We’re not the first to note that technology, as much as regulation, is reshaping the financial services industry. New technologies offer huge potential to expand financial services globally. Technological innovations and new business models in the form of mobile payments, mobile banking, and digital finance have dramatically reduced transaction costs, making it possible to bring financial services where no, or limited, access existed before. And now comes the first solid evidence from the World Bank of the economic benefits for developing and emerging nations of integrating digital payments. 

Much more than just a convenience, digital financial services lower the cost and increase the security of sending, paying, and receiving money. The resulting increase in access to financial services is particularly important for connecting women to the financial mainstream, says the report. Beyond the benefits for individuals of lowering the cost of payments, expanding the use of digital payments could spur economic growth and ease income inequality. 

Governments, by this evidence, have every reason to pay attention to the opportunities new technologies afford for financial inclusion. And many are. In his Independence Day speech on 15 August, Narendra Modi declared the end of financial exclusion in India, setting a goal of a bank account for every household by 2018. The G-20 announced its target of bringing financial services to 2.5 billion adults who are excluded from the formal banking sector at a 2010 summit in Seoul, where it launched the Global Partnership for Financial inclusion (GPFI). The GPFI has made boosting financial inclusion with new technologies one of its key focus areas. 

At the forefront of innovation in digital financial services are a slew of private firms that see a compelling business case in mass market financial services. Today there are some 2,500 fintech companies estimated to be entering the field, offering a range of solutions. Gillian Tett in the FT notes that there are hundreds of smaller players looking for ways to take established banks and financial businesses out of the equation in fields ranging from asset management to loans and payments. There are just as many looking to partner with banks. 

Whether providing contactless mobile payment solutions to individuals and small businesses, offering payment systems with near real-time settlement, or using big data to create algorithms for more accurate credit risk assessment, technology companies are shaking up financial services. This is all good news for those currently marginalized from access to financial services, and for the small- and medium-size businesses in need of finance to grow. 

But in many places, too, banking regulators struggle to keep up with the pace of change, and the range of new players.

Over the next few days in Perth, Australia, delegates to the GPFI meetings will be discussing digital finance from just about every conceivable angle, including regulation and risk. The meetings will give due attention to consumer protection issues, including hot button issues of data protection and privacy, and cyber security. The World Bank’s finding that digital payments are more secure than cash will give needed assurance to those who are concerned that such payments are vulnerable to electronic theft. 

Innovations in technology will feature prominently. A Technology and Innovation for Financial Inclusion Expo will showcase a range of new fintech companies, representing an interesting mix of emerging technology solutions with the potential to accelerate financial inclusion for households and businesses, particularly in developing and emerging economies.

The World Bank confirms that there’s a compelling economic case for countries to integrate digital payments for the benefit of their citizens. Private sector firms are finding a compelling business case for serving this huge untapped market with broad-based digital solutions. If governments can keep pace and provide the innovators with the regulatory assurance they need, the financial map of the world will look totally different five to ten years from now.

About the authors: Jeanette Thomas is founder and CEO of Developing Stories, a video production company specializing in stories filmed in developing and emerging economies. Farah Siddique is a Consultant at the SME Finance Forum.