Although financial inclusion is now recognized as an essential element of any economic development strategy that includes poverty reduction, a majority of the world’s poor remain excluded from formal financial services. Since 2007, the Kenyan mobile payment scheme M-Pesa has captured world attention as a financial inclusion success story, although no other countries have been able to reproduce that success. This chapter considers the impact of the regulatory environment on mobile payments as a channel for delivering inclusive financial services using Kenya, Brazil, and India as case studies. While Kenya succeeded in rapidly increasing financial inclusion, the Safaricom mobile network operator offering the M-Pesa service ended up controlling 99% of market for mobile payments, posing challenges for regulators and prospective competitors later trying to dislodge it from its dominant position. By contrast, Brazil made slow and steady progress toward achieving 99% financial inclusion among recipients of its Bolsa Familia social welfare program through incremental improvements in its legacy electronic payment systems and by creating a network of business correspondents for banks. Progress in India has been slower as a result of adopting a broad perspective on financial inclusion and pursuing multiple initiatives simultaneously, but inclusive financial services in India may finally be poised to take off. Early attempts to regulate mobile payments and business correspondents erected regulatory and technological barriers to their adoption, but the new “payment bank” regulatory framework may finally have removed those barriers for good. In partnership with the banking industry and to promote competition, India has created an open, public platform for the clearing and settlement of electronic payments, and has begun using the new RuPay card network together with the new Aadhaar national identity scheme to deliver direct benefit transfers to the poor.
Jane K. Winn
This chapter examines the Single Euro Payment Area (SEPA) as a case study of the role transnational business governance interactions (TBGIs) might play at the frontier of innovation in financial services. In 1999, when the EU asked European banks to eliminate barriers to cross-border electronic fund transfers in euros in time for the official launch of the euro in 2001, neither regulators nor banks could have imagined that SEPA would not be completed until 2016. While EU regulators blamed the delay on industry recalcitrance, this chapter explains it as a failure to mobilize TBGIs. EU regulators failed to recognize the public good characteristics of proprietary payment systems, while regulators and banks alike systematically underestimated the difficulty and cost of modernizing banks’ legacy computer systems and re-engineering their business processes. As a result, the emergence of a productive co-regulatory relationship in which the EU would catalyze market-driven technical and regulatory innovation was frustrated. The EU became increasingly heavy-handed, rejecting the banks’ cost-recovery proposals, countermanding industry consensus and ultimately stripping the self-regulatory European Payments Council (EPC) of policy-making authority. Without a cost recovery mechanism to incentivize participation, the EPC made glacial progress and could not convince many banks to join SEPA even after it was in place. The chapter suggests that constructive TBGIs can be achieved by treating proprietary market infrastructures as partial public goods and establishing consensus-based co-regulatory processes, but warns that future EU-bank interactions may suffer from the same downward spiral of frustration due to regulators’ unwillingness or inability to factor commercial realities into their policy calculus.