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A customer uses a Square Inc device to make a payment in San Francisco, California, USA, on Tuesday, March 27, 2018.

How countries can expand access to digital financial services

A customer uses a Square Inc device to make a payment in San Francisco, California, USA, on Tuesday, March 27, 2018.

Editors’s note: The below is a reproduction of a World Bank report which provides valuable insights for policymakers and for financial sector players seeking to expedite financial inclusion and development of digital financial services.

Digital financial services, powered by fintech, have the potential to lower costs by maximizing economies of scale, to increase the speed, security and transparency of transactions and to allow for more tailored financial services that serve the poor. This report – Digital Financial Services – describes the tools of digital finance, the successful business models and policies for encouraging their growth. It explores risks and challenges of new types of services and the legal and regulatory frameworks needed for confronting them. Finally, it includes country experiences with promoting the expansion of digital financial services and the obstacles along the way.

A nurse puts on his Personal Protective Equipment (PPE) before starting to work in the Intensive care unit for patients infected by the novel coronavirus at the Policlinico di Tor Vergata hospital, in Rome on April 8.

The current COVID-19 pandemic has amplified the urgency of utilising fintech to keep financial systems functioning and keep people safe during this time of social distancing, falling demand, reduced input supply, tightening of credit conditions and rising uncertainty. At the same time, these new technologies must be designed and implemented carefully to manage their risks, particularly for the poor and vulnerable, so as not to exacerbate the challenges posed by this crisis. There is also an urgent need for investment in the prerequisites for developing digital financial services, such mobile broadband infrastructure—including in remote areas—expansion of digital identification, and open application programming interfaces. These investments should be complemented with the relevant legal and regulatory frameworks that can allow most people to benefit from digital financial services and ensure a competitive ecosystem.

Office workers and pedestrians wearing protective masks walk across a road in the Central district of Hong Kong, China, on Friday, March 20, 2020.

Fintech is helping governments quickly and securely reach people with cash transfers and other forms of financial assistance and reach businesses with emergency liquidity. It is allowing people to transfer funds—including crossborder remittances—and to pay bills from their home, or in a market or store setting, with limited physical contact. But the potential is much larger than what has been achieved. The coronavirus crisis has highlighted the benefits of digital financial services in many different dimensions and its critical role in achieving the Sustainable Development Goals.