Assessing risk in digital payments - Bill & Melinda Gates ...

Assessing risk in digital payments

Special Report Financial Services for the Poor, February 2015

Table of Contents

About the Gates Foundation's Financial Services for the Poor.............................. 3 Preface................................................................................................................... 5 Summary of findings.............................................................................................. 7 A framework for risk in digital payments................................................................. 9 I. Operational risk ............................................................................................. 15 II. Solvency and liquidity risk ............................................................................. 30 III. Other risks...................................................................................................... 47 Conclusion........................................................................................................... 53 Acknowledgements.............................................................................................. 55 Glossary............................................................................................................... 57 Reading list and sources...................................................................................... 63 Authors................................................................................................................. 71

ASSESSING RISK IN DIGITAL PAYMENTS I DECEMBER 2014

1

ASSESSING RISK IN DIGITAL PAYMENTS I DECEMBER 2014

2

About the Gates Foundation's Financial Services for the Poor program

The Bill & Melinda Gates Foundation is guided by the belief that every life has equal value. In developing countries, it focuses on improving people's health and giving them the chance to lift themselves out of hunger and extreme poverty.

The Gates Foundation's Financial Services for the Poor promotes these goals by aiming to connect people in the world's poorest regions with digitally based financial tools and services. A growing body of evidence suggests that access to the right financial tools at critical moments can determine whether a poor household is able to capture an opportunity to move out of poverty or to absorb a shock without falling deeper into debt. However, according to Global Findex, only 23% of poor consumers globally have access to formal financial accounts. Access for women and rural consumers tends to be even lower.

Our experience indicates that digital payments systems provide the most effective way to significantly expand poor people's access to appropriate financial services. Compared to cash, digital payments can foster broader reach, provide greater security, and offer more products tailored to poor consumer needs, all at lower cost. They also have the potential to supply the providers of digital payments with additional, non-payment sources of revenue, for example from the digital information collected. This, in turn, allows providers to offer payment services at a lower price.

Our approach has three mutually reinforcing objectives:

? Increasing poor people's capacity to weather financial shocks and capture income-generating opportunities

? Generating economy-wide efficiencies by digitally connecting large numbers of poor and low-income people to one another and to financial service providers, government services and businesses

? Reducing the amount of time and money that poor people must spend to conduct financial transactions

We are not focused on particular products, services, or distribution channels, but rather on finding innovative cost-effective ways to expand access to finance, and encourage markets to identify which products and channels are most effective to reach the poor. At the same time, we are aware that interventions in this and other areas too often involve technologies that are made available to the intended users, but then not adopted. To address this design-side challenge, we are supporting research and product design experiments to identify design features, price incentives, and marketing messages that will encourage poor people to adopt and actively use digital financial services. We are also supporting policy makers as they develop policies and regulations that facilitate these developments, and provide oversight and accountability.

We believe the combined effect of these interventions will accelerate the rate at which people can transition out of poverty and build their financial security. Our strategy recognizes that countries are at different stages in developing an inclusive digital financial system, and that any solutions must be appropriate for the cultural and economic context.

ASSESSING RISK IN DIGITAL PAYMENTS I DECEMBER 2014

3

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download