1. Geneva, Switzerland, 4 December 2014 Some lessons to be drawn from regulation of innovative payment instruments Prof. Maria-Chiara Malaguti, Catholic University, Italy ITU Workshop on “Digital Financial Services and Financial Inclusion” (Geneva, Switzerland, 4 December 2014)

2. Geneva, Switzerland, 4 December 2014 2 Relevance of regulatory exercises About two-thirds of domestic regulatory and supervisory agencies are charged with enhancing financial inclusion Some 50 countries have set formal targets and goals for financial inclusion, also covering retail payments

3. Geneva, Switzerland, 4 December 2014 3 Two main models Within the existing banking/financial context, to widen the distribution channels Non-banks would mainly act at distribution level (correspondent banking in Latin America) The provision of payment services is open to non-banks, so that these are involved not just at distribution level (European Union and those copying that model, but also many developing countries)

4. Geneva, Switzerland, 4 December 2014 4 Are there concrete differences? It depends on which services are in fact open to non-banks Outsourcing is also relevant There are many hybrids The real issue is whether you want to primarily expand the use of payment services or also offer additional financial products; whether you follow a step-by-step or a big bang approach

5. Geneva, Switzerland, 4 December 2014 5 Correspondent banking Latin America (Mexico, Brazil) Brazil: retail agents are supermarkets, pharmacies, post- offices and lottery kiosks They became the most used channel for payment of utility bills or for social benefits to be paid Opening of payment services to non banks (Kenya, Turkey, Pacific Islands): “payment institution”: subject to license? Kenya In many cases the non-bank can only provide a number of services Turkey: no loans) Cambodia: through outsourcing

6. Geneva, Switzerland, 4 December 2014 6 Yet main differences are on regulation of instruments Focus on technology Ex ante approach: tackling directly the issue of provision of innovative payment instruments (e-money: EU, Turkey) – main shortcomings: too abstract as a categorization, lack of flexibility Ex post approach: to proceed step by step, in parallel with the introduction of new products in the market (Indonesia, India) – main shortcomings: not technology neutral

7. Geneva, Switzerland, 4 December 2014 7 INDIA Correspondent banking approach Ex-post approach for new payment instruments Regulation of cards for banks, then of mobile banking 2009 guidelines on issuance and operation of pre-paid payment instruments (revised 2014): technology neutral (when the market was mature)

8. Geneva, Switzerland, 4 December 2014 8 Also difference between ex-ante and ex-post models should not be overestimated These are strongly dependent on the institutional and regulatory context in which they are adopted A combination of the two could result adequate Australia is an example: high level principles and then flexibility by the RBA in giving authorization

9. Geneva, Switzerland, 4 December 2014 9 Pro-active regulation for Financial Inclusion Indonesia, Brazil, Mexico, India India and the so-called 7A: Accessibility Availability Awareness Acceptability Affordability Assurance Appropriateness

10. Some lessons Existing institutional framework Existing structure of the supply side Policy goals concretely to be achieved: Expansion of very basic services for an as- wide-as-possible population? More articulated products focusing on selected sectors or activities (such as micro businesses)? Timeframe for objectives