Informing humanitarians worldwide 24/7 — a service provided by UN OCHA

World

The Opportunities of Digitizing Payments

Attachments

How digitization of payments, transfers, and remittances contributes to the G20 goals of broad-based economic growth, financial inclusion, and women’s economic empowerment

DIGITIZING PAYMENTS AND REMITTANCES IS VITAL TO ACHIEVING G20 GOALS.

The G20’s focus on financial inclusion directly contributes to its core goal of achieving strong, sustainable, and balanced growth. Studies show that broader access to and participation in the financial system can reduce income inequality, boost job creation, accelerate consumption, increase investments in human capital, and directly help poor people manage risk and absorb financial shocks.

Strong action on financial inclusion by G20 countries and other key stakeholders will contribute significantly to key G20 policy objectives by:

• Spurring broader and stronger economic growth, by deepening financial intermediation and increasing efficiency of and access to payment, savings, insurance, and credit services.

• Increasing life opportunities and economic benefits for migrant and diaspora communities, by enabling a sharp reduction of costs and increased transparency of remittances.

• Increasing women’s economic participation, by facilitating greater control over finances, household incomes, and budget decisions.

Rapid development and extension of digital platforms and digital payments can provide the speed, security, transparency, and cost efficiency needed to increase financial inclusion at the scale required to achieve G20 goals.

In 2010, the G20 endorsed Principles for Innovative Financial Inclusion to provide guidance for policy and regulatory approaches (G20, 2010). This paper builds on that guidance, synthesizing the evidence that the widespread adoption of digital payments in all their forms, including international and domestic remittances, can be instrumental in reaching the goals of the G20:

• Digitizing helps overcome the costs and physical barriers that have beset otherwise valuable financial inclusion efforts.

• Digital platforms offer the opportunity to rapidly scale up access to financial services using mobile phones, retail point of sales, and other broadly available access points, when supported by an appropriate financial consumer protection framework.

• Digital payments can promote women’s economic empowerment by facilitating greater account ownership and asset accumulation and increasing women’s economic participation. Digital payments, particularly by governments and employers, enable the confidentiality and convenience women require in financial services. Payments provided via an account can provide the on-ramp to financial inclusion and in many cases the first account that a woman has in her own name and under her control. Opening an account can be an important first step for introduction to the formal economy for an entrepreneur and can lead to formalization of her small business.

While the opportunities abound, so do the challenges. There are real and complex barriers for governments to address through vision and leadership. Governments must address regulatory concerns, work with the private sector to develop infrastructure that can reach rural areas, and ensure interoperability and competition among providers and financial capability among their citizens. There is also a real and growing momentum on the part of governments, the private sector, multilateral development banks, and development partners in this direction, but with 2.5 billion people still outside the formal financial system, there is an urgent need for these issues to be more prominent in the agenda of governments.

In the short term, we call on governments, when they meet in November 2014 at the G20 Brisbane Summit, to discuss how they can embrace a broad-based digital financial system as a path to growth, greater participation of women in the economy, and greater access to payments, including remittances.