Mobile payments and financial inclusion: Kenya, Brazil, and India as case studies

Abstract

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 paper 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 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.