opening an account. This can be very beneficial tials provided, and to evaluate the suitability of the applicant to migrants, refugees, rural populations, and other vulnerable for the product or service. Once complete, the customer is groups that have insufficient documentation. This can also issued an identifier to access the account, and the credentials improve the ability of MSMEs to access DFS, by leveraging collected can be used for authentication in future transac- identifiers such as business registration numbers and fetch- tions or to access other services. ing data available in public registries through the implementa- tion of e-CDD. Data exchange DPIs make it possible to gather 31. Demirguc-Kunt et al. (2022). 32. GPFI (2018) For regulatory and audit purposes, but also to allow other subsequent 33.  verification use cases, such as multifactor authentication, data collected throughout the account-opening process, such as credentials and biomet- rics, is sometimes stored in a—generally centralized—digital ID database (for example, a KYC registry). Moreover, the information collected during account opening (for example, address, contact details, and employment status) can evolve over time and thus occasionally requires revalidation. 24  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE BOX 8 Digital ID in India and Bangladesh India Bangladesh India’s financial inclusion strategy relies on the JAM trinity In Bangladesh between 2017 and 2019, Bangladesh of Jan-Dhan, Aadhaar, and mobile and integrates digital Bank carried out a nationwide pilot with 18 banks and ID for more efficient account-opening and payment appli- one nonbank financial institution to test e-KYC. This ini- cations for access to financial services. E-KYC uses Aad- tiative involved utilizing various technologies (including haar ID system to verify the identity of end users quickly, biometrics) for customer onboarding and account open- allowing FSPs to enroll customers easily and directly acti- ing. The National Identification (NID) card issued by the vate new services, such as mobile connections and bank National Identity Registration Wing (NIDW) of the Elec- accounts. E-KYC is paperless, private, and instantaneous, tion Commission (EC) of Bangladesh was used to verify with reliable data shared in real time. Micro-ATMs use the identity of end users. The technologies employed in Aadhaar authentication for branchless banking, reduc- the project encompassed fingerprint- and facial-match- ing paperwork and enabling electronic record keeping. ing devices, as well as AI and optical character recogni- Similarly, the India Stack has digitized and simplified KYC tion in both English and Bangla. In this study, Bangladesh procedures, lowering costs; banks that use e-KYC lowered Bank concluded that e-KYC would reduce the total time their cost of compliance from $0.12 to $0.06. The decrease to onboard and open an account for a customer from four in costs made lower-income clients more attractive to ser- or five days to five minutes. vice and generated profits to develop new products.34 34. Alonso et al. (2023). data from a variety of sources, improving overall reliability and address such barriers to financial inclusion as high costs, dis- confidence in e-CDD processes and in turn enabling access tance, and the time taken to open an account. Data exchange to more advanced services. In addition, payment systems DPIs can even assist in analyzing trends in fraudulent trans- can be leveraged to validate account ownership and reduce actions by collating information about past frauds. Digital fraudulent misuse of customer information by sending a IDs could further financial inclusion, especially in low- and (small) random amount of money as credit and asking the middle-income countries, where insufficient documentation person to state the amount received. With FPS, this can be is often a barrier to account ownership. In addition, inclusive done in a matter of seconds and at a low cost. Electronic shar- access rules by digital ID systems and reasonable costs for ing of additional data required for account opening through a both public and private entities would enable broad adoption data exchange DPI can simplify KYC and CDD processes and of these solutions by different types of providers. 25  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE BOX 9 France’s Approach to Digital ID In France, the foundational ID system has historically relied for electronic transactions in the internal market (eIDAS on the civil registry, which identifies people according to Regulation). the same characteristics (for example, birth name, first name, and date and place of birth) and on official identity Additionally, in April 2022, the French government documents (for example, the national ID card or pass- unveiled an ambitious project for digital ID in the coun- port). FranceConnect was launched in 2016, operating as try—the Service de garantie de l’identité numérique a federation of various public and private identity provid- (SGIN), or “Digital Identity Guarantee Service.” Based ers and allowing individuals to use existing credentials to on the electronic national ID cards (CNIe) issued since authenticate their identity securely when accessing online August 2021, the SGIN will operate in conjunction with services. FranceConnect acts as a trusted intermediary FranceConnect and will be a means of digital identifica- between users and service providers, ensuring the reliabil- tion and authentication, achieving a high level of assur- ity and privacy of personal information and promoting the ance for French citizens. The project has a strong focus exchange and transmission of data between administra- on ensuring user-centricity—for instance, it should not tions that support the OpenID Connect protocol. allow the card holder’s biometrics to be accessed, and its use will not be compulsory. Based on single sign-on (SSO) principles, it allows citi- zens to log in to different online services—mostly public Furthermore, French public authorities have a dedi- ones at present—using their existing credentials from cated focus on digital governance, including through the certified identity providers, such as impots.gouv.fr (tax development of key DPI capabilities required to support office services), La Poste (post office services), or AMELI the evolving needs of its digital economy. Among other and MSA (social security). Currently, FranceConnect sup- measures, the French government adopted an action ports more than 40 million people and allows access to plan on free software and digital commons in Novem- over 1,400 services. Two versions of the platform exist, ber 2021. This plan aims to promote the use of free and covering different levels of assurance: FranceConnect+ open-source software and digital commons in the admin- allows for multifactor authentication to meet more strin- istration, to develop and support the release and pub- gent security requirements for more sensitive use cases, lication of its source codes, and to use free software to while FranceConnect is compliant with the European strengthen the attractiveness of the state as an employer regulation on electronic identification and trust services of digital talent. 3.3.2 Government-to-Person Payments On average in the past decade, across a sample of 46 developing countries with available data, 1.5 percent of GDP was allocated Context to social assistance payments, 3.6 percent to pensions, and 7.3 Globally, government-to-person (G2P) payments have percent to public wages.36 In 2020, in response to the COVID-19 increased significantly in scale. In 2021, over a quarter of crisis, spending on social-protection programs increased even adults were receiving payments from the government, an further, to at least $80 billion across developing countries.37 increase of 400 million individuals from just four years earlier.35 According to Global Findex 2021, 28 percent of adults worldwide were receiv- 35.  36. World Bank (2022c). ing payments from the government. This percentage has likely increased, 37. Gentilini et al. (2020). since social assistance scaled up in response to the COVID-19 crisis. 26  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE The increasing scale of G2P payment programs offers a to technology by these beneficiaries and digital and financial huge opportunity to advance financial inclusion, contrib- literacy, would still be necessary for the benefits to materialize. ute to women’s economic empowerment, and promote the development of the digital ecosystem. Digitalizing G2P Trusted digital ID systems can facilitate the digitalization payments—in particular, for social assistance programs that of G2P payments and contribute to their efficiency. To target base-of-the-pyramid beneficiaries—can be an effective enable digital G2P payments, it is essential to have trusted ID way to advance financial inclusion. Indeed, according to the systems or ecosystems with wide coverage. Beyond ensuring 2021 Global Findex, 865 million account owners in developing that all beneficiaries have a unique and valid form of ID, digital economies opened their first financial account for the purpose ID systems in particular can provide an ID verification service of receiving government transfers. to public and private sector entities that supports efficient and timely account opening, including remotely.42 The ID system Improved efficiencies in how G2P payments are distrib- also needs to be interoperable with the country’s social reg- uted can also offer significant benefits to the government istry and social protection management information system and to the society at large. Many governments have increas- (MIS). This will help support the identification and onboarding ingly been transitioning away from cash or other paper-based of potential beneficiaries into social assistance programs and payment methods to digital payments, which, under some support the matching of beneficiaries with their correspond- conditions, have proven to reduce total overhead costs for gov- ing account. ernments and substantially improve controls. This includes reducing leakage and eliminating other forms of misbehavior/ Interoperable payment systems with the broad partici- corruption. Moreover, when the COVID-19 pandemic left many pation of payment service providers and a government seeking help from the government, countries with DPIs were payment gateway or interface can support digital G2P able to reach the poorest in a faster, more targeted, and trans- payment delivery. A payment system should be leverag- parent manner.38 ed to deliver G2P payments to beneficiaries’ accounts. For this, the social protection MIS (where beneficiary lists and Leveraging DPIs the amounts payable are prepared) should be capable of DPIs can enable digitalizing G2P payments in an efficient, interfacing with either (i) a payment service provider that is inclusive, and adaptive way in the following key areas: (i) connected to the payment system or (ii) the national trea- beneficiary account opening, (ii) account registration with the sury, which, in turn, would interface with the payment system government program, (iii) generating payment instruction (for to execute the payment instructions directly.43 In order for the executing financial institution or the national treasury), (iv) beneficiaries to be able to use the payment service provider transfer of funds to beneficiary accounts, (v) reconciliation, of their choice, an interoperable retail payment system with and (vi) payment cash-out or digital use. Jurisdictions that had the broad participation of bank and non-bank payment ser- in place DPIs such as digital ID, digital payment systems, and vice providers is needed. This will increase convenience, infrastructure for data sharing were also able to reach more strengthen pathways to financial inclusion, and also contrib- beneficiaries and generally respond in a faster, more targeted, ute to market development. and transparent manner during the COVID-19 pandemic.39 Lastly, features such as aliases used in FPS and through DPIs enable G2P architectures that can operate digitally data exchange DPIs recipients are able to switch providers from end to end.40 For this purpose, DPIs need to be interoper- easily and new programs can be launched faster. A data- able and accessible by both public- and private sector entities base or platform supporting the matching of beneficiary unique through shared rails that can be used by different G2P payment IDs and their account numbers, sometimes called an account streams.41 This not only advances financial inclusion but also directory, allows beneficiaries to select and update the account improves productivity gains through cost savings for the gov- where they want to receive any government payments without ernment and ultimately increases convenience for beneficia- having to update different programs or agencies.44 ries. At the same time, other enablers, such as effective access 38. Marin and Palacios (2022). 42. Several jurisdictions have implemented special regulations to enable individu- 39. Marin and Palacios (2022). als to open an account with minimal documentation, although these accounts A recent paper on the role of digital during COVID-19 showed that among 40.  usually have some balance or transfer limits. 85 countries, those that were able to use digital databases and trusted data 43. As long as the national treasury is a direct participant in this payment system. sharing reached on average three times more beneficiaries than those that 44. More broadly, pairing a unique ID system that is integrated across govern- could not rely on these DPIs and had to collect information practically from ment databases and also linked to accounts is an option that countries such scratch. For additional details, see Marin and Palacios (2022). as Chile, India, and Peru have adopted (with varying approaches) to achieve 41. World Bank (2022c) this mapping. 27  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE BOX 10 G2P Payments: Country Examples In the last decade, India has built one of the world’s largest using their national ID number and open a bank account digital G2P architectures leveraging DPI. This approach remotely (Cuenta DNI) to receive government transfers. has supported transfers amounting to about $361 billion45 This system facilitated efficient eligibility verification directly to beneficiaries from 53 central government min- and provided convenient access to financial assistance istries through 312 key schemes. As of March 2022, this during the crisis.48 had resulted in a total savings of $33 billion,46 equivalent to nearly 1.14 percent of GDP. In Brazil, the government launched Auxilio Emergencial as a social assistance program in response to COVID-19. In Türkiye, the Integrated Social Assistance System (ISAS), Close to 70 million beneficiaries received aid through the which leverages digital payment and ID systems, has trans- program, for which the government set up a digital savings formed social assistance processes by digitizing applica- account with digital access channels to use the funds. It tions, investigations, payments, monitoring, accounting, is estimated that 40 percent of beneficiaries did not have and auditing. With integration across 28 public institutions an account before the pandemic.48 The Caixa TEM app and the e-Government Gateway, ISAS serves 57.5 million through which beneficiaries could open and operate their individuals (17.7 million households). Applicants need only savings accounts includes functionalities such as digital their national ID for eligibility determination, reducing the cards, QR payments, and payments through Pix, the fast number of documents required from 17 to just one. Appli- payment system launched by the Central Bank of Brazil cation time has decreased from days to minutes, while in November 2020. Pix enables P2P transfers and mer- processing and benefit delivery time has been cut from chant payments in real time on a 24/7 basis. The intro- months to days.47 duction of Pix, in addition to incentives by the program to use funds digitally, likely contributed to the high digital In Peru, the digital ID system proved invaluable during the use of the cash transfers.50 Of the total funds transferred COVID-19 social assistance response to identify potential by the program, 75 percent was used digitally, and only beneficiaries swiftly. Authorities were able to use the ID 25 percent was cashed out.51 number to cross-check social insurance and other admin- istrative datasets, ensuring that support reached those most in need. Peruvians could check eligibility online 48. World Bank (2020) 49. CAIXA. Relatório da Administração 4T20. https:/ /www.caixa.gov.br/ Downloads/caixa-governanca/Relatorio_da_Administracao_4T20. pdf 45. Government of India, “Direct Benefit Transfer,” https://dbtbharat.gov. 50. There were explicit efforts from the Auxilio Emergencial program to in/. increase the use of funds digitally, including not allowing beneficiaries 46. Government of India, “Estimated Gains,” https:/ /dbtbharat.gov.in/ to cash out immediately after the payment; rather, there was a period static-page-content/spagecont?id=18. of 10 to 53 days in which funds could be used only to make transfers 47. Ortakaya et al. (2022) or digital payments. For more information, see World Bank (2021). 51. World Bank. (2021) 28  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE 3.3.3 Remittances Cash-based remittances remain prevalent around the world. A 2022 survey of 14,000 users across 10 countries Context showed that only 53 percent of remittance users were leverag- According to the latest World Bank data, remittance flows ing digital means to send remittances.55 According to a study to low- and middle-income countries reached $656 bil- by the Financial Stability Institute and the World Bank , the lion in 2022.52 Digitalization of remittances—that is, sending prevalence of cash-based remittances could be due to a variety remittances between transaction accounts—is an opportunity of structural factors in the financial system, including:56 to increase access to and usage of these accounts more gen- erally.53 Migrants and their families at home are most often y Lack of access to transaction accounts provided by regu- unbanked, and a remittance transaction is usually the first lated payment service providers time they are exposed to the regulated financial sector. y Lack of options for receiving transfers using digital chan- nels and more generally a lack of innovation and/or of an While the costs of remittances have been declining, they enabling ecosystem for digital payments remain high. In Q1 2023, the average cost of sending $200 was 6.25 percent—3.25 ppts above the target of 3 percent estab- y Lack of financial and digital literacy lished in the UN SDG 10.c. However, in Q1 2023, the global aver- y Challenges in complying with extant exchange controls in age for digital remittances was recorded at 4.72 percent, while certain markets that can push consumers to use unregu- the global average for non-digital remittances was 6.92 percent lated services (figure 3).54 FIGURE 3: Trends in the Global Cost of Sending $200 14 12 10 8 6 4 2 0 2011–1Q 2011–3Q 2012–1Q 2012–3Q 2013–1Q 2013–2Q 2013–3Q 2013–4Q 2014–1Q 2014–2Q 2014–3Q 2014–4Q 2015–1Q 2015–2Q 2015–3Q 2015–4Q 2016–1Q 2016–2Q 2016–3Q 2016–4Q 2017–1Q 2017–2Q 2017–3Q 2017–4Q 2018–1Q 2018–2Q 2018–3Q 2018–4Q 2019–1Q 2019–2Q 2019–3Q 2019–4Q 2020–1Q 2020–2Q 2020–3Q 2020–4Q 2021–1Q 2021–2Q 2021–3Q 2021–4Q 2022–1Q 2022–2Q 2022–3Q 2022–4Q 2023–1Q Cash Digital Global Average Source: Remittances Prices Worldwide, Q1 2023, World Bank. 52. World Bank (2022d) 55. Visa (2023) 53. Ardic et al. (2022b) 56. Ardic et al. (2022a) 54. World Bank, Remittance Prices Worldwide database. 29  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE Leveraging DPIs DPIs and other financial infrastructures and make it available DPIs can support the digitalization of remittances and (aggregated and duly organized) to end users for improved reduce associated transaction costs.57 As described ear- decision-making on price, speed, and other features. lier, digital ID systems can facilitate the remote onboard- ing of excluded users, diminishing costs related to account 3.3.4 MSME Finance opening. Moreover, in account-to-account remittances, Context digital ID secures the accuracy and reliability of the identi- MSMEs are a critical component of most economies, ty-verification process during onboarding, reducing the cost accounting for a significant portion of employment and of duly observing AML/CFT requirements. When it comes to economic activity. However, MSMEs often face challenges in payment systems, validations can be implemented in these accessing finance, particularly in developing countries, where before the execution of transactions to ascertain the integ- financial systems may be less developed. About half of formal rity of the transaction and the counterparts involved, which MSMEs do not have access to formal credit and instead rely also facilitates compliance with AML/CFT procedures. In on internal funds or cash from friends and family to launch addition, interlinking of payment systems through cross-bor- and initially run their business. In emerging markets, approx- der arrangements can reduce the number of intermediaries imately 41 percent of formal MSMEs have unmet financing required, potentially increasing speed and reducing the cost needs.58 The finance gap for formal MSMEs in developing of remittances. In the case of remittances, these infrastruc- economies is estimated at $5 trillion.59 Women-owned busi- tures can extract, exchange, and aggregate data from other BOX 11 How DPIs Can Support Remittances in Practice The UPI-PayNow interlinking was operationalized in Feb- making a transaction, the system dynamically calcu- ruary 2023. This is a fast payment system interlinking lates and displays the amount in both currencies for the between India and Singapore to facilitate cross-border convenience of the user. payments and remittances. The UPI-PayNow linkage is the product of extensive collaboration between the Beyond bilateral interlinking, the Bank for International Reserve Bank of India (RBI), Monetary Authority of Sin- Settlement’s (BIS) Project Nexus aims to establish stan- gapore (MAS), and payment system operators of both dardized multilateral interoperability between existing countries—that is, NPCI International Payments Lim- FPS for cross-border payments. The rationale is to allow ited (NIPL) and Banking Computer Services Pte Ltd. payment system operators to implement a single con- (BCS), and participating banks/nonbank financial insti- nection to the Nexus platform, which acts as a technical tutions. This interlinking aligns with the G20’s financial hub, rather than going through the lengthy and costly inclusion priorities of driving faster, cheaper, and more process of building numerous bilateral linkages between transparent cross-border payments and will be a signif- existing infrastructures. In March 2023, the BIS Innova- icant milestone in the development of infrastructure for tion Hub Singapore Centre announced the successful cross-border payments between India and Singapore. connection of the test versions of three established FPS The UPI-PayNow linkage enables users of the two FPS in the Eurosystem (TIPS), Malaysia (RPP), and Singapore in either country to make convenient, safe, instant, and (FAST). This experiment paves the way for additional cost-effective cross-border transfers of funds using their work on the practical applications of a distributed mul- mobile apps. Funds held in bank accounts or e-wallets tilateral network to interlink existing domestic payment can be transferred to/from India using just the UPI-ID, infrastructures. mobile number, or virtual payment address (VPA). When 57. World Bank (2022b) 58. IFC (2017 and forthcoming). 59. Ibid. 30  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE nesses comprise 23 percent of MSMEs and account for 32 Data exchange can also facilitate the use of alternative percent of the MSME finance gap.60 DPIs can help to address data sources and big-data analytics to provide additional some of these challenges by providing SMEs with access to information sources to the credit risk-assessment pro- financial services and information through digital channels. cess for MSMEs. Data exchange can also leverage alternative sources of data, such as mobile phone call records, utility and Leveraging DPIs bill payments, digital payment transactions, social media, and Digital payment systems allow MSMEs to accept pay- industry data, for this purpose. Some examples of the use of ments from customers electronically, reducing the need alternative data include: (i) LenddoEFL, a Singapore-based fin- for cash transactions and making it easier for SMEs to tech company, uses psychometric tests as part of the credit- track their revenue and expenses. Digital payment sys- scoring model in EMDEs, using more than 10,000 different data tems can also help SMEs to build a credit history, which can points of new customers; (ii) MYBank in China uses an AI-pow- be important for accessing formal sources of finance, such as ered risk-management system, comprising over 100 predictive bank loans. Digital payment solutions for commerce generate models, 3,000 risk profiles, and more than 100,000 metrics, rich data on cash flows and business performance of active to calculate a line of credit for MSMEs; and (iii) Become—a MSMEs, which can then be used by credit providers to assess US-based online platform for small businesses—uses big data the relative creditworthiness. An example of such an initiative analytics to help small businesses by matching them with lend- is Kopo Kopo, a fintech firm that offers digital payment access ers. The risks associated with use of alternative data and big to merchants in Kenya through Safaricom’s M-PESA. Kopo data analytics—for example, data protection and privacy, and Kopo analyzes merchant payment transaction data to offer perpetuation of biases—need to be effectively addressed. SMEs a range of value-added services, such as unsecured short-term loans.61 Data exchange and digital payments, when used together, can also provide alternate sources of collateral for MSMEs. Data exchange DPIs can enable fast and seamless sharing For instance, they can facilitate merchant receivables financ- of information from traditional sources as credit infra- ing by using the digital record of an MSME retailer’s payment structure. Credit reporting systems allow lenders to access receipts as collateral. For example, Banco Davivienda in Colom- information about a borrower’s credit history, making it easier bia has provided loans to MSMEs by taking security interests in for MSMEs to demonstrate their creditworthiness and access the credit card receivables generated by their own point-of-sale formal sources of finance. Digital credit reporting systems can systems to finance small restaurants and retail enterprises. be particularly useful for MSMEs in developing countries, where Additionally, reverse factoring platforms, including the Nacio- traditional credit reporting systems may be less developed. For nal Financiera (NAFIN) system in Mexico and the Trade Receiv- example, the Kenyan government has developed a digital credit ables Discounting System (TReDS) in India, allow FSPs other infrastructure that enables SMEs to access credit through than the buyer’s bank to discount the buyer’s receivables. mobile phones. This infrastructure includes credit scoring algo- rithms that use alternative data sources, such as mobile phone And finally, DPIs can also support MSME access to finance usage patterns, to assess creditworthiness. Additionally, the by providing information and education about financial digitization of collateral registries and other credit infrastruc- products and services. For example, digital platforms can be ture will increase the efficiencies of the security interest regis- used to provide SMEs with information about different types of tration process. It will also lead to efficiency gains by increasing loans, interest rates, and repayment terms. Digital platforms the ease of access and reducing information asymmetries. can also be used to provide training and education on financial management, improving MSMEs’ understanding of their finan- cial needs and helping them make informed decisions about 60. Ibid. 61. GPFI (2020a). borrowing. The existence of enabling institutional and market conditions, including appropriate coordination mechanisms and a dynamic business environment, is key to kick-starting cross-sectoral endeavors such as DPIs and is crucial for their success. 4 AN ENABLING ECOSYSTEM TO FOSTER THE IMPACT OF DPIs ON FINANCIAL INCLUSION AND PRODUCTIVITY GAINS Digital Financial Ecosystem Enablers 4.1  inclusion and productivity gains successfully. While these That Support Financial Inclusion and DFE foundations, together with the indicative, voluntary, and Productivity Gains through DPIs nonbinding policy recommendations in this report, can enable DPIs to facilitate financial inclusion and productivity gains, When DPIs are used for the provision of financial products additional catalyzers in a DFE, beyond the use of DPIs, may and services, they will be directly interacting with vari- be required in order to achieve the ultimate objectives. These ous elements of a jurisdiction’s DFE. These can be grouped DFE catalyzers include digital and financial literacy, inclusive under the following three categories: financial products, and a network of widely available access points. Resilient, open, and efficient DPIs, as enablers them- y Strong and sustained governance and coordination arrange- selves, would contribute to these DFE catalyzers by providing ments an accessible digital ID mechanism, safe and efficient data y Robust and widespread ancillary services and digital infra- exchange, and enablement of end-to-end workflows. DPIs can structure lower transaction costs, catalyze innovation, foster competition and interoperability, enhance individual user experiences and y Sound and enforceable regulatory frameworks choice, and, through their design, can provide new avenues Each of these aspects directly affect features of DPIs and the to address many of the risks inherent to DFS. These effects policies and regulations that apply to them. translate into faster progress in financial inclusion and enhance productivity gains over and above that which can be achieved This section focuses on those DFE enablers that are exter- by DFS provided by FSPs operating without such shared infra- nal to DPIs and can affect their ability to advance financial structure. This is illustrated in figure 4. 32 33  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE FIGURE 4: The Role of DPI in the Digital Financial Ecosystem Objective Advancement of nancial inclusion and increased productivity gains Widespread digital and nancial literacy Inclusive nancial services and access points Lower cost and Lower cost Safe, e cient accessible Catalyzers identi cation and accessible and empowering payment solutions data exchange mechanisms Value— add of DPIs Enablement of end-to-end work ows Digital Public Infrastructure: Digital ID, Digital Payments, Data Exchange Strong and sustained Robust and Sound and governance and widespread ancillary enforceable Enablers coordination services and regulatory arrangements infrastructure frameworks Source: Authors’ elaboration The existence of enabling institutional and market condi- The availability and penetration of ancillary services and tions, including appropriate coordination mechanisms and infrastructures—such as connectivity, mobile phone own- a dynamic business environment, is key to kick-starting ership, and supporting financial market infrastructures— cross-sectoral endeavors such as DPIs and crucial for their will determine the nature of the potential offerings and the success. Having a stable institutional landscape with a clear adoption of DPI-enabled services and products. Inclusive allocation of responsibilities between different public-sector access to electricity, mobile network coverage, and medium- bodies and agencies and a mechanism by which their design to high-speed internet are critical for DFS penetration and to and operations can be coordinated is fundamental to the suc- ensure that DPI-enabled services are accessible society-wide. cessful development of DPIs. The establishment of public-pri- Several financial services and products also require affordable vate sectoral cooperation fora in the financial sector (such as a access to mobile phones—ideally smartphones62 with internet national payment council (NPC)) or a coordination committee access.63 Globally, while mobile phone access has been steadily for financial inclusion (commonly established in the context of increasing across developing countries, 32 percent of the pop- national financial inclusion strategies) can play the role of a cat- ulation still does not have access to a mobile phone.64 In addi- alyst in developing and implementing long-term policies relat- tion, the availability of other financial infrastructures that can ing to DPIs. Furthermore, a dynamic business environment, feed into or play an important role in the processes supported adequate investment in the development of digital capabilities by DPIs can impact their efficiency and effectiveness. For exam- by FSPs, as well as competitive and innovative market condi- tions can support the development of user-friendly financial 62. Note that some financial services can be delivered on basic mobile phones products and services leveraging DPIs. From this perspective, that are not smartphones. 63. Affordable access to mobile phones and data is an important consideration the availability of a national talent pool in the field of digital tech- for digitalization in general and for penetration and uptake of DFS in partic- nologies and the ability to attract them should be considered as ular. For example, see Ndulu, Joseph, and Tryphone (2021) on the effects of taxation on digital transformation in Africa. a key factor. 64. GSMA (2023) 34  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE ple, most FPS around the world settle directly in the national include those relating to access to financial infra- or regional real-time gross settlement (RTGS) systems, and structure, regulation of nonbank service providers, credit reporting systems and collateral registries are essential and data protection, among others. Laws and regula- for credit decisions.65 These financial infrastructures clearly tions that are not directly applicable to the design or oper- require efficient and resilient IT and telecommunications infra- ation of DPIs can still affect how DPIs interact with the structures. Financial sector players will also need to implement DFE and facilitate financial inclusion. These can be spe- certain technical prerequisites, such as robust and efficient cific to the financial sector—for example, granting licenses core banking systems. to nonbank providers or rules relating to access payment systems—or more general, such as national cybersecurity Sound and enforceable legal and regulatory frame- and data-protection regulations, or policies on the inclu- works (or policies) that enable widespread use of DPIs sion of disadvantaged populations, such as the disabled and to increase financial inclusion and productivity gains elderly.67 BOX 12 Examples of Digitalization Incentives: Italy and UAE Italy UAE In the wake of the COVID-19 pandemic, Italy introduced Public-private partnerships can play a key role in building a series of digitalization incentives for both citizens and infrastructure to improve financial inclusion. The UAE’s businesses. The following are planned for 2023: Smart Dubai initiative66 was launched in 2017 with the aim of transforming Dubai into a Smart City by focusing y Voucher Internet, aimed at enabling MSMEs to on four pillars: seamless services, efficient resource utili- subscribe to an ultra-fast internet network with an zation, safety and security, and personalized experiences, operator by enabling full ICT integration of critical infrastructure. y Piano Transizione 4.0, consisting of a series of facilities, The objective of the initiative was to increase customer in the form of tax credits, to support Italian companies happiness for residents and visitors, enhance efficiency in investments in capital goods, research and develop- through optimized resource utilization, and improve resil- ment, technological innovation, design and aesthetic ience of resources and infrastructure for a sustainable conceptualization, and 4.0 training city. Smart Dubai also aimed to leverage technology and y Bonus Export Digitale for manufacturing SMEs, a innovation to create a more efficient and sustainable city nonrepayable grant of €4,000 for the purchase of at while promoting economic growth and enhancing the least €5,000 in digital solutions useful for internation- quality of life for residents and visitors. alization Sources: Contributions from Italy and the UAE y Bonus Internet, directed to families in financial diffi- culty, so that they can benefit from an internet con- United Arab Emirates, “Smart Dubai 2021 Strategy,” https:/ 66.  /u.ae/ en/about-the-uae/strategies-initiatives-and-awards/strate- nection at a subsidized rate; includes the purchase of a gies-plans-and-visions/strategies-plans-and-visions-untill-2021/ laptop at a discounted price and in installments smart-dubai-2021-strategy. For instance, this is the case in Thailand, where PromptPay—one of the most 65.  Specific laws and regulations on the role of ICT providers and the authority 67.  successful FPS to date in terms of adoption per capita—settles twice a day in of telecom regulators are usually also relevant for the provision of financial BAHTNET, the RTGS system operated by Bank of Thailand. services in most jurisdictions. 35  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE Risks and Challenges for DPIs in 4.2  y Financial-integrity risks: DPIs can help reduce financial-in- Achieving Financial Inclusion and tegrity risks, such as money laundering and the financing Productivity Gains of terrorism. Digital ID systems, by having an open archi- tecture and allowing open access to FSPs and other DPIs, Even when DPIs are leveraged in the provision of DFS, some can improve compliance mechanisms. Moreover, trusted challenges and risks to the provision of DFS remain. Well- data-exchange DPIs may allow data to be cross-referenced, designed DPIs can help mitigate the risks of, and address many further contributing to the effectiveness of these mech- of the supply-side challenges to, DFS provision and usage.68 anisms. However, the security of a DPI is key to ensuring While overcoming or reducing demand-side challenges by lever- financial integrity. aging DPIs is possible to a certain extent—for example, a lack of y Macro-financial risks: DPIs can help overcome the accumu- documentation or the distance to access points as a challenge lation of financial risks that could become a threat to macro can be eliminated—overcoming other barriers, such as the lack financial stability. DPIs can support the collection, analysis, of trust in financial institutions or the lack of digital literacy and and use of data that can help regulators understand the financial capability, may take longer and will require more than causes of overindebtedness among individuals and MSMEs just leveraging DPIs for financial inclusion.69 and adopt suitable measures to prevent it. Open architec- ture and open access to DPIs encourage broad participation However, well-designed DPIs can help minimize some of by FSPs, which in turn enhances the amount and quality of the following risks associated with DFS: information available across DPIs to evaluate the creditwor- y Exclusion risks: DPIs can help reduce DFS exclusion risks, thiness of individuals and MSMEs. provided that there is a basic level of digital readiness and y Financial consumer protection risks: DPIs have the poten- willingness to adopt DFS among the general population. By tial to improve transparency and therefore mitigate several offering functions and solutions that are channel-agnostic financial consumer protection risks. For instance, when and that can be built upon, DPIs have the potential to sup- coupled with sound data-governance practices, DPIs can port the development of DFS to reach segments of the pop- empower individuals and entities to have greater control ulation that are traditionally excluded or underserved. DPIs over their own data. Data owners can then decide how their need to be inclusive by design, which would also imply that data can be used and by whom, preventing unauthorized all relevant providers can leverage DPIs. While DPIs do not profiling for marketing financial products. However, if data necessarily vitiate the need for brick-and-mortar or physical governance is not well managed, financial consumer protec- establishments, they can greatly reduce the reliance on such tion risks may instead be amplified due to the use of DPIs for physical establishments for the regular and continued use of the provision of DFS. Lastly, it is possible to leverage DPIs to financial services. improve market-conduct supervision through tailored supt- y Anticompetitive practices: DPIs can mitigate anticompeti- ech solutions, institute more effective and efficient redres- tive practices in the DFE by providing access to foundational sal mechanisms, ensure certain standards in the provision services for a wide range of FSPs at a low and proportionate of DFS, and so on. Mitigating financial consumer protection cost, enabling productivity gains. This has several positive risks can also increase overall trust in financial institutions impacts: first, it can shift resources to investments in new and lead to greater financial inclusion. technologies, innovative business models, and product and service enhancements that in turn can spur an increasingly Some DFS risks could be exacerbated, or new manifesta- competitive environment. It can also allow smaller finan- tions of existing risks could be introduced, if they are not cial-sector players to reach profitability and sustainability, considered in the design of DPIs or if proper safeguards which also creates positive competitive pressure. are not put in place. Some examples of these risks, including how DPIs can minimize them, are outlined below: y Operational risks: Given the intensive dependence of DPIs Governance arrangements for a DPI support the management of its day-to- 68.  day operations as well as future planning. They are essential to support the on technological and operational components, operational safety, efficiency, reliability, and sustainability of a DPI. They include a clear risks of digitalization need to be addressed. These include definition of the mission of the DPI and rules for stakeholders’ access to and representation in the governance structure. All these arrangements are crit- anything that disrupts the technological and operational ical to support the long-term priorities of a DPI, including that it continues to infrastructure, such as operational disruptions, fraud, cyber- serve the public interest on an ongoing basis. 69.  In the context of digital ID, for example, Gelb and Diofasi Metz (2018) provide security risks, and risks on account of connected third par- a perspective on the benefits and risks. ties. These risks can be amplified in the context of DPIs, given 36  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE that they are deeply interlinked among themselves and with owned by vulnerable segments, such as women. Further- other infrastructures in the financial system. Since DPIs are more, building and operating each DPI with high-quality foundational in nature, any disruption in their operations standards will ensure that the services they provide are reli- could have spillover effects on the financial sector and the able. For example, if the quality of the credentials offered by other sectors of the economy. For example, disruptions in a digital ID are low (for instance, poor screening), then this DPI operations could cause delays or, in extreme cases, loss could compromise not only individual account-opening pro- of data or funds. Therefore, DPIs need to have a highly reli- cesses but the integrity of the whole DFE. able and effective operational risk management framework y Financial consumer protection risks: Consumer risks can that can then cascade across the DFE and enforce robust be heightened by the misuse of DPIs or by the adoption of risk management practices across the whole ecosystem. exploitative and unscrupulous practices by DPI operators or y Legal and regulatory risks: Legal and regulatory risks are by FSPs that build or distribute their services using DPIs. One challenging to address in multi-sectoral structures like DPIs. of the major risks is unauthorized retention, use, or sharing Coordinated efforts must be made to prevent regulatory of personal data obtained or shared using DPIs (such as gaps or arbitrage. Regulators for each DPI may be different, digital ID or data exchange). Even in cases where consumer and in some cases, especially for data exchange infrastruc- consent might have been taken, such consent might not be tures, there may be no single regulatory agency. This may informed consent and present additional risks to vulnerable create legal uncertainty and loopholes, which can be exac- populations. These risks are heightened among populations erbated when DPIs interlink. Furthermore, new products with lower digital and financial literacy. Additionally, the use and services enabled by DPIs, as well as new technologies of digital technologies, especially by vulnerable populations, adopted by DPIs, may also make existing legal frameworks can increase the risk of cyberattacks, phishing, and other obsolete. forms of data breaches. FSPs might also misuse informa- tion obtained through DPIs to exploit customers’ behavioral y Insolvency risk: The DFE at large can be endangered if biases to provide financial products that are unsuitable or some of its critical components, including entities that man- inappropriate for these population segments, leading to age DPIs, were to become financially unsustainable. DPIs greater consumer risks. One such risk is the risk of over can have various operating models, and this risk is height- indebtedness among populations that are not prepared to ened where a DPI is managed by one or few central entities. handle credit products. Furthermore, where there is a lack Insolvency risks are particularly relevant in models where of appropriate data-governance measures, consumer risks such entities have limited access to funds to maintain their may be amplified due to the use of DPIs. operations or need to generate revenue and/or profits to achieve sustainability. Therefore, the financial solvency of In addition to the risks above, it is important to note that entities managing DPIs needs to be ensured. DPIs require DPIs, like other infrastructures, may create a natural up-front investments and incur continuous maintenance monopoly or lead to monopolistic or oligopolistic struc- costs to update infrastructures and technologies to keep tures, due to efficiency considerations.71 The resulting lack up with market developments. Moreover, DPIs need to be of competitive pressure may not necessarily be a disadvantage well resourced and able to upgrade their technological and in the case of DPIs, due to the minimalism and the culture of operational capacity constantly, particularly as population innovation embedded in DPIs. As DPIs are designed with a min- and digitalization continues to grow and markets expand. imal core function, enabling services and functionalities to be Hence, a financially sustainable business model for DPIs layered on top in addition to the premise of innovation, a lack would be key. of competitive pressure would not inhibit innovation or render y Exclusion risk: If DPIs are not designed following good prin- a DPI obsolete, provided that the DPIs are well-governed and ciples and global standards, it can lead to risks of exclusion. adequately regulated. For example, there might be segments of the population for which biometric information may be difficult or impos- 70. Such difficulty, for example, can be linked to skin or eye diseases, can be moti- sible to collect; digital ID systems that use this technology vated by religious reasons, or can be due to the refusal of a certain population must therefore adopt relevant exception measures to avoid to provide biometric data (for example, undocumented migrants, populations with unclear migration status, or people who distrust the storage of personal excluding people as a result.70 In the case of MSMEs’ access information in centralized registries). For additional details, see GPFI (2018). to credit, insufficient information gathered or provided 71. In the financial sector, for examples on discussion on competition at the level of infrastructure, see Bergman (2003) and Feyen et al. (2021) for payment through a data exchange DPI can lead to algorithmic bias infrastructure, Herkenhoff and Raveendranathan (2021) in the case of credit and discrimination, which tend to exclude especially those card industry. Balancing risks and creating conducive environment for furthering financial inclusion. 5 POLICY RECOMMENDATIONS The policy recommendations in this section are indic- y They have been drafted based on the three current exam- ative, voluntary, and nonbinding and directed to public ples of DPIs—digital payments, digital ID, and data-exchange authorities72 and could have relevance for other relevant DPIs—which apply to each separately and in combination. stakeholders, as they seek to advance financial inclusion y They apply to private as well as publicly owned/operated and productivity gains through DPIs rapidly. For furthering DPIs. The allocation of responsibilities and powers across financial inclusion and productivity gains, how to develop an different public authorities could vary by jurisdiction and ecosystem for leveraging DPIs is the central theme of the pol- by DPI. icy recommendations.73 The following five points describe the scope and intent of these indicative, voluntary, and nonbinding y The development of financial infrastructures and overall dig- policy recommendations: italization in the financial sector remain relevant for effective use of DPIs. However, as these are covered in existing guid- y They reflect good practices from different countries, and in ance, they are not expressly included here. line with G20 practices, their adoption is voluntary and non- binding. They should be read in conjunction with the G20 POLICY RECOMMENDATION 1: Enable and foster the respon- HLPs for Digital Financial Inclusion, which call for a holistic sible use of DPIs to accelerate financial inclusion and approach to foster digital financial inclusion, as well as with productivity gains. Public authorities could leverage DPIs the established standards and good practices for the indi- across public sector programs and national strategies, as vidual DPI types as established by standard-setting bodies well as harness private sector capabilities through collabora- (SSBs). They are intended to complement, and not replace, tive approaches, for rapidly advancing financial inclusion–led existing standards issued by SSBs and other international growth. bodies. y Key consideration 1.1. Public authorities could consider y Their focus is on leveraging DPIs in the context of advanc- developing and harnessing DPIs in their national strategies ing financial inclusion and productivity gains while keeping and roadmaps on financial inclusion, digital economy, and in mind their usage across other sectors. However, some related areas. aspects of these might have relevance for other sectoral applications of DPIs as well. y Key consideration 1.2. Public authorities may lead by example through fostering use of DPIs in public programs, such as benefit transfers, social protection programs, and 72.  Public authorities include all relevant arms of the government, regulatory development finance programs, as well as in their internal agencies—including but not limited to financial-sector authorities, such as central banks/monetary authorities—and other bodies whose powers and operations and processes, including in interactions between actions may affect the role of DPIs when used in the financial sector. The pol- individuals and businesses and the government. icy recommendations refer to public authorities as a group and not individual institutions or entities. 73.  While the high-level policy recommendations and key considerations are y Key consideration 1.3. Public and private sector coordina- included in this chapter, further explanation related to policy recommenda- tion and collaboration can be helpful for the effective devel- tions are provided in annex C. 38 39  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE opment and operation of DPIs, and could be considered y Key consideration 2.6. Risk management framework: actively promoted across the DPI lifecycle. Implementing a robust risk management framework and sound risk management practices for DPIs is important to y Key consideration 1.4. Encourage the private sector to lever- maintaining trust in the DPI ecosystem. age DPIs to innovate across the whole DFE to foster compe- tition and scale up the use of DPIs to drive financial inclusion. y Key consideration 2.7. Continuity of operations: Have arrangements in place to maintain continuity of operations y Key consideration 1.5. Encourage public authorities of the DPI ecosystem. to collaborate with private institutions to support the skill development of relevant stakeholders and to ensure y Key consideration 2.8. Culture of innovation: Promote the continuous development and improvement of DPIs a culture of innovation through DPIs, both internally and toward advancing financial inclusion and increasing pro- across the whole DFE. ductivity gains. y Key consideration 2.9. Financial Sustainability: Inte- grate a viable business and financing plan at the design POLICY RECOMMENDATION 2. Develop well-designed DPIs phase to sustain ongoing operations and future develop- and the broader enabling environment through a widely ment plans.74 accepted set of good practices. While leveraging DPIs for advancing financial inclusion and productivity gains public POLICY RECOMMENDATION 3: Encourage appropriate risk- authorities should consider a set of design and operational based regulation, supervision, and oversight arrangements principles to ensure efficiency, inclusivity, resiliency, privacy, for financial sector use of DPIs. The regulation, supervision, and security. and oversight of DPIs should consider effective regulation, y Key consideration 2.1. Interoperability: All systems and supervision, and oversight by relevant public authorities. Where processes (including sub-systems, modules, and compo- needed, authorities should consider adapting the regulatory nents) should be capable of interoperating, both with each framework to enable the use of DPIs by the financial sector other, as well as with the systems of private and public and apply an appropriate regulatory, supervisory, and oversight entities that are connected to it through open and publicly framework to new entrants and business models in the finan- accessible application programming interfaces to promote cial sector that DPIs will bring about. more inclusive use of DPIs. y Key consideration 3.1. Establish appropriate regulatory, y Key consideration 2.2. Minimalism: The technological and supervisory, and oversight frameworks for DPIs to be princi- operational design should build a minimal core function. ples-based, flexible, and proportionate to the coverage of the Ecosystem participants can layer other services and func- DPIs and the risks posed by them. tionalities on top of the core function. This would allow for y Key consideration 3.2. Through enabling regulation and the flexibility of deployment of DPIs across different con- supervision, facilitate the appropriate use of DPI services texts. and capabilities by financial sector players, and foster the y Key consideration 2.3. Adaptability: The technological and entry of new players and intermediaries. operational design of DPIs should be adaptable and extensi- y Key consideration 3.3. Promote and facilitate cooperation ble to serve multiple use cases under different contexts and among various financial sector authorities as well as with meet the evolving needs of the ecosystem they are intended other relevant authorities to support the seamless use and to support. integration of DPI services into the DFS ecosystem. y Key consideration 2.4. Enable diverse innovation: Sup- port public or private institutions to easily build diverse POLICY RECOMMENDATION 4: Promote sound internal gov- solutions and services using the digital infrastructure, such ernance arrangements. Such internal governance arrange- as by reducing transaction costs for ecosystem players, ments could include an objective to act in the public interest, offering open APIs, and making available high trust data in rules for the access and representation of stakeholders in, machine-readable and digitally signed forms. the governance structure, risk management framework, and arrangements to preserve its ability to function. y Key consideration 2.5. Privacy, security, and resilience: The overall system (as well as each sub-system, module, and component) should consider appropriate individual pri- 74. Regarding key considerations 2.7 and 2.9, active monitoring of DPIs to con- vacy enhancing technologies and be secure from intrusion tinue operations and services as a going concern is a potential consideration. and resilient against attack or system failure. 40  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE y Key consideration 4.1. Require a clear and robust deci- DPIs can institute specific services and features that could sion-making process to ensure that DPIs operate and func- be used by the financial sector players to improve customer tion efficiently. redressal, provide tools to customers to protect themselves, and foster greater financial and digital literacy. y Key consideration 4.2. Put in place measures to ensure transparency and accountability in the operation of DPIs, to y Key consideration 5.1. Encourage DPIs to implement ensure that actions that impact the public are taken in a fair, features and services that enable FSPs to serve a wide transparent, and timely manner. range of customer segments, including by incorporating a human-centered design approach to provide suitable and y Key consideration 4.3. Engage DPIs in monitoring, evalu- appropriate financial products and services that are tailored ation, and continuous improvement processes to ensure for the needs of vulnerable groups, such as women, the that they are helping in achieving the public interest con- elderly, youth, micro and small enterprises, and rural popu- siderations and objectives, for example, for monitoring of lations. In doing so, it is necessary to mitigate new consumer progress towards financial inclusion for vulnerable groups, risks and risks to financial well-being, such as the risk of over including women, the elderly, youth, micro and small enter- indebtedness among vulnerable segments. prises, and rural populations, and therefore remain relevant for the society. y Key consideration 5.2. Support DPIs in introducing fea- tures and services that enable FSPs to better protect their POLICY RECOMMENDATION 5: Enable DPIs to offer products customers from a range of risks inherent to DFS and help and services using DPIs in a way that no one is left behind increase trust in the financial system. and the interests of the consumer are safeguarded.75 Given y Key consideration 5.3. DPIs may be designed to have sound that DPIs will support the inclusion of individuals that were tra- data governance measures, and also safeguard personal ditionally excluded from the financial sector, several risks might data and privacy via technical and operational measures to arise and need to be addressed, including exclusion risks, data complement legal measures. governance and data privacy risks, new consumer risks, and fraud leading to loss of funds. In addition to design features, y Key consideration 5.4. Encourage DPIs to support FSPs to enhance the digital and financial literacy and awareness of 75. See also OECD (2022) and (2020). their customers and support their financial well-being. Encouraging and fostering knowledge sharing on the design, development, and operations of DPIs, and the transformative impact of DPIs. . . . will help motivate and accelerate the adoption of DPIs more widely across the world and lead to further improvement and refinement of DPIs in countries that have already implemented them. 6 POTENTIAL AREAS FOR FURTHER EXPLORATION This document presents a broad overview of the potential expertise on a range of topics in a country across stake- of DPIs and what public authorities can do to successfully holders. Some of these are standardized skills, such as proj- harness their potential to advance financial inclusion and ect management, technology development, and policy making. productivity gains. Future collaboration could be considered Over and beyond this, getting the orientation and mindset right on three fronts to accelerate the adoption of DPIs globally. is important, and this requires specific attention to capacity building efforts. First, encouraging and fostering knowledge sharing on the design, development, and operations of DPIs, and the Third, cross-border linkage of DPIs: This paper discusses transformative impact of DPIs. Such initiatives will help moti- some of the financial inclusion and productivity gains vate and accelerate the adoption of DPIs more widely across that can arise from leveraging cross-border links of the world and lead to further improvement and refinement of DPIs. There are some early efforts in this area in bilateral and DPIs in countries that have already implemented them. More- regional contexts. The learnings and experiences from these over, such knowledge sharing will also demonstrate how coun- could inform further efforts. SSBs are also considering the tries with varied contexts and starting points have incorporated legal, regulatory, technical, and operational factors associated and adapted DPIs into their respective contexts. with interlinking DPIs. Second, capacity building: Successful adoption of DPIs The G20 and, more specifically, the GPFI can play an and their continuous improvement will require developing important role in advancing on all these three fronts. 42 While leveraging DPIs for advancing financial inclusion and productivity gains, public authorities should consider a set of design and operational principles to ensure efficiency, inclusivity, resiliency, privacy, and security. 7 COUNTRY CASE STUDIES Digital ID, Digital Payments, and 7.1  an increase of 123 percent, compared to the previous year and Data Exchange Infrastructure in Action: representing two of every 10 payments by electronic means. Country Case Studies Digital Identity On October 30, 2019, the virtual credential of the National 7.1.1 Argentina76 Identity Document for smart mobile devices was introduced in Payments by Transfer Argentina by Decree No. 744/2019. It is a centralized platform The Central Bank of Argentina launched the Payments by controlled by the National Registry of Persons (RENAPER in Transfer (PCTs) initiative by the end of 2020 to promote open Spanish). It is a 360-degree tridimensional representation of the and universal digital payments and achieve greater inclusion of physical ID card (an exact replica). It is optional and free for all those sectors that use no financial services. PCTs is a method citizens and permanent residents over the age of 14. To obtain which involves making payments on purchases of goods and it, a person must visit one of RENAPER’s offices or the office of services by way of instant transfers and operates mainly another authorized public entity and identify himself/herself. through (i) bank or payment service provider wallets by reading He/she will receive a code by e-mail to activate the digital ID in a QR code, and (ii) debit and prepaid cards at POS terminals the Mi Argentina app (“My Argentina” in Spanish, a government (fixed and mobile POS solutions). The implementation of the app) on one mobile device. (It cannot be activated on two, or it PCTs scheme was completed in November 2021. This means will be blocked.) The digital ID will be downloaded on the device that users may make QR code payments from a single (bank and will be accessible offline. Digital ID is just a part of a broader or electronic) wallet at different stores, and merchants can be government digitalization agenda that seeks that all citizens can paid from different wallets with a single QR code. Both types access government services digitally (such as driver’s licenses, of wallets are linked to a bank account or a payment account, social security numbers, even vaccination certificates) through which allows funds to be transferred from users to merchants this app. Also, this public policy acts as a pillar to promote immediately and irrevocably. For a merchant, the benefits of access to and use of DFS, such as the remote opening of bank PCTs over other electronic means of payments include instant and nonbank accounts for natural and legal persons. crediting of funds for a fee not exceeding 8 per thousand (which could be over 6 percent outside this scheme). The high rate of 7.1.2 Bangladesh77 smartphone users, the significant rate of bank and payment In 2008, the Government of Bangladesh laid out the Digi- account holding among adults (which mostly involves having tal Bangladesh Vision 2021, in line with the nation’s target to an electronic wallet), and the high penetration rate of QR code become a middle-income country. As part of this vision, a2i was acquiring at a national level have paved the way for the develop- established in the Prime Minister’s Office to foster a culture of ment of this type of payment method. In 2022, each adult made innovation within the government, complemented by effective an average of 3.5 monthly payments through PCTs, registering strategies and operational elements. 76. Case study provided by Argentina. 77. Case study provided by the Better Than Cash Alliance with inputs from the World Bank. 44 45  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE Bangladesh’s DPI strategy is based on a “Citizen’s Choice ment approaches—often through a customized arrangement Architecture” that enables beneficiary-citizens to choose how with a single vendor or provider. they access public services, including how and where they receive and make government payments. The main aim of this a2i saw an opportunity to establish a system-wide approach to approach is to reduce the time and cost of accessing public channeling multiple, if not all, government payment flows. a2i services, and lessen the frequency of interactions, for citizens began to articulate the vision for a “Citizen’s Choice Architec- and businesses. Additionally, it seeks to minimize the time and ture” by emphasizing that citizens could make choices on how expense required to introduce and update services. and where to receive payments from, and make payments to, the government.81 The vision simultaneously linked to a wider With a dedicated focus on promoting open (stacked/layered/ aspiration for digital finance: that government payments ought modular) architecture, including implementing open source to reinforce wider goals of interoperability, competition among when possible, a combination of all three layers of DPI—that providers, and more inclusive open systems. is, ID, payments, and data exchange—is in operation in Bangla- desh today.78 Working closely with the Cabinet Office and the government’s ICT ministry, a2i brought together various stakeholders, includ- y Digital identity: The national ID covers over 95 percent of the ing the finance ministry, all line ministries, the central bank, and adult population.79. Along with birth registration for children, other relevant regulators, such as those for telecommunica- this means there is a unique ID that can be used by anyone tions, microfinance, insurance, the election commission, state- to access education, health, marriage, agriculture, and all owned banks, private sector banks, mobile FSPs, insurance social protection schemes. The Bangladesh Bank also issued companies, and development partners, to implement a unified, e-KYC regulations to enable swift account opening. system-wide approach to developing a DPI that supports the y Digital payments: Tied to the near-ubiquitous NID infra- nation’s aspiration for greater financial inclusion. This imple- structure Porichoy (meaning “Identity”) and e-KYC regula- mentation of DPI, comprising ID, payments, and data-exchange tion, all G2P payments—covering 30 million beneficiaries80) layers, moving toward the achievement of Digital Bangladesh,82 —and a substantial number of P2G payments (integrated was further accelerated by the onset of the COVID-19 pan- with the one-stop virtual shop “MyGov,” featuring more than demic.83 For instance, the deployment of DPIs during the pan- 1,600 public services) are facilitated through interconnected demic allowed rapid social protection services to be extended platforms, such as EkPay (“One Pay”) and Binimoy (an to five million “new poor” households. Similarly, wage payments interoperable payment platform), which are connected to all were distributed to an additional four million garment workers. banks and mobile financial services operators. Such DPI-enabled responses not only effectively addressed the immediate socioeconomic challenges presented by the pan- y Data exchange: Mapping, correlation, and triangulation of demic but also made significant contributions to the broader massive amounts of data across various ministries as well financial inclusion efforts of the government. as public and private agencies, including mobile phone data- bases, government employee databases, pensions data- The Government of Bangladesh’s next steps include plans to bases, and savings certificates databases, among others, ensure comprehensive access to financial services for every significantly improved targeting by helping weed out individ- individual, including through full-service, personalized banking uals undeserving of social safety net payments. accounts for all citizens by 2030. The government also seeks to enhance the effectiveness and efficiency of social safety net Role and Impact on Financial Inclusion schemes, by leveraging the power of AI to target beneficiaries By 2015, Bangladesh had begun to experiment with digitizing and ensure that benefits reach those who need them the most. G2P payments. Several social safety net programs among the Lastly, the government is also focused on improving the pro- more than 100 in place, accounting for nearly 13 percent of the vision of anticipatory financial interventions for emergency annual budget, were experimenting with various digital pay- situations. 78. Bangladesh’s DPI is the product of “Digital Bangladesh Vision 2021”—a 81. It is important to note that choice of providers by beneficiaries is not yet clear and unwavering political commitment in line with the 2030 Agenda for implemented and is currently under discussion. Sustainable Development. It was a strategy that invested in building blocks 82. Milestones for Smart Bangladesh 2041: 100 percent cashless economy, per- of digital and societal innovation that delivered frugal solutions, at scale, to sonalized DFS, and products that cater to the needs of specific marginalized the masses and help bridge the digital divide. Since 2022, Bangladesh has groups (such as the elderly, persons with disabilities, street vendors, indige- renewed this commitment through the proclamation of “Smart Bangladesh nous populations, and so forth). Vision 2041.” 83. Hasan (2021). 79. Bangladesh Election Commission, National Identity Registration Wing, http:/ / www.nidw.gov.bd/index.php. 80. World Bank (2019). 46  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE Overall, the government has taken a long-term approach to the New Payments Platform (NPP) in Australia, FAST in Sin- building DPI, continuously scanning for emerging trends, gapore, and UPI in India, among others. Based on recom- adapting global best practices to suit local contexts, and ensur- mendations from the 2021 Financial Sector Assessment ing a forward-thinking and adaptable strategy for achieving Program, the central bank is currently steering the develop- digital equity enabled by DPI at scale. ment of the faster payment system SPI. The design process is being carried out in collaboration with the private sector, 7.1.3 Colombia84 emphasizing co-creation and in adherence with the princi- Colombia has adopted a comprehensive “whole-of-govern- ples of interoperability, efficiency, and inclusion. To ensure ment” digital strategy encompassing components of DPI. The full interoperability within the ecosystem, the SPI-BR will strategy was developed through coordination among several also be interconnected with private players, offering the agencies: The Ministry of ICT (MinTIC) had primary responsibil- same use cases, such as P2Band P2B-transactions, already ity for the formulation of the Gobierno Digital (“Digital Govern- operating in the digital payment ecosystem. ment”) policy (2018); the National Registry was responsible for Additionally, to facilitate discussions among stakeholders the development of the digital ID (2020); and the central bank from the wider ecosystem, the central bank also created a (Banco de la República) led the development of the upcoming Payment Systems Forum, which invited financial regulators, interoperable faster payments platform, set to be launched in such as the Superintendency of Banks and the Financial 2024. Details on the development of the components of the Regulation Unit, as well as representatives from the finan- DPI have been included in the National Development Plans, cial sector: banks, fintech companies, and e-money issuers. which coordinate public policies across government. The Better Than Cash Alliance funded the technical assis- y Digital ID: The National Registry launched the Cédula Dig- tance to foster discussion among stakeholders participating ital in 2020, enabling residents to create a digital version of in the forum and facilitated knowledge exchanges between their national ID card on their smartphone by downloading regulators and faster payment operators in Ghana, Jordan, an app from the National Registry of Civil Status, scanning and the Philippines. The discussions in the forum were orga- a QR code, and authenticating their identity using facial rec- nized into four working groups working on key areas relat- ognition. By 2022, over half a million digital IDs had been ing to clearance and settlement mechanisms, the operative issued, and citizens possessing the digital ID could use the model, and technical requirements. document as a passport to travel to several countries in the Andean region of South America. Based on the forum´s discussions, which spanned from August to December 2022, participants agreed that driving adoption y Data exchange: The eGovernment Strategy was introduced of the payment architecture would require a new clearinghouse to improve procedures and digital public services for both that would guarantee universal access, ensure full interopera- firms and households. One of the key initiatives under this bility, and support multiple use cases. In particular, the SPI will strategy includes the Servicios Ciudadanos Digitales (“Dig- have a centralized directory and a settlement model that pro- ital Citizen Services”) initiative, which facilitates and simpli- vides 24/7 gross settlement in real time, administered by the fies the process of filing and accessing key documents by Banco de la República, to ensure the security and efficiency of citizens, such as birth certificates and medical records. The the system’s architecture. Additionally, standard QR codes for reliability and security are ensured by an electronic authen- all cases and the adoption of a common brand will be imple- tication system, along with the carpeta ciudadana data mented to ensure a seamless user experience. The immediate exchange, which is an implementation of X-Road. This ini- payment system will allow the operation of more than 30 mil- tiative seeks to ensure secure and seamless data exchange lion digital wallets and purses in Colombia to be interoperable between different public entities and to enable the verifica- in real time. tion of citizen information. The eGovernment strategy also includes the Open Data (Datos Abiertos) initiative, which Role and Impact on Financial Inclusion makes government data publicly available and encourages The Government of Colombia accelerated its digital G2P the development of apps that use the data. payments journey during COVID-19 through their innovative y Digital payments: For the design and development of the Ingreso Solidario program. The government leveraged its newly interoperable payments layer of DPI that is currently under- enacted regulatory modernization, which supported the deliv- way, the government drew inspiration from Pix from Brazil, ery of cash transfer payments into bank accounts and mobile wallets. Through an ambitious partnership with multiple pay- 84.  Case study provided by the Better Than Cash Alliance with inputs from the ment service providers, the program was able to identify and World Bank. 47  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE deliver payments to over 1.2 million beneficiaries through exist- and other channels through the national switch. The 2016 ing accounts, and to facilitate the account opening with choice Ghana diagnostic by the Better Than Cash Alliance recom- for the remaining 1.7 million unbanked beneficiaries. mended accelerating full interoperability for the government to realize the full benefits of the digitization of payments. The Government of Colombia anticipates that once the interop- Dubbed the “Financial Inclusion Triangle” by the Ghana Inter- erable payments layer is fully implemented, over a span of 15 bank Payment and Settlement Systems (GhIPSS), the interop- years, which is the typical timeframe for such systems to reach erable system connects three independently interoperable maturity, use of cash in Colombia will decline. The govern- platforms into a single window. The platform facilitates the ment’s next steps beyond the decision to promote an immedi- movement of funds to and from e-zwich cards, bank accounts, ate payment system will be followed by an analysis to expand and mobile wallets. This effort commenced in 2008 with the cross-border payment offerings. launch of e-zwich cards, facilitating interoperability at bank branch and retail levels. In 2012, GhIPSS enabled the interop- Overall, Colombia’s comprehensive and highly consultative erability of bank terminals and in 2018 launched the Mobile approach towards building and implementing DPI demon- Money Interoperability Platform (MMI). The MMI rides on an strates a strong commitment to ensuring that the country’s instant inter-network switching and processing system which digital economy enhances public services and supports its key interconnects mobile money systems of mobile money oper- development priorities for years to come. ators. It connects the MMI with the e-zwich System/gh-link platform, and it also leverages the instant pay service of the 7.1.4 Ghana85 gh-link platform.89 The Government of Ghana is committed to developing a dig- ital-based economy to foster efficiency, transparency, and Role and Impact on Financial Inclusion accountability in the delivery of services to citizens. This com- The Government of Ghana is also committed to leveraging mitment includes investing in developing DPI aimed at combat- its digitalization efforts to increase financial inclusion and ing corruption, bringing more Ghanaians into the formal sector, improve payment efficiency while eliminating policy, regula- and driving domestic revenue mobilization. The government tory, and infrastructure barriers impeding the development identified three key foundational elements to address some of of an inclusive DFS ecosystem. The launch of the National the root causes of exclusion for ordinary citizens: (i) a unique Financial Inclusion and Development Strategy, the Digital national ID, (ii) a digital residential and business address, and Finance Policy, and the Cashlite Roadmap, launched in 2020 (iii) the interoperability of all financial channels. with support from the Better Than Cash Alliance, further strengthened the government’s commitment to deepen DFS Digital Identity in the country.90 Prior to launching the biometric unique national ID in 2017, there were nine separate identity databases across various For instance, the adoption of the digital ID issued by NIA has public sector entities.86 The National Identification Authority enabled other stakeholders to run their applications, provid- (NIA) was assigned to collect and bear custody of citizens’ bio- ing a significant opportunity to drive responsible digital finan- metric traits, replacing the numerous databases that existed cial inclusion and eliminate fraudulent transactions that had before. The new Ghanaian card was designed with technolo- previously existed due to the multi-ID system. Similarly, the gies that enabled universal access for all citizens. The NIA has adoption of a national switch as the foundation for payment also enabled the registration of children from 0 to 5 years old interoperability eliminated the need for expensive and ineffi- to rationalize birth registration and ensure social inclusion from cient bilateral integrations. As a streamlined approach, it also birth.87 The rollout of the Ghanaian card is currently ongoing; simplified scheme management, as all participants align on more than 80 percent of new registrations were issued with various aspects, benefiting consumers who are spared off- their IDs by March 2023.88 net expenses. Furthermore, new entrants can connect to the switch effortlessly, offering consumers more options with- Interoperable Payments out incurring high or additional costs. In 2022, interoperable Ghana is among the first countries to launch an integrated mobile money transactions reached 138 million, valued at interoperability system across banks, mobile money wallets, over $2 billion.91 85. Case study provided by the Better Than Cash Alliance with inputs from the 88. NIA (National Identification Authority), “Statistics,” https://nia.gov.gh/statis- World Bank. tics/. 86. Amoah et al. (2017). 89. Hesse (2019). 87. Republic of Ghana (2017). 90. Republic of Ghana (2020). 91. GhIPSS (2022). 48  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE In 2021, the government launched the Ghana.gov platform, the resident ID card (KTP) with the electronic resident ID card a one-stop shop for accessing and paying for all government (e-KTP) and incorporating biometrics for deduplication and services—building on previously launched platforms and lever- identity verification. In terms of coverage, the 2021 Susenas aging foundational elements of unique IDs, addresses, and survey shows that 97 percent of the population had a national interoperability. The Ghana.gov platform is available to citi- identity number, and 88.4 percent aged 17 and below had a zens, residents, and foreigners, making it an inclusive platform birth certificate. The 2021 ID4D-Findex Survey also found that for central government and subnational government services. 97 percent of eligible adults possessed an e-KTP or a KTP (pre- In the coming years, the government hopes to drive traffic to 2011 version). the platform through onboarding more government services, thereby fostering greater transparency and accountability in Given significant coverage, the Government of Indonesia is now service delivery. committed to improving the utilization and data security of its ID system, with a concerted focus on building capabilities that Overall, while it is still early to measure the impact of the plat- allow for secure, remote, and real-time verification of identity form, Ghana seems to have addressed the core fundamentals necessary for access to both public and private services. To this required for a successful digital government platform—that end, with support from the World Bank Group, the government is, a national ID, an interoperable payment platform, and good has implemented the ID for Inclusive Service Delivery and Dig- network coverage for easy connection to the platform. ital Transformation Project for strengthening and increasing usage of the digital ID systems. 7.1.5 Indonesia92 Over the last decade, the Government of Indonesia has intro- Data Exchange duced several initiatives aimed at strengthening its digital To support the delivery of targeted social protection assistance, economy and ensuring equitable access to its benefits for to discover exclusion errors in government programs, and to all segments of the population. In particular, the government monitor all the benefits being received by a particular house- remains keen on leveraging the improved internet access hold, the Government of Indonesia is also committed to build- among its population to bridge gaps in access to services and ing consent-based data sharing capabilities. economic opportunities. As per the National Socioeconomic Survey (Susenas), from 2015 to 2021 the percentage of house- Digital Payments holds accessing the internet nearly doubled, from 42 percent Bank Indonesia has implemented the National Open API Pay- to 82 percent. ment Standard, abbreviated to SNAP, with the objective of fos- tering a competitive and innovative payment system industry Moreover, given that Indonesia faces acute climate risks, while promoting integration, interconnectivity, and interop- including a high exposure to climate-related flooding—the gov- erability of the infrastructure. SNAP was developed by Bank ernment is also focused on deploying DPI capabilities, such as Indonesia in cooperation with payment system industry repre- for identity verification, e-KYC, and data exchange, to ensure sentatives covering both technical and security standards, data continuity of services and delivery of assistance during emer- standards, and technical specifications as well as necessary gency situations. Delays and challenges associated with the governance guidelines required for open API payments. rollout of the Kartu Prakerja cash transfer scheme during the COVID-19 crisis further strengthened the government’s resolve Additionally, to facilitate cashless payments, Bank Indonesia to strengthen its DPI capabilities for improving service delivery and the Indonesian Payment System Association also devel- and, consequently, citizens’ trust in the digital economy. oped the Quick Response Code Indonesia Standard (QRIS). Digital Identity Role and Impact on Financial Inclusion Indonesia has made significant progress in developing its foun- In 2016, the Government of Indonesia announced the National dational ID systems—that is, its population registration (PR) Strategy for Financial Inclusion 2014–19, including a commit- and civil registration (CR) systems which are managed by the ment to digitize social assistance payments from 2017 onward. General Directorate for Population and Civil Registration (Dit- Since 2017, cash transfers from the Program Keluarga Harapan jen Dukcapil) in the Ministry of Home Affairs (MoHA). In 2010– (PKH) have been distributed via state-owned banks, where 11, Ditjen Dukcapil digitalized the PR/CR systems, replacing beneficiaries have the option to access social protection assis- tance either by coming to the bank’s branches or bank agents 92. Case study prepared by the World Bank. using their social welfare ID cards (KKS/ATM). 49  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE The Government of Indonesia’s ongoing efforts to expand its Digital Payments biometric-based e-KYC capabilities as part of its comprehen- PhilPaSSplus is the Philippines’ highly automated RTGS system, sive financial inclusion strategy holds tremendous promise in which was upgraded in 2020. It is the lone Philippine peso RTGS addressing gender and regional disparities in account owner- system that is owned and operated by the BSP through the BSP ship and is likely to play a key role in realizing a more inclusive Payments and Settlements Department and serves as a prime financial landscape. example of DPI. It enables efficient and low-risk settlement of large-value transfers between financial institutions. Addition- 7.1.6 Philippines93 ally, settling retail payments via PhilPaSSplus ensures that indi- The Government of the Philippines has implemented a compre- viduals, businesses, and the government can send and receive hensive digital strategy to support the development of its econ- money through several channels—check, ATM, InstaPay, and omy, including through the establishment of laws and policies PESONet—and serves as the foundation for the interoperability for digital government. In 2016, the Department of Information of digital payments in the Philippines. and Communication Technologies (DICT) was established as the Philippines’ first cabinet-level agency dedicated to pro- Role and Impact on Financial Inclusion: moting digitalization. In particular, the government has also The financial inclusion landscape of the Philippines, measured leveraged its national digital ID PhilSys and digital payment by account ownership, has changed drastically due to height- capabilities that constitute its DPI to increase efficiency and ened needs for use of accounts for payments. In particular, the transparency in service delivery. implementation of PhilSys, the national digital ID system, along with the use of e-KYC (as per guidance96 issued by the BSP) Digital Identity in the customer onboarding process for supervised financial The Philippine Statistics Authority (PSA) launched PhilSys institutions, played a key role in accelerating digital financial as the country’s foundational digital ID system with the inclusion by overcoming the obstacle of inadequate identity objectives of transforming how services are delivered and documentation. A total of 8.4 million PhilSys registrants have accessed in the Philippines, to accelerate the transition to opened a bank account for the first time through the colocation a digital economy by enabling remote and seamless online strategy of the registration centers with the Landbank of the identity verification. The core identity system used in the Philippines.97 implementation of PhilSys is the Modular Open-Source Identification Platform (MOSIP). Modular in architecture The value proposition of account ownership as a convenient and banks on open source, MOSIP provides flexibility in the payment tool has also been bolstered by payment interopera- implementation and configuration of systems and helps bility. This addresses a common barrier, of not having a need avoid vendor lock-in dependence. for an account, which has consistently been cited as a top rea- son for not owning one. The share of accountholders who use Built on privacy-by-design principles, PhilSys adopts PSN toke- their account for payment-related transactions—such as fund nization94 to ensure data privacy and protection within the dig- transfers and bill payments—rose to 78 percent in 2021 from ital ecosystem and prioritizes citizen ownership and ability to 47 percent in 2019. Overall, account ownership has increased manage the use of their credentials as key features of the sys- significantly, to 56 percent in 2021 from 29 percent in 2019. tem. As of April 21, 2023, more than 78.2 million95 Filipinos had successfully registered with PhilSys. The National QR Code Standard, dubbed “QR Ph” (BSP Circu- lar No. 1055), launched in November 2019, which leverages the Since its implementation, the Central Bank of Philippines efficiency, safety, and affordability of the QR technology using (Bangko Sentral ng Pilipinas, or BSP), has been one of the the InstaPay channel, has also been instrumental in driving the strongest drivers in creating an enabling regulatory environ- overall growth of digital payments. In particular, it has enabled ment for its supervised entities to leverage PhilSys authentica- micro and small merchants, many of whom are women, to tion and verification services. accept digital payments. The adoption of faster, more afford- able, and convenient interoperable payment channels such as 93. Case study provided by the Better Than Cash Alliance with inputs from the QR Ph, which is essential for driving merchant payments, is a World Bank. key use case for the overall growth of digital payments in the 94. PSA (2021). 95. Per the Philippines Statistics Authority. 96. BSP Circular No. 1170, dated March 30, 2023. 97 . PSA (2023). d 50  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE country and aligns with the BSP’s target to digitalize 50 percent the country to access the online services (World Bank 2020b). of all retail payments (by volume) by 2023. As of September 2022, Rwanda offered 300 digital services and intends to digitize the remaining 600 services within the The two newest digital payment facilities,—Bills Pay PH and next two years. PESONet Multiple Batch Settlement (MBS), were both priori- tized as a result of models developed together with the Better Rwanda’s flagship Vision 2020 Umurenge Program (VUP), Than Cash Alliance. With Bills Pay Ph, users have expanded which provides social assistance payments to nearly two mil- access to billers beyond their own provider, eliminating the lion individuals (approximately 500,000 households), is scaling need for multiple accounts just to pay various service provid- up efforts to digitize payments to recipients into accounts of ers. MBS supports P2B payments through faster clearing and their choice. The underlying infrastructure to support identi- settlement of PESONet transfers, thereby allowing receipt of fication, trusted data exchange, and payment interoperability funds before the end of the banking day. will be integral to attaining end-to-end digitization of VUP pay- ments and more broadly strengthening the ecosystem for digi- Through these investments in DPIs, the Philippines has seen tal payments across the country. remarkable growth in retail payments (by volume) digitized, from 1 percent in 2013 to more than 30 percent in 2021.98 In the Digital Identity years to come, the government of the Philippines remains com- The Government of Rwanda considers digital identity to be a mitted to furthering the DPI approach, to speed up the coun- foundational requirement, critical for ensuring that citizens are try’s digital transformation and enable government services to able to participate productively in regional and global economic become smarter and more citizen-centric. activity. Ninety-nine percent of all eligible citizens have an ID, making Rwanda’s national ID system one of the strongest in 7.1.7 Rwanda99 Africa.102 The Government of Rwanda maintains a strong commitment to establishing a seamless delivery of public services by lever- The National Identity Agency (NIDA) is entrusted with main- aging DPI and has made significant progress on this front. Over taining the national population register (NPR), an electronic the past 30 years, the government has achieved over 96 per- database centrally located at the NIDA facility. NIDA is also cent 4G coverage, an indication of its commitment to realizing responsible for issuing national biometric ID card to persons 16 an inclusive and competitive digital economy.100 Rwanda’s jour- years of age and older. Additionally, NIDA purports to provide ney toward digitizing government services has taken place over real-time in-person authentication services,103 enabling access three phases: The first (NICI-III, 2005–15) saw the digitization to both public and private agencies, which has helped in stream- of an initial set of enabler registries (NIDA, NPPA, RRA, RDB, lining identity verification for service delivery across various Land, MoH, MIFOTRA) to a rate of 15 percent. The second phase sectors. In 2014, Rwanda joined Uganda and Kenya to facilitate saw the launch of a single portal platform, IremboGov, which cross-border movement using their national ID systems in lieu undertook the digitization of highly impactful citizen-centric of passports, based on a reciprocal agreement under the North- services to a rate of about 58 percent. The third phase looks ern Corridor Integration Projects and East African Community. to digitize the remaining 800 manual and semidigital services by leveraging the power of private technical companies and the Starting in 2023, the government plans to modernize its ID eco- launch of a “low-code, no-code” platform by 2024. system by leveraging financing from the World Bank and Asian Infrastructure Investment Bank. NIDA will be introducing a Sin- Irembo101 is a citizen e-service platform set up through a public- gle Digital ID (SDID) as an inclusive and trusted digital ID and private partnership (PPP) arrangement between the Govern- authentication framework, featuring the development of a new ment of Rwanda and Rwanda-Online in 2014. The platform data and digital authentication layer that leverages the existing facilitates easy access to government services, enabling NPR, civil registration and vital statistics, foreigner registration applicants to pay digitally for government services. With more systems, and other authoritative data sources. These upgrades than nine million subscribers accessing the services digitally, are envisioned to bring Rwanda’s ID ecosystem in alignment thousands without connection rely on Irembo agents across with the Principles on Identification for Sustainable Develop- 98. Sivalingam and Bhandari (2023). 102. Mukesha (2019). 99. Case study prepared by the Better Than Cash Alliance and the World Bank. 103. ID4D (2016). 100. DPGA (2022). 101. Irembo.Gov, https://irembo.gov.rw/home/citizen/all_services. 51  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE ment and the new Personal Data Protection and Privacy Law The government’s efforts under VUP to move from cash-based (2021). Activities financed will include the introduction of new payments through savings and credit cooperative organizations ID credentials, promotion of emerging approaches to digital ID, (SACCOs) to digital payments into an account of the beneficia- and support for the adoption of new ways to verify identity in ry’s choice will be key not only to closing the remaining gaps in the context of in-person and fully remote service delivery in key financial inclusion but also contributing to building a stronger sectors. Digitalization of select civil records will facilitate SDID digital payment ecosystem. In 2021, the program piloted digital preregistration and improve the government’s ability to offer payments to VUP recipients using mobile money in six districts. seamless e-services that require proof of vital events. Under an assessment using focus group discussions and key informant interviews to understand the pilot’s impact, most Digital Payments beneficiaries reported that receiving their VUP payments dig- The Government of Rwanda and the National Bank of Rwanda itally made their lives easier. In particular, beneficiaries noted have emphasized their commitment to encourage the use of that digital payments enhanced decision making and privacy, e-payment systems that enable interoperability through the reduced travel costs and time, and increased flexibility. Rwanda National Payment System Framework and Strategy 2018–24104 The Rwanda National Digital Payments System105 Rwanda has indeed made great strides in advancing financial business plan approved in 2018 also provides a roadmap to full inclusion. According to the 2020 FinScope survey, 93 percent of interoperability. Rwandans (about seven million adults) are financially included in terms of accessing and using both formal and informal finan- RSwitch aims to serve as the national e-payment switch cial products. Additionally, approximately 77 percent use formal that facilitates interoperability of transactions across banks, financial products offered by banks and formal nonbank finan- mobile network operators, and other FSPs. In 2022, RSwitch cial institutions, such as telcos, microfinance institutions and launched eKash (Phase I), aimed at interoperability between SACCOS, insurance companies, and others. The Government the two mobile money providers in Rwanda that are now fully of Rwanda’s Budget Framework Paper (fiscal years 2021–24), onboarded. Under this arrangement, users are able to transfer which now includes policy commitments on digital government funds across mobile network operators at no additional cost.106 payments at scale, will be critical to sustaining this progress Phase II of the project focuses on onboarding banks and other and ensuring ongoing usage of formal financial services. FSPs, which will be essential to expanding the usage of P2P transactions and introducing new interoperable use cases, 7.1.8 Saudi Arabia107 including G2P, P2G, P2B, B2P, B2B, and cash-in, cash-out— The Kingdom of Saudi Arabia has implemented its reform plan, essentially focusing on establishing a comprehensive interop- Vision 2030, for sustainable development and growth. Vision erable ecosystem for payments. The Government of Rwanda 2030 aims to create a vibrant society with a strong foundation is also working with the digital public good (Mojaloop) for its for economic prosperity, a thriving economy providing eco- ongoing work on enabling interoperable payment systems. nomic opportunities for all, and an ambitious nation with an effective and transparent government. Saudi Arabia has made Impact on Financial Inclusion significant investments in its digital infrastructure, including The Government of Rwanda has set a target of achieving uni- high-speed broadband, expanding its coverage and capacity versal financial inclusion by 2024, recognizing that interopera- within and around cities, and improving its quality. bility of payment systems would be crucial to realizing this goal. It will also be integral to bridging the gap between having access DPIs play a transformative role in achieving a sustainable future to formal financial services and using them, where everyone, for in Saudi Arabia, enabling the country to progress toward attain- example, can progress from having access to an account to also ing SDGs. using an account or making digital payments with confidence. y Digital identity: Saudi Arabia has created a digital ID man- agement platform that allows citizens and residents to 104. https://www.bnr.rw/payment-systems/policies/?tx_bnrdocument- obtain and manage their digital identities similarly to their manager_frontend%5Bdocument%5D=209&tx_bnrdocumentman- ager_frontend%5Baction%5D=download&tx_bnrdocumentman- physical ones. The platform provides centralized access to ager_frontend%5Bcontroller%5D=Document&cHash=99f1bb2e- all government services in one place; over 6,000 e-govern- 46865242a30cbe8df8127020 105. National Bank of Rwanda,“Policies,” https://www.bnr.rw/payment-systems/ ment services are currently available through the portal. policies/. 106. RSwitch, https:/ /rswitch.co.rw/#. 107. Case study provided by Saudi Arabia. 52  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE y Digital payment: Mada is an innovative e-payment network access to financial services for individuals, small businesses, launched in Saudi Arabia in 2015 to promote growth in ATMs and government sectors. This has enhanced overall financial and POS services. inclusion, contributing to the country’s overall development and progress. Moreover, these organizations hold the utmost i. Mada connects all ATMs and POS terminals offered by importance in advancing Saudi Arabia’s digital transforma- local banks in Saudi Arabia to a central payment switch, tion agenda. They are a vital component in achieving SDGs. By enabling the secure and efficient transfer of financial leveraging its digital infrastructure ecosystem, the Kingdom transactions between a merchant’s bank and the card can strengthen its competitiveness, foster the creation of new issuer bank. job opportunities, and ultimately enhance the quality of life for ii. Naqd: This service allows customers to request a cash its citizens and residents. amount of up to SRIs 400 right at point-of-sale terminals compatible with Mada standards. There is no need to visit the ATM, as the cash amount will be deducted directly Case Studies on Programs/Initiatives 7.2  from the customer’s personal bank account along with to Advance Financial Inclusion the purchase amount. All Mada debit cards support this feature. Jan Dhan for Advancing Financial Inclusion: 7.2.1  India108 iii. SARIE, the Saudi Arabian Riyal Interbank Express, is a state-of-the-art payment and settlement system that Jan Dhan operates on the concept of RTGS. It has revolutionized Over the last decade, the Government of India has success- the electronic banking and commerce industry since its fully leveraged its robust DPI to support key development inception. SARIE IPS offers an efficient platform for finan- priorities, such as financial inclusion and women’s economic cial transactions between local banks, offering custom- empowerment. ers instant money transfers accessible 24/7, regardless of conventional banking hours and restrictions. In particular, the digital ID (Aadhaar)–)-enabled e-KYC process y Data exchange: The Saudi National Information Center pro- simplified the opening of accounts under the Pradhan Mantri vides a secure and reliable infrastructure for government Jan Dhan Yojana (PMJDY), or “National Mission for Financial entities to exchange data and communicate seamlessly. Inclusion.”109 The center is responsible for developing, hosting, and oper- ating the National Data Bank, which plays a crucial role in This initiative of the Government of India, implemented in 2014 managing government data and providing access to reliable to ensure affordable access to financial services, brought mil- information for decision-making purposes. lions into the formal banking sector. Moreover, the JAM pipeline, created through the consent-based linking of beneficiaries’ Jan Role and Impact on Financial Inclusion Dhan bank accounts with their Aadhaar and mobile numbers, Digital ID is a crucial component in establishing an ecosystem facilitated instant Direct Benefit Transfers (DBT) to those eligi- for financial inclusion. It enables individuals to access financial ble government welfare schemes. Since its launch, the number services and conduct transactions digitally. The establishment of PMJDY accounts opened tripled from 147.2 million in March of Nafath, the digital management platform in Saudi Arabia, 2015 to 462 million by June 2022; women own 56 percent of has eased the use of digital ID and provides access to financial these accounts, more than 260 million. services and all government services through a single portal. Jan Dhan Plus for Advancing Financial Inclusion of Women The establishment of electronic payment networks such as To enhance the adoption and usage of this DPI-enabled ini- Mada, Naqd, and SARIE has fueled financial inclusion and pro- tiative, particularly among low-income rural women, Bank of ductivity in Saudi Arabia. These networks provide seamless Baroda, the third largest public sector bank in India in collab- and secure financial transactions across local banks, offering oration with Women’s World banking (WWB), launched an a range of payment options, including NFC technology and innovative savings solution—the Jan Dhan Plus program—Jan RTGS. Their implementation not only has contributed signifi- Dhan Plus rests on the following four design principles: cantly to the realization of the SDGs in the country but has also facilitated the development of a robust and inclusive financial 108. Case study provided by WWB (2022). system through the establishment of DPI. By reducing the 109. Government of India, “Pradhan Mantri Jan Dhan Yojana (PMJDY),” https:// cost of financial transactions, these networks have improved pmjdy.gov.in/. 53  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE y Encourage low-income women to start saving amounts as agents. It was observed that women who received training or small as $5 a month. mentorship were able to outperform other agents, in terms of their business volumes and incomes. y Make savings rewarding for women by highlighting how savings behaviour can lead to opportunities for accessing The pilots on JanDhan Plus were successful with Bank of microcredit, microinsurance, and pension benefits. Baroda in both urban and rural contexts, leading to its sub- y Build digital financial capability of business correspondents sequent adoption by two more public-sector banks in India— or bank agents, making them more gender intentional and Indian Bank and Union Bank of India (UBI). The program has relationship oriented in their approach. reached over 12 million women customers so far (as of April 2023). Further, the savings-engaged women customers are y Conduct information education communication campaigns more valuable for the bank, as they reported over a 50 percent for the end customers (primarily low-income women), increase in the average balances in just five months, as against including through marketing activities. For the same, the the entire portfolio in the same time period. Additionally, there program leveraged community-level business correspon- was a twofold increase in the number of bank or business cor- dent sakhis110 (or women bank agents) of the government’s respondent agents cross-selling micro-insurance and pension National Rural Livelihoods Mission (NRLM)111 program to schemes, leading to double the enrollments during the five- reach remote areas in rural India. month pilot period. The JanDhan Plus program highlights the importance of savings-led engagement as a powerful tool to The following are some of key insights gathered from the Jan build financial resilience among low-income women and their Dhan Plus intervention so far: households. According to a report by Women’s World Banking y Savings-driven engagement is highly compelling and relevant and Bank of Baroda, it is estimated that by engaging 100 million for women. Encouraging small savings and highlighting how low-income women in savings activities, public sector banks in their savings history could lead to micro-credit/overdraft India can attract approximately Rs 25,000 crore ($3.1 billion) loan facility, offering simple micro-insurance and pension in deposits. products and channel skilling, and leveraging agents’ chan- nels proved to be the key drivers for encouraging women. Overall, Jan Dhan Plus was instrumental in identifying challenges specific to women, thereby creating numerous opportunities for y Community camps have proven to be effective outreach innovation, and gaining on-ground insights on product perfor- tools for communicating benefits and increasing product mance. As a result, there was a deepening focus on designing uptake. It was observed that over 52 percent of people who a program from a gender perspective, including by building the attended camps were able to recall the scheme even after digital financial capability of women agents who played a criti- a month, indicating the effectiveness of agent-led camps in cal role in bridging the gap between the usage and adoption of fostering community awareness. India’s DPI among underserved and financially excluded seg- y Liaising with public-sector banks is vital for expanding a ments of the population. customer base and achieving the scale necessary for eval- uating impact. Facilitating capacity building and mentorship,  esigning Digital Remittance Solutions for 7.2.2 D for improving the digital financial capability, of bank agents Domestic Workers in Indonesia112 is essential to make them more relationship oriented and Indonesia is among the fastest growing digital economies in gender responsive. It was observed that 75 percent of bank Southeast Asia, with a multistakeholder approach uniting the agents can be made productive through differentiated sup- government, regulators, associations, the private sector, and port and supervision, leading to quality conversations by societies in the provision of innovative solutions that support agents that deepened customer engagement, particularly the country’s development goals. among rural women. The Government of Indonesia has implemented concrete initia- y Training and mentorship play a key role in accelerating tives equipped with policy frameworks in recent years, stream- the capacities of bank/business correspondent sakhis as lining service delivery by advancing its DPI agenda, including Business correspondent sakhis are community-based banking agents under 110.  Case study provided by Ang, Panggabean, and Thao (2022). 112.  the government’s National Rural Livelihoods Mission. Under this national pro- gram, states are encouraged to identify one woman per village from existing self-help groups to become a business correspondent sakhi. Government of India, “National Rural Livelihoods Mission Bank Linkage,” 111.  https://daynrlmbl.aajeevika.gov.in/HomePage.aspx. 54  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE through the provision of identity verification and e-KYC ser- workers. The third phase showed a substantial increase in its vices, as well as a data-exchange platform to facilitate the engagement and usage. seamless and secure sharing of information across the govern- ment. Over the past few years, the government has also been The intervention pilot yielded the following key learnings: focused on revamping its G2P architecture for the delivery of y Program awareness and targeted messaging efforts effec- social protection and other government payments, cementing tively communicated the benefits and convenience of using financial inclusion. DANA. At the household level, remittance transfers play a key role in y While employers offered limited support to facilitate the furthering financial inclusion. However, many domestic work- signup/onboarding of domestic workers, a segment of tech- ers who rely on remittance support for their households often savvy workers sought tutorials and videos independently, choose informal channels that are typically riskier. Bear in mind and other workers learned with the support of family mem- that almost half of the Indonesian adult population remains bers and peers. unbanked, as reported by the World Bank. Overall, DANA was perceived as a fast, easy, and secure method To develop a safe digital remittance solution for domestic for transactions, instilling confidence in its use for remittance workers to send money to their families and to increase their transfers. The program was successful, as it taught domestic engagement with formal financial services, WWB partnered workers to use DANA for remittance transfers. Customers who with DANA113 Indonesia, one of Indonesia’s largest digital wallet participated in the program also started using DANA for bill pay- providers, on a five-month pilot. ments (electricity tokens and water bills), top-ups, and online shopping. Further, they started using a feature for setting short- As a part of this effort, in-depth qualitative interactions were term savings goals called DANA Goals. This is a testament to conducted to learn about the needs, barriers, and challenges of how a financial technology can provide a people-centered solu- domestic workers in using DFS to send money back home. For tion for helping financial inclusion. the design of a digital remittance solution for the target group, WWB found that the workers believed an ideal remittance ser- The success of the intervention can be attributed to the design vice would be fast, easy to use, reliable, and accessible (for of the solution, which helped build the digital financial capa- both the sender and the receiver)—features that a digital wallet bilities of workers through a learn-by-doing approach coupled service providers like DANA Indonesia provide. However, the with technological support of reminders, messages, and built-in workers also identified barriers to usage and adoption of the incentives to drive usage. Thus, a simple, innovative interven- service—namely, a complex sign-up process, low access to the tion that effectively addresses the needs and challenges of internet, a complex app interface, a lack of trust in e-money or many low-income domestic workers in Indonesia highlights the digital cash, and fear of making errors due to the workers’ lack critical role that private-sector innovation plays in realizing an of understanding of DFS. inclusive digital economy. Based on the above challenges, a five-part solution for e-wal- The success of collaboration was also highlighted at the GPFI let services was designed for DANA Indonesia users to build in the margins of Indonesia’s G20 Presidency in October 2022. their trust and confidence in DANA as a remittance service. With solutions that embedded seamless access to finance and Efforts were made to drive adoption through tutorials to sup- converted the unbanked to bankable, DANA has proven its port workers with limited digital financial literacy and through capability to achieve truly inclusive financial services. (i) program pitch and onboarding, (ii) transaction tutorials, (iii) key-customer marketing and messaging, (iv) timely notifica-  mproving Digital Literacy in the United Arab 7.2.3 I tions and reminders, and (v) incentives. Emirates114 The United Arab Emirates places great emphasis on the The solution was piloted throughout Indonesia for DANA’s empowerment of youth to increase financial inclusion. Consid- users in three phases lasting one to two months each. The ering the importance of digital literacy for individuals to access first and second phases showed positive results in facilitating and use DFS confidently and effectively, the country has under- access to and use of DANA as a remittance service by domestic taken several initiatives. 113. DANA, https://www.dana.id/en. 114. Case study provided by the United Arab Emirates. 55  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE The UAE’s One Million Arab Coders (OMAC) program,115 led by The UAE’s Jahiz initiative116 is another incentive that focuses the Dubai Future Foundation, is one such initiative. OMAC was on enhancing digital skills. Jahiz was launched in 2022 by the launched in 2017 with the goal of developing digital literacy UAE Government to enhance the digital-skills readiness of the in Arab youth and preparing them for the future by providing government workforce. The initiative aims to equip government online programming courses. The program ultimately aims to employees with 20 major future skills within a year. It does so bridge the digital literacy gap, empower Arab youth with cod- through an interactive platform developed in partnership with ing skills, and raise the next generation of technology experts. 15 leading government entities and global companies. The main OMAC equips Arab youth with digital skills that enhance objective of Jahiz is to ensure that government talents possess their employability in the job market. The initiative provides the necessary skills in an ever-changing world and understand online training and certifications and offers scholarships for the emerging trends that will shape the future. The initiative advanced sources such as nanotechnology, thereby empow- focuses on four key groups of skills: digital skills, 10X skills, data ering youth and fostering tech innovation in communities and and AI skills, and new economy skills. These areas cover a wide tech economies. range of topics, including cybersecurity, digital transformation, blockchain, AI, net-zero and climate change, and the digital economy, among others. Dubai Future Foundation, “One Million Arab Coders,” https:/ 115.  /www.dubaifu- ture.ae/initiatives/capacity-building/one-million-arab-coders. 116. United Arab Emirates, “Jahiz,” https://jahiz.gov.ae/?lang=en. ANNEX A WORK DEVELOPED BY THE GPFI TO SUPPORT FINANCIAL INCLUSION G20 Financial Inclusion Action Plan 2020 of the crisis and could guide policy makers in designing the The 2020 G20 Financial Inclusion Action Plan (FIAP)117 recovery phase. came at a time of crisis, as the COVID-19 pandemic rep- resented an extraordinary global challenge. Following The 2010 G20 Principles for Innovative Financial Inclusion the leaders’ mandate in the Buenos Aires Declaration for the spurred initial efforts and policy actions. The G20 Principles GPFI to streamline its work program and structure, the GPFI for Innovative Financial Inclusion consist of nine core principles decided to prioritize its work under the 2020 G20 FIAP on dig- for promoting financial inclusion, based on experience and ital financial inclusion and SME finance. As a result, the 2020 good practice, that form the basis of the G20’s Financial Inclu- FIAP covers three components: (i) the GPFI’s overarching sion Action Plan. A report published by the Alliance for Financial objectives; (ii) action areas under the agreed prioritized top- Inclusion in its capacity as implementing partner of the GPFI ics; and (iii) a set of cross-cutting issues and topics to be con- describes how 11 countries120 in five continents successfully sidered across the work of the GPFI. applied the principles and the lessons they learned in doing so. In 2016, the G20 further published the HLPs for Digital Applicable G20 Principles and Work Done Financial Inclusion to build on that success by providing a under Previous Presidencies basis for country action plans reflecting country contexts and national circumstances to leverage the huge potential Under the Italian G20 Presidency, the GPFI took stock of offered by digital technologies. These eight HLPs are based countries’ strategies to tackle the challenges and seize on the rich experience reflected in G20 and non-G20 country the opportunities for financial inclusion posed by the pan- experiences, and on international standard-setting bodies’ demic. Building upon the far-reaching work done during past standards and guidance. G20 Presidencies,118 the GPFI implementing partners produced four reports,119 which present policy responses and innovative The G20 HLPs for Digital Financial Inclusion are a cata- approaches that have proved effective in mitigating the impact lyst for action for the G20 to drive the adoption of digital approaches to achieve financial inclusion goals, as well as the related G20 goals of inclusive growth and increas- 117. GPFI (2020b). ing women’s economic participation. The HLPs recognize 118. Specifically, OECD (2022) and (2020). 119.  IFC and SME Finance Forum 2021; OECD 2021a; OECD 2021b; World Bank the urgency of providing the financially excluded and under- Group 2021. served with high-quality and appropriate financial products 120. Brazil, Indonesia, Kenya, Republic of Korea, Mexico, Nigeria, Peru, Philip- pines, Russia, Türkiye, United Kingdom. and services. The HLPs also recognize the need to use digi- 56 57  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE tal technologies to achieve this goal, where possible. Under- gaps for youth (subject to child-protection frameworks where served groups—which typically include poor people, women, relevant), women, and SMEs through DFS to reach conditions in youth, and people living in remote rural areas—require special which all people can live, work, and thrive, as well as utilize and attention. Vulnerable groups, such as migrants, elderly people, share the benefits of innovations and digitization. and people with disabilities, may also need a particular focus. Moreover, some excluded and vulnerable groups may not have An effective way to implement the HLPs is through appli- access to DFS or may be reluctant to adopt them, and this risk cable national strategies and related country action plans needs to be managed and addressed proactively. or other country-level actions, which consider country contexts and national circumstances. In 2022, under the Further work was undertaken under previous G20 Presi- Indonesian Presidency, the GPFI published an implementa- dencies to facilitate these objectives. For instance, the 2017 tion guide for the HLPs. This implementation guide focuses on G20/GPFI report Digital Financial Inclusion: Emerging Policy HLPs 1–6 and dedicates a chapter to each HLP, emphasizing Approaches under the German Presidency discusses emerging practical “how-to” approaches and replicable examples of good country strategies and policy approaches to increase the use of practices. The implementation guide also features country case DFS, with a focus on the roles of policy makers and regulators studies and examples of good practices followed by G20 and with respect to HLPs 1–4. The 2020 report G20 High-Level Pol- non-G20 member countries in implementing the HLPs. icy Guidelines on Digital Financial Inclusion for Youth, Women and SMEs under the Saudi Arabian Presidency further provides In addition, box A.1 details policy options contained in existing sets of featured policy options targeting financial inclusion G20/GPFI guidance that are relevant to digitalization. BOX A.1 Existing G20/GPFI Guidance and Policy Options 1. G20/GPFI: Menu of Policy Options for Digital G20 High-Level Policy Guidelines on Digital 2.  Financial Literacy and Financial Consumer and Financial Inclusion for Youth, Women and MSME Protection (2021) SMEs (2020) y Favor “protection by design”—that is, the design y Consider the needs, risks, and vulnerabilities of of new digital financial products and services that women, youth, and SMEs in the digital environment in are oriented more to the needs of the financial con- the context of (i) the financial consumer (price, terms, sumer, help prevent aggressive and unfair market clear language) and (ii) data-protection approaches practices, and ensure the legitimate use of cus- (security, privacy and responsible use of alternative tomer data. data, and cybersecurity). y Address risks of online fraud and scams and mis- y Support comprehensive consumer protections that management of personal data. address women’s needs, including requirements to disclose product prices and terms in clear language, y Strengthen effective redress mechanisms to pro- and appropriate measures to ensure data privacy and tect consumers. security. y Deploy data collection and enhance market moni- y Minimize the risks associated with the digitization of toring to improve financial services. SMEs, particularly by ensuring data-protection and y Use behavioral insights to improve financial con- privacy rights and adequately managing cybersecu- sumer protection and financial education. rity risks. y Ensure the responsible use of alternative data consis- tent with applicable laws and good practices related to consumer protection, and remain vigilant to potential financial stability risks. 58  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE BOX A.1, continued Advancing the Digital Financial Inclusion of 3.  Promoting Digital and Innovative SME 5.  Youth (2020) Financing (2020) y The document highlights that almost half of the y The document provides an overview of how digital world’s young people aged 15–24 remain unbanked. technologies are helping to address the main bar- It examines factors contributing to the financial riers/frictions to close the financing gap for SMEs inclusion of youth and the role of DFS in meeting and takes stock of private, public, and private-pub- their financial needs. Also, it explores opportunities lic partnerships to advance responsible DFS for and challenges related to advancing youth digital SMEs. financial inclusion. y The solutions come with challenges and risks, and y The document offers policy options to policy the document presents regulators and policy mak- makers, based on data, research, and country ers with policy options and potential actions for approaches, to ensure the appropriate and safe dig- consideration. ital financial inclusion of young people. G20 Fukuoka Policy Priorities on Aging and 6.  Advancing Women’s Digital Financial Inclusion 4.  Financial Inclusion (2019) (2020) y “Protect,” tackle financial abuse and fraud, and y The document outlines 10 policy options to enable “customize,” address the diverse needs of older G20 members and other governments to work rap- people. idly toward digital financial inclusion of all women. y Encourage stakeholder engagement—a multisec- y These policy options will drive women’s greater toral approach. economic participation and speed up economic recovery. G20 Policy Guide: Digitisation and Informality 7.  (2018) y Adapt oversight arrangements and capability for financial consumer protection, and improve disclo- sure and transparency. ANNEX B INTERLINKAGES BETWEEN DPIS AND IMPLEMENTATION OF THE HLPS ON DIGITAL FINANCIAL INCLUSION High-Level Principles for Digital Financial Inclusion Implications for DPIs PRINCIPLE 1: Promote a y Digital financial inclusion involves the deployment of the cost-saving digital means to reach populations Digital Approach to that are currently financially excluded and underserved with a range of formal financial services suited Financial Inclusion to their needs that are responsibly delivered at a cost affordable to customers and sustainable for providers. DPIs facilitate digital financial inclusion by easing access to financial services by making these ubiquitous through digital means. y DPIs can be inclusive by design, enabling providers to offer digital services and products that cover the needs of all segments of the population, including those of excluded and underserved citizens. PRINCIPLE 2: Balance • DPIs can give rise to new and innovative business models that can help further digital financial Innovation and Risk to inclusion. However, DPIs and services that leverage these DPIs need to be regulated and overseen by Achieve Digital Financial public authorities to ensure that risks are mitigated and they keep overarching public policy objectives Inclusion in mind. PRINCIPLE 3: Provide an • Legal and regulatory frameworks should be predictable, risk based, and fair, and they should not Enabling and Proportionate impose excessive non-risk-based compliance costs. DPIs should be open by design, which entails that Legal and Regulatory Frame- these can be leveraged by different types of entities under competitive conditions. work for Digital Financial • Access and participation requirements then need to be proportional to the risk that each participant or Inclusion user of the DPI poses to the infrastructure. • Regulation and oversight of DPIs requires authorities to develop comprehensive and robust regulatory and supervisory frameworks. PRINCIPLE 4: Expand the • The inclusive characteristics of DPIs and their role in servicing various societal needs ensure that basic Digital Financial Services services and use cases that advance digital financial inclusion are provided or enabled by DPIs. Infrastructure Ecosystem • This means that implementation or the expansion of a DPI becomes a priority for public and private stakeholders, to provide the core infrastructure required for such purposes. • Openness in DPIs also promotes that interoperability between different types of DPIs is enabled to facilitate the provision and execution of end-to-end financial workflows. • By assuming this role, DPIs enable other infrastructures to be built on top of them or as complement to their services. 59 60  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE High-Level Principles for Digital Financial Inclusion Implications for DPIs PRINCIPLE 5: Establish • Effective financial consumer protection is essential to support meaningful digital financial inclusion, Responsible Digital Financial particularly given newly emerging risks and the rapid onboarding of previously underserved users. Practices to Protect Consumers The use of DPIs can give rise to new risks and new manifestations of consumer risks that need to be mitigated by financial-sector authorities. • Effective customer protection tools, alongside effective grievance-redressal and dispute-resolution mechanisms, are vital to empower customers and to help build trust in the usage of DPIs. • The inclusiveness and openness of DPIs, as well as their systemic role, requires regulators and operators to ensure high levels of transparency and the implementation of effective customer protection mechanisms. PRINCIPLE 6: Strengthen • Digital financial literacy is essential in supporting digital financial inclusion. As DFS—enabled by DPI— Digital and Financial Literacy are rapidly evolving, and new players and products and services are emerging, individuals need to be and Awareness channels. equipped with the necessary skills to be aware of the characteristics, benefits, and risks of DFS, to be able to use them safely and to know where to obtain information and help in case of need. • In this respect, not only do consumers need financial literacy and digital skills, but they also need the skills at the intersection of these elements, on what is referred to as “digital financial literacy”—that is, a combination of the knowledge, skills, attitudes, and behaviors necessary for individuals to be aware of and safely use DPIs with a view to contributing to their financial well-being. DPIs need to be responsible and transparent, given their systemic role in serving societal needs; hence, their implementation and improvement require that regulators and operators ensure that both providers and end users are able to leverage their services. • This requires public awareness campaigns and initiatives to ensure that the population is aware of the products and services that are being enabled through DPIs. • Furthermore, coordination between public and private stakeholders is required to ensure that the products and services enabled by DPIs are deployed through inclusive user experiences and that knowledge tools are designed and provided to reach different segments of the population. PRINCIPLE 7: Facilitate • Digital ID infrastructure is a core DPI that helps advance digital financial inclusion, as it plays a significant Customer Identification for role in facilitating effective identification for DFS. Digital Financial Services • Digital ID assists customers in accessing and using key financial services required by excluded users, particularly account opening and access to credit, savings, and insurance products. PRINCIPLE 8: Track Digital • Implementation of this HLP should leverage new sources of digital data and enable stakeholders to Financial Inclusion Progress analyze and monitor the supply of, and demand for, DFS, as well as assess the impact of key programs and reforms, including facilitating improved progress monitoring for vulnerable groups, such as women, the elderly, youth, micro and small enterprises, and rural populations. • The digital nature of DPIs as well as their potential to be interoperable or interlinked with other DPIs allows for gathering information around take-up and usage of financial services and products. • DPIs can facilitate the deployment of monitoring tools that can provide additional insights on the role that DPIs are playing in advancing digital financial inclusion. ANNEX C ADDITIONAL EXPLANATIONS FOR VOLUNTARY AND NONBINDING POLICY RECOMMENDATIONS Public and Private Collaboration best practices on regulating, supervising, and overseeing finan- cial infrastructures could serve as a useful framework. Ensuring all relevant stakeholder voices are considered in the design and ongoing operations of DPIs is critical. Irre- spective of the operational models, significant public-private Regulation, Supervision, and Oversight collaboration and coordination is required to develop standards, protocols, and governance mechanisms. In this regard, public Principle-Based and Proportionate Regulatory, authorities could (i) encourage and motivate the private sector Supervisory, and Oversight Framework to contribute to the development of DPIs; (ii) ensure structured Implementation of a regulatory framework that addresses and continuous coordination and collaboration among public all relevant DPIs and monitoring and mitigation of risks authorities and private sector stakeholders, regardless of the due to the use of DPIs as well as those that the different ownership and operational model covering DPIs’ architecture, categories of participants and users bring to the ecosys- design, standards, rollout, ongoing operations, and relevant tem is crucial. Regulation, supervision, and oversight should enablers of the DFE; (iii) ensure coordination between relevant be principles based, flexible, and proportionate to the speci- stakeholders to enable seamless interfaces between different ficities and risks posed by DPIs. Existing regulatory standards DPI components, potentially also on a cross-border basis, via and other good practices issued by the relevant standard set- DPIs’ institutional arrangements, such as operational rules ting bodies already provide guidance on these matters.121 The and risk management frameworks; and (iv) ensure that tech- standard best practices of how and when to regulate apply, and nical and operational standards for DPIs are developed in close the options range from (a) bringing them into the regulatory cooperation and coordination among public and private sector framework to (b) regulating indirectly (for example, through stakeholders. construct of outsourcing) or (c) leaving them outside but mon- itoring them. Some might be completely outside regulatory In general, DPIs use in the financial sector can be roughly purview. As indicated earlier, in most jurisdictions, the payment equated to the role that financial infrastructures play. systems (in this case, the FPS), as per legal framework, needs to Some of the DPIs—notably FPS—are considered as financial be licensed/approved and would likely fall in category (a). While infrastructure. Accordingly, the existing set of guidance and digital ID would likely fall outside the direct purview of financial sector regulators, the use of it in the financial sector might need to be monitored by them. The modality of regulating could also This includes, for example, CPMI and IOSCO (2012), which address system- 121.  change over the lifecycle of a DPI and its intensity of use. The ically important payment systems, although the same principles or a subset thereof are also typically applied to FPS and other retail payment systems. public authorities could consider clearly defining and publicly 61 62  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE disclosing the criteria used to identify the DPIs under the three y DPIs can facilitate the availability of full and transparent categories—direct, indirect, and monitoring—for regulation/ information on the functioning, features, and prices of finan- supervision/oversight, including putting in place sound gover- cial services, in a form and manner123 that is accessible by nance arrangements and risk management framework by DPIs. different types of users. y DPIs can have requirements to ensure minimum service Coordination between Relevant Authorities quality, especially for data services using data exchange. Different public authorities could have overlapping pow- ers with respect to DPIs. As such, financial sector author- ities should cooperate with one another and with other Protection of Vulnerable and Formerly public authorities, both domestically and internationally, to foster efficient communication, consultation, and coordination, Excluded Users as needed. Such cooperation may need to be flexible for both Financial Consumer Protection Supervision and normal circumstances as well as in crisis situations. Complaint Handling Financial sector protection supervisors can leverage DPIs Building Inclusive Products and Services to further enhance supervision and enforcement of finan- cial consumer protection laws and regulations, and con- The design and implementation of DPIs need to consider sumer redress mechanisms.124 Examples include but are not and mitigate the risks of financial exclusion of those with- limited to the following: out or with limited digital access and skills or who face y Using DPIs to provide tools to the industry to support early other exclusion risks. For example, the gender digital divide in detection of misuse and fraud and support the industry in access to the internet and mobile phones has been found to go addressing them together with the increasing gender gap in account ownership. In this regard, it is important for the public sector authorities to y Instituting programs and systems for reporting and sharing consider the following: fraudulent transactions, behaviors, and typologies y DPIs enable FSPs to offer essential financial products and y Providing new channels for customers to raise complaints/ services for all sectors and groups of society, including the inquiries, which are channeled through to the relevant enti- most vulnerable. ties involved in the transaction chain, and then tracking and enforcing preagreed response times y Adopt a human-centered design approach to ensure that such financial products and services are accessible and y Providing tools to FSPs to gather all the information neces- suitable to the needs of all groups accessing them, including sary to address customer complaints women, youth, MSMEs, the disabled, and the elderly. Data Privacy y FSPs using DPIs may periodically assess if their products To safeguard personal data and privacy when providing finan- and services are serving the needs of the segments access- cial services, public authorities could consider working with the ing them. For instance, the appropriate credit products need DPIs to facilitate the following: to be made accessible to vulnerable sections to prevent over indebtedness. y Implementation of rules and procedures to ensure that financial institutions that access DPIs comply fully with y In the absence of universal broadband and network connec- applicable data protection and privacy legislation tivity, DPIs may develop and enable offline solutions that can provide for the underlying lack of connectivity. y Establishment of measures to protect consumers against data breaches, fraud, and misuse of customer informa- y DPI operators may ensure, jointly with other stakeholders tion from the use of DPIs and the data/information stored of the DFE, that they do not add new barriers to access to therein financial services, especially for vulnerable populations.122 For example, the mandatory use of biometric verification, without alterna- 122.  Including the use of simple language that is not excessively 123.  tives and exception handling, can create new barriers for populations that Financial consumer protection measures adopted by national authorities 124.  have damaged or low-quality biometrics, such as the elderly and manual should be in accordance with international good practice, including the G20/ laborers, whose fingerprints are significantly less recognizable than the gen- OECD HLPs for Financial Consumer Protection. eral population. 63  ADVANCING FINANCIAL INCLUSION AND PRODUCTIVITY GAINS THROUGH DIGITAL PUBLIC INFRASTRUCTURE y DPIs and the FSPs leveraging them employ to the maxi- In addition to their own efforts to improve digital and finan- mum extent possible the principles of “privacy by design,” cial literacy, as part of HLP 6, public sector authorities including (but not limited to) data minimization and pro- could also consider some of the following measures: portionality y DPIs introduce features and services that FSPs can use to y DPI operators and their agents have different levels of per- enhance their own financial and digital literacy initiatives. missible access to customers’ data for employees, depend- y Products and services using DPIs consider the existing digi- ing on the role they play and the need to access such data tal and financial literacy levels of the population and encour- age financial and digital literacy campaigns that inform and Digital and Financial Literacy educate citizen about the various associated financial con- Digital and financial literacy is essential in supporting sumer risks. digital financial inclusion. 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