## wpiea2021221-print-pdf ## Source details **Canonical URL:** [wpiea2021221-print-pdf](https://www.imf.org/-/media/files/publications/wp/2021/english/wpiea2021221-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/wp/2021/english/wpiea2021221-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/wp/2021/english/wpiea2021221-print-pdf.pdf.json) --- ### Cross-country heterogeneity within LAC (2017) - In Central America, financial inclusion is much higher in Costa Rica than in any other country in that sub-region. - In South America, Chile, Uruguay, and Venezuela are the three countries most frequently at the top of the list (although the indicators for Venezuela may have changed significantly since 2017). - Brazil: largest share of adults receiving government payments into a financial account or a card, reflecting Bolsa Familia channeling monthly allowances to some 13.8 million families through debit cards in 2020. - Uruguay: leads in share of adults having and using a credit card; VAT reduction incentive for credit card payments cited. - Paraguay: only LAC country where share of fintech users (adults making/receiving digital payments) exceeds proportion of traditional account holders. ### Demographic and socioeconomic patterns of exclusion - Poor, young, and less educated adults more likely to be financially excluded across regions. - Gaps in LAC vs other regions: - Account holding gap between poor adults and overall population: 12.5 percentage points in LAC, versus 9.9 in Europe and 9.4 in the Middle East and Central Asia. - Use of digital payments gap: 11.7 percentage points in LAC, 10.4 in Europe, 8.9 in Asia, and 8 in the Middle East and Central Asia. - Age and education: - Young households less likely to have an account or use digital payments in all LAC countries, except Chile and Costa Rica. - Gap for less educated adults (completed primary only) larger for use of digital payments than for ownership of an account. - In most LAC countries, adults with low education experienced the largest increase in financial inclusion between 2014 and 2017. - Gender and location: - Women and rural adults tend to have lower levels of financial inclusion than average, but gaps are relatively small. - Argentina: women more likely to have an account or use digital payments than men; Bolivia: men and women have the same account ownership proportion. - Urban-rural gap larger for fintech-related measures than for traditional account access. - Argentina, Brazil, Colombia, Peru, and Mexico record a larger urban-rural gap for fintech-related measures than for traditional ones. ### Mexico — regional and gender differences (ENIF 2018 highlights) - Regional variation in households using at least one financial product: 60 percent in the south to 82 percent in the north. - Gender by city size: - Women more likely than men to have at least one financial product in smaller cities; opposite in larger cities. - Among adults aged 18-70 with at least one financial product: - Share with at least one financial product: Total 68.3; Women 65.2; Men 71.8 - Cities <15,000 inhabitants: Total 57.1; Women 58.0; Men 56.1 - Cities ≥15,000 inhabitants: Total 74.4; Women 69.0; Men 80.3 - Share having a savings account: 68.9 (Total), 70.4 (Women), 67.5 (Men) - Share borrowing from a financial institution: 45.6 (Total), 44.8 (Women), 46.4 (Men) - Share having an insurance product: 37.2 (Total), 35.5 (Women), 38.9 (Men) - Share having a retirement account: 57.9 (Total), 47.6 (Women), 68.2 (Men) ### Determinants of financial inclusion — overview and econometric findings - Common determinants considered: log per capita income, Gini index, education (school enrollment), structure and costs of financial sector, availability of ATMs, internet and cellular coverage, rule of law. - LAC differs from world average mainly by: - Higher Gini index. - Higher bank overhead cost-to-total assets ratio. - Panel regression main regularities (lags of three years used): - Log per capita income (lagged) positively and significantly associated with most financial inclusion measures. - Gini coefficient (lagged) negatively associated with financial inclusion measures. - School enrollment positively associated with most measures. - Number of ATMs per 100,000 adults and rule of law positively associated with several measures. - Internet users positively and significantly affect both fintech-related measures and traditional account ownership. - Mobile coverage shows no influence on any measure. - Bank concentration and bank overhead cost show mixed results. - Complementarity: - Strong correlation between traditional financial inclusion and fintech-related measures suggests fintech complements rather than substitutes traditional channels. ### Select reported coefficients (preserved exactly) - Table 2: - Have an account → Buy/Pay using internet: 0.210** - Have an account → Used digital payments: 0.772*** - Have an account → Paid utilities with mobile: 0.036 - Log per capita income (lagged): 0.046*, 0.019, 0.004 (columns 1–3) - Gini coefficient (lagged): -0.006***, -0.002**, -0.001* (columns 1–3) - Internet users: 0.003***, 0.002***, 0.001*** (columns 1–3) - LAC dummy: -0.105**, -0.123***, -0.055*** (columns 1–3) - Observations: 156, 156, 154; R^2: 0.793, 0.884, 0.307 - Table 1 (selected examples): - Log per capita income (lagged): Have an account (col 1): 0.076***; Save in account (col 2): 0.086***; Have debit card (col 4): 0.093***; Used digital payments (col 9): 0.064***; Receiving wages into account (col 11): 0.055*** - Gini coefficient (lagged): Have credit card (col 5): -0.005***; Used debit card (col 6): -0.007***; Used credit card (col 7): -0.003***; Buy/Pay using internet (col 8): -0.006*** - Number of ATMs (lagged): Have an account (col 1): 0.001***; Have debit card (col 4): 0.001***; Used debit card (col 6): 0.001***; Buy/Pay using internet (col 8): 0.001*** - Internet users: Have an account (col 1): 0.002***; Buy/Pay using internet (col 8): 0.003***; Used digital payments (col 9): 0.004***; Paid utilities with mobile (col 10): 0.001*** - Rule of law: Save in account (col 2): 0.079***; Used debit card (col 6): 0.085***; Used credit card (col 7): 0.036***; Buy/Pay using internet (col 8): 0.069*** - LAC dummy (select): Have an account (col 1): -0.076**; Save in account (col 2): -0.089**; Have debit card (col 4): -0.072*; Used digital payments (col 9): -0.188***; Paid utilities with mobile (col 10): -0.058***; Receiving government payment into account (col 12): -0.106*** - Model fits: - Observations generally 156 for many regressions; example R^2 values: 0.832 for Have an account, 0.835 for Used digital payments. ### Interpretation of the LAC fixed effect and policy implications - Negative and significant LAC dummy captures lower financial inclusion in the region even after controlling for common drivers. - Conjectured explanations: - Institutional features of the financial sector not captured by standard measures (e.g., dominance of a few large players able to limit competition). - Regulatory and financial policies: strict regulations adopted after past crises may hinder fintech adoption for inclusion. - Implication: high barriers to entry and constraining regulatory environments may explain limited fintech-driven inclusion; targeted reforms and competition-enhancing measures could help. ### Case studies and recent strategic context (selected countries) - Brazil: - Law on payment institutions including electronic money issuers in 2013; SCDs authorized in 2018; ESC in 2019. - 86.5% of adults hold some type of financial account. - Remote channel transactions rose 19% and account for about 35% of total financial transactions. - CMN Resolution no. 4792 (2020) expanded SCD roles; BCB sandbox first cycle to begin second half of 2021 (limited to 10 to 15 participants). - Fintech ecosystem large; drivers include high smartphone penetration and widespread internet access. - Chile: - No national financial inclusion strategy in place; Financial Inclusion Unit (2011) and Financial Education Strategy (2016). - Banco Estado: more than 12 million active accounts; by September 2020 almost 70% of debit cards issued by Banco Estado. - Findex 2017: 74% of adults hold at least one payment account. - Fintech bill proposed to regulate crowdfunding, robo-advisory, credit scoring, Open Banking. - Colombia: - National Financial Inclusion Strategy (2016); SEDPEs (2014) exempted from some KYC requirements. - TransfiYa real-time transfers via mobile number; Ingreso Solidario deployed through digital accounts and mobile wallets. - By September 2020: 87.1% of adults had access to the formal financial system. - 45.8% report having an account (Findex); digital deposit products grew substantially (electronic deposits 6.7 million; simplified savings ~4.2 million). - Mexico: - Fintech Law (LRITF) passed March 9, 2018; sandbox and API/open banking mandates. - Global Findex 2017: 37% of adults hold a bank account (18 ppts less than Latin America average). - ENIF 2018: 1 in 3 Mexicans does not hold any financial service/product. - Measures to allow adolescents (15–18) to open accounts; multiple registrations and authorizations of e-money and crowdfunding institutions in 2020–2021. - Argentina: - New 2020-2023 National Financial Inclusion Strategy approved December 2020. - BCRA regulations in 2020 for PSPs and Other Non-Financial Credit Providers; digital identity (RENAPER Digital Identity System); Cuenta Gratuita Universal (CGU). - As of December 2020: 91% of adult population had a bank account; non-bank account ownership rose from 3% in March 2019 to 24% in December 2020. - CVU accounts reached 10.7 million people by Q4 2020 (300% increase vs Q4 2019). - Honduras: - Financial Inclusion Strategy published July 2015; CNBS Plan for Women launched 2019. - Financial Innovation Board (MIF) created October 2019; fintech regulatory review underway. - 2019 indicators: 50.3% of adults with deposit; 15.7% with any credit; 174 electronic wallets per 1,000 adults. - Dominican Republic: - Fintech traceable to 2007; tPago platform >1 million users. - 55 fintech operators identified end-2019; ADOfintech created in 2019 (35 members). - Access metrics improved: loans as share of population rose from 25% in 2010 to 47% in 2019; savings accounts access rose from 76% in 2015 to 82% in 2019. ### COVID-19 effects and policy responses across countries - Pandemic accelerated digital financial services and electronic payments; governments deployed digital transfer programs through accounts and mobile wallets (examples: Colombia’s Ingreso Solidario; Honduras electronic vouchers to >70,000 households; Brazil and Mexico used different channels). - Expected that pandemic-driven changes would be reflected in 2021 Findex survey. ### Regulatory reforms, sandboxes, and infrastructure measures - Many countries adopted regulatory sandboxes (Brazil, Mexico, Colombia) to test fintech products with limited customers. - Open banking/regulatory APIs under implementation or discussion in Brazil, Chile, Colombia, Honduras, Mexico. - Measures to expand account access: simplified accounts, thresholds for deposits/transactions, exemptions from some KYC requirements (Colombia SEDPEs; Chile CuentaRut; Brazil payment accounts). - Modernization of secured transactions and credit registries: Brazil digital invoices as collateral (2018), Brazil shift to opt-out credit registry. ### Risks, monitoring, and consumer protection - Main risks from fintech identified: cybersecurity, AML/CFT, privacy; financial stability concerns less emphasized in case studies. - Regulatory responses: cybersecurity guidelines (Argentina Communication A 7266), AML/CFT frameworks for fintech and virtual assets (Mexico), regulatory sandboxes as risk identification tools. - Consumer protection focus: registration and reporting requirements for PSPs and NFCPs (Argentina); disclosure and transparency rules for ONFCPs. ### Key conclusions and policy implications (summary) - Despite improvements since 2011, financial inclusion in LAC remains lower than in other regions; substantial heterogeneity across countries with a few outperformers. - Poor, young, and uneducated adults remain more likely to be excluded. - Income, inequality, education, banking sector characteristics, internet/mobile access, and rule of law do not fully explain LAC’s lower inclusion; institutional market structure and regulatory constraints likely important. - Recent regulatory reforms, national inclusion strategies, and fintech initiatives should underpin fintech growth and boost inclusion; COVID-19 accelerated digital payments and some government digital transfer programs. - Policy priorities implied by case studies: - Reduce barriers to entry and increase competition in payment and credit markets. - Expand internet and mobile connectivity and digital literacy. - Implement proportionate regulation balancing innovation with AML/CFT, cybersecurity and consumer protection. - Use sandboxes, open banking APIs, and simplified account regimes to increase access while monitoring risks. *Source: wpiea2021221-print-pdf* ### Appendix 2). In Central America, financial inclusion is much higher in Costa Rica than in ### wpiea2021221-print-pdf - Appendix 2). In Central America, financial inclusion is much higher in Costa Rica than in ### Cross-country heterogeneity within LAC (2017) - In Central America, financial inclusion is much higher in Costa Rica than in any other country in that sub-region. - In South America, Chile, Uruguay, and Venezuela are the three countries most frequently at the top of the list (although the indicators for Venezuela may have changed significantly since 2017). - Brazil has the largest share of adults receiving government payments into a financial account or a card, reflecting the cash transfer program Bolsa Familia, channeling monthly allowances to some 13.8 million families through debit cards in 2020. - Uruguay leads in the share of adults having and using a credit card; this may be attributed to the incentive in the form of VAT reduction provided by the government for credit card payments. - Paraguay is the only country in the entire LAC region where the share of fintech users (measured by the proportion of adults making/receiving digital payments) exceeds the proportion of traditional account holders. ### Demographic and socioeconomic patterns of exclusion - Poor, young, and less educated adults are more likely to be financially excluded across regions. - The gap between poor adults and the overall population is larger in LAC than in other regions: - The gap for account holding between poor adults and the overall population amounts to 12.5 percentage points in LAC, versus 9.9 in Europe and 9.4 in the Middle East and Central Asia. - For the use of digital payments, the gap is 11.7 percentage points in LAC, 10.4 in Europe, 8.9 in Asia, and 8 in the Middle East and Central Asia. - Young households are less likely to have an account or use digital payments in all LAC countries, except Chile and Costa Rica. - Education effects: - The gap between less educated adults (defined as adults having completed primary education only) and the overall population is larger for the use of digital payments than for ownership of an account. - In most LAC countries, adults with low education experienced the largest increase in financial inclusion between 2014 and 2017. - Gender and location: - Women and rural adults tend to have lower levels of financial inclusion than average, but gaps are relatively small. - In Argentina, women are more likely to have an account or use digital payments than men; in Bolivia, men and women have the same account ownership proportion. - The urban-rural gap is larger for fintech-related measures than for traditional account access—arguably reflecting access to technology as well as physical distance from financial institutions. - Argentina, Brazil, Colombia, Peru, and Mexico record a larger urban-rural gap for fintech-related measures than for traditional ones. ### Mexico—regional and gender differences (Box 1) - ENIF 2018: share of households using at least one financial product varies from 60 percent in the south to 82 percent in the north of Mexico. - Financial inclusion is on average higher in larger urban areas, with gender differences by city size: - Women are more likely than men to have at least one financial product in smaller cities; the opposite holds in larger cities. - Among adults with at least one financial product: - Share of adults aged 18-70 with at least one financial product: Total 68.3; Women 65.2; Men 71.8 - Cities with fewer than 15,000 inhabitants: Total 57.1; Women 58.0; Men 56.1 - Cities with at least 15,000 inhabitants: Total 74.4; Women 69.0; Men 80.3 - Share having a savings account: 68.9 (Total), 70.4 (Women), 67.5 (Men) - Share borrowing from a financial institution: 45.6 (Total), 44.8 (Women), 46.4 (Men) - Share having an insurance product: 37.2 (Total), 35.5 (Women), 38.9 (Men) - Share having a retirement account: 57.9 (Total), 47.6 (Women), 68.2 (Men) ### Determinants of financial inclusion—overview - Commonly considered determinants: income per capita and income inequality, education, structure and costs of the financial sector, availability of financial services (e.g., ATMs), access to internet and cellular coverage, and rule of law. - For most variables considered, LAC countries do not differ much from the world average, except: - Gini index is higher in LAC than in all other regions. - Bank overhead cost-to-total assets ratio is higher in LAC than in all other regions. ### Econometric findings and interpretation - Panel regressions of financial inclusion measures on the drivers, with regional dummy variables and explanatory variables lagged by three years. - Main regularities: - Log per capita income (lagged) is positively and significantly associated with most financial inclusion measures. - Gini coefficient (lagged) is negatively associated with financial inclusion measures. - School enrollment is positively associated with most measures of financial inclusion. - Number of ATMs per 100,000 adults and rule of law are positively associated with several measures of financial inclusion. - Internet users has a positive and significant effect on both fintech-related measures and traditional account ownership. - Mobile coverage does not seem to influence any measure of financial inclusion. - Bank concentration and bank overhead cost show mixed and less intuitive results. - Strong correlation between traditional financial inclusion and fintech-related measures suggests complementarity rather than substitution: fintech may extend services to existing customers rather than substitute for traditional channels. ### Select reported coefficients (from tables) - Table 2 (Relationship between Traditional Financial Inclusion and Fintech-Related Measures): - Have an account → Buy/Pay using internet: 0.210** - Have an account → Used digital payments: 0.772*** - Have an account → Paid utilities with mobile: 0.036 - Log per capita income (lagged) coefficients: 0.046*, 0.019, 0.004 (columns 1–3 respectively) - Gini coefficient (lagged): -0.006***, -0.002**, -0.001* (columns 1–3) - Internet users: 0.003***, 0.002***, 0.001*** (columns 1–3) - LAC dummy: -0.105**, -0.123***, -0.055*** (columns 1–3) - Observations: 156, 156, 154; R^2: 0.793, 0.884, 0.307 - Table 1 (Selected coefficients across financial inclusion measures): - Log per capita income (lagged): positive and significant across many measures (examples): - Have an account (col 1): 0.076*** - Save in account (col 2): 0.086*** - Have debit card (col 4): 0.093*** - Used digital payments (col 9): 0.064*** - Receiving wages into account (col 11): 0.055*** - Gini coefficient (lagged): negative coefficients in many columns (examples): - Have credit card (col 5): -0.005*** - Used debit card (col 6): -0.007*** - Used credit card (col 7): -0.003*** - Buy/Pay using internet (col 8): -0.006*** - Number of ATMs (lagged): positive and significant in several columns (examples): - Have an account (col 1): 0.001*** - Have debit card (col 4): 0.001*** - Used debit card (col 6): 0.001*** - Buy/Pay using internet (col 8): 0.001*** - Internet users: positive and significant in several columns (examples): - Have an account (col 1): 0.002*** - Buy/Pay using internet (col 8): 0.003*** - Used digital payments (col 9): 0.004*** - Paid utilities with mobile (col 10): 0.001*** - Rule of law: positive and significant for multiple measures (examples): - Save in account (col 2): 0.079*** - Used debit card (col 6): 0.085*** - Used credit card (col 7): 0.036*** - Buy/Pay using internet (col 8): 0.069*** - LAC dummy coefficients (select columns): - Have an account (col 1): -0.076** - Save in account (col 2): -0.089** - Have debit card (col 4): -0.072* - Used digital payments (col 9): -0.188*** - Paid utilities with mobile (col 10): -0.058*** - Receiving government payment into account (col 12): -0.106*** - Model fits: - Observations generally 156 for many regressions; R^2 values vary (examples: 0.832 for Have an account, 0.835 for Used digital payments). ### Interpretation of the LAC fixed effect and policy implications - A consistently negative and significant LAC dummy across regressions captures the low level of financial inclusion in the region even after controlling for common drivers. - Two conjectured explanations: - Institutional features of the financial sector in LAC not captured by bank concentration measures (e.g., dominance of a few large players who can purchase fintech firms and limit competition). - Regulatory and financial policies: strict financial regulations adopted following past banking and financial crises may hinder the adoption of fintech tools to promote financial inclusion. - These factors may help explain why fintech activities have not been more widely adopted to expand inclusion in LAC. ### Case studies and strategic context - Case studies conducted with regulators, central banks, and policy experts in Argentina, Brazil, Chile, Colombia, the Dominican Republic, Honduras, and Mexico; inputs from Panama’s Superintendency of Banks. - Financial inclusion strategies are relatively recent: - Brazil adopted a financial inclusion strategy in 2011. - Honduras in 2015. - Colombia and Mexico in 2016. - Dominican Republic in 2018. - Chile established a Financial Inclusion Unit in 2011 but adopted its first Financial Education Strategy more recently. *Source: Findex Global Database; Authors’ calculations.* ### 2016. Argentina approved a new strategy of financial inclusion in 2020. ### wpiea2021221-print-pdf - 2016. Argentina approved a new strategy of financial inclusion in 2020. ### Fintech strategies, regulatory reforms, and institutional initiatives - Brazil adopted a law on payment institutions including electronic money issuers in 2013. - Mexico passed a fintech law in 2018 to regulate financial technology institutions (crowdfunding and e-money institutions). - Colombia: Fintech subcommittee as part of the 2016 National Financial Inclusion Strategy; Financial Superintendency implemented a regulatory sandbox. - Brazil, Mexico, and Colombia have used regulatory sandboxes to allow fintech firms to test new products and services with limited customers. - Countries are progressively regulating fintech activities: digital deposits and digital payments, crowdfunding, peer-to-peer credit, robo-advisory. - Open banking legislations have been implemented or are under discussion in Brazil, Chile, Colombia, and Honduras; expected to reduce transaction costs. - Argentina: Central Bank set up a “financial innovation roundtable” to foster innovation and provide dialogue between regulator and financial ecosystem players. - Brazil authorized new actors: Direct Credit Companies (SCD) in 2018 (can provide loans through electronic platforms using their own capital; cannot raise deposits), and Simple Credit Enterprises (ESC) in 2019 (can grant loans and purchase receivables from micro and small enterprises with own capital only). ### Measures to expand access to accounts, payments, and credit - Relaxation of requirements for opening financial accounts or digital accounts under specific thresholds or for certain categories: - Colombia and Panama: thresholds for deposits or transactions. - Mexico: simplified accounts for minors. - Colombia: SEDPEs (Sociedades Especializadas en Depósitos y Pagos Electrónico), created by a 2014 law, are exempted from some KYC requirements, such as verifying customers’ economic activity and income. - Chile: Banco del Estado created the debit card CuentaRut in 2006, requiring only a valid government ID to open. - Brazil: in 2014 created “payment accounts” (no physical branch service, cannot be used to get a loan, can offer cards and transfers, usually free); account balances must be invested by the account provider into federal bonds or central bank reserves. - Modernization of secured transactions legislation to expand acceptable collateral: - Dominican Republic and Colombia modernized legislation on secured transactions. - Brazil (2018): legislation allowing issuance of digital invoices that can be used as collateral. - Brazil (2020): created “segregated rural properties” to be easily transferred to creditors in case of default. - Colombia raised thresholds for low-value consumer loans to up to four times the minimum wage and allowed electronic transactions. - Credit registry reform: - Brazil shifted from an “opt-in” to an “opt-out” regime for recording loan or credit information in the registry. - Regulations introduced on crowdfunding (Colombia, Mexico) and peer-to-peer lending (Brazil). ### Payment system modernization and mobile payments - Bank of Mexico set up the CoDi (Cobro Digital) platform at end-2019 to facilitate electronic payments and transfers. - Colombia: TransfiYa real-time transfer system (send/receive money with a mobile phone number), emerged from private arrangement between fintech firms Minka and ACH Colombia; expanding rapidly since the beginning of the COVID-19 pandemic. - Panama: Superintendency of Banks developing a new legal framework to regulate the payment system and facilitate fintech operations through clear licensing and payment compensation rules. ### COVID-19 response and acceleration of digital financial services - Colombia implemented Ingreso Solidario, a new cash transfer program targeted at vulnerable households not previously covered by the social safety net and deployed through digital accounts and mobile wallets. - Honduras distributed electronic cash vouchers to more than 70,000 households via mobile phones. - Brazil allowed direct credit companies (SCD) to issue credit cards and on-lend resources from the Brazilian National Development Bank (BNDES). - Mexico and Argentina relied on the traditional banking sector for distribution of cash transfers. - Most experts noted the pandemic provided an opportunity to promote electronic payments and reduce cash use; reported increased fintech activity, especially digital transfers. - Expected that improvements and government efforts should be reflected in the 2021 Findex survey. ### Remaining obstacles, market structure, and policy responses - Identified obstacles: - Small market size and limited economies of scale reducing incentives for innovation (Chile, Dominican Republic). - Low financial literacy and digital skills. - Insufficient mobile and internet coverage. - Concentrated incumbent banking sectors creating entry costs and difficulty accessing capital (Chile). - Restrictive legal and regulatory frameworks imposing barriers to innovation and competition (Honduras). - Policy responses: - Financial education programs (Colombia, Dominican Republic, Honduras, Mexico). - Investments to improve mobile and internet access (e.g., “digital zones” with free internet access in Colombia). - Regulatory sandboxes, eHub and Regtech initiatives in Colombia to guide fintech firms through regulation and supervision. - Regulators authorizing new nonbank actors under strict rules to limit financial stability risk. ### Risks from fintech and monitoring - Main risks identified by case studies: cybersecurity, AML/CFT, and privacy. - Financial stability concerns were not emphasized by case studies; regulatory sandboxes seen as a way to identify risks before large-scale rollouts. - Recommendation implicit: cautious monitoring of fintech developments and their possible effects on the financial sector. ### Box: The Plan for the Financial Inclusion of Women in Honduras - Context: - Honduras has high economic inequality and unequal distribution of income and resources. - Female share of graduates in science, mathematics, engineering, manufacturing, and construction at tertiary level: 8.6 percent. - Women more likely to have informal jobs: 77.3 percent vs 71.1 percent for men. - Account ownership: 41 percent of women over age 15 hold an account at financial institutions or with mobile money-service providers, compared to 50 percent of men; below the LAC average of 45 percent. - Plan objectives: close the gender gap in the financial system by strengthening and reorienting financial supervision, surveillance, and analysis to include a gender perspective. - Implementation (February 2019): National Banking and Insurance Commission (CNBS) began implementing the Plan coordinated by a special Committee with technical assistance from a Canadian consulting company. - Three stages of the Plan: 1. Collection and reporting of quality information to identify gender gaps in deposits, credits, insurance, and SME loans to women entrepreneurs. 2. Analysis to quantify the impact of women’s financial inclusion on financial stability and market integrity; identify losses to national productivity and missed business opportunities. 3. Use information to design policy interventions, evaluate impacts, and analyze quality of women’s financial inclusion (affordability, financial literacy, convenience, product choice). - Implementation challenges reported in 2020: - Greatest challenge: collection of sex-disaggregated data from supervised entities (banks, insurance, cooperatives). - Low public awareness of the legal framework, posing a likely challenge at the policy intervention stage. - Pandemic response and timetable: - Government analyzing COVID-19 impact on activities of small entrepreneurs disaggregated by gender to assist targeting of social support schemes. - In 2021, regulatory intervention pilot programs scheduled; amended National Financial Inclusion Strategy expected to be launched based on Committee recommendations, along with specific targets for financial education and capacity development. - Note: Plan builds on earlier 2015 Law on the National Solidarity Credit Program for Rural Women (credit programs with low interest rates, technical assistance programs, support and research network, and improved coordination mechanisms). ### Key conclusions - Despite some improvement since 2011, financial inclusion in Latin America and the Caribbean remains lower than in other regions. - Heterogeneity across countries: a few countries outperform regional and world averages. - Poor, young, and uneducated adults remain more likely to be financially excluded. - Income, inequality, education, banking sector concentration/effectiveness, internet/mobile access, and rule of law do not fully explain the lower financial inclusion in LAC relative to other regions. - High barriers to entry and constraining regulatory environments may be significant obstacles to fintech development and financial inclusion. - Recent regulatory reforms, financial inclusion strategies, and emerging fintech strategies should underpin fintech growth and help boost inclusion; COVID-19 accelerated digital payments and some government digital transfer programs. *Source: wpiea2021221-print-pdf - 2016. Argentina approved a new strategy of financial inclusion in 2020.* ### APPENDIX 2 – DETAILED CASE STUDIES ### APPENDIX 2 – DETAILED CASE STUDIES — Argentina ### Financial Inclusion Strategy — Announced / Enacted - The Council of Financial Inclusion Coordination approved the new 2020-2023 National Financial Inclusion Strategy in December 2020. ### Financial Inclusion Strategy — Key objectives - Expand and improve access to financial services such as savings accounts, credit, electronic means of payment, and insurance. - Promote the use of electronic means of payment, savings accounts, credit and other services, taking into account the banking sector and microfinance institutions. - Improve financial literacy and consumer protection. - Promote interoperability between the traditional financial system and new payment platforms. - By improving financial services, contribute to reducing social gaps, expanding geographical coverage, and incorporating a gender perspective. ### Implemented measures (Central Bank of Argentina (BCRA) regulations) - 1. Consumer protection - Regulations for payment service providers (PSPs) (2020): - PSPs are required to be registered in the “Registry of Payment Service Providers that provide payment accounts” and to report to the BCRA. - The funds of PSP clients credited to payment accounts must be deposited in sight deposit accounts denominated in pesos with a financial institution in Argentina, and must be available at all times upon demand; and - Clients may allocate the balance of payment accounts to money pools, and PSPs must report the funds so they are invested separately from the rest. - Non-Financial Credit Providers (2020): “Other non-financial credit providers” (ONFCP) will have to comply with the provisions of the Law on Financial Institutions regarding financial consumer protection. They will also have to comply with regulations on disclosure and transparency with respect to interest rates, communication through electronic means, and reporting systems for complaints. - 2. Financial literacy - Digital Campaign of Financial Education for Households: within the framework of the program “We Keep on Educating”, the BCRA along with the Ministry of Education has led a digital campaign on financial education, which includes tutorials to promote the use of debit cards; the management of security codes for ATMs and for non-bank cash withdrawal points; the use of online banking and digital wallets for the payment of services; cybersecurity; and protection of financial consumers. Since May 2020, this campaign was broadcast on public television. - Virtual financial education in schools: the BCRA, in alliance with state governments and ministries of education, offers financial education activities destined to teachers and high school students. The Program "Financial Education in the classroom" ("La Educación Financiera en el aula") aims to encourage high school teachers to include financial education into their curriculum. - 3. Infrastructure (physical and digital) - Banking agents: Financial institutions are allowed to delegate the offer of financial services to natural and legal persons that have a non-financial purpose. They are required to be authorized in advance by the BCRA. - ATMs: these machines should be equipped with fingerprint readers so that users have the option of validating their identity using biometric data. By mid-2022, all ATMs in Argentina will be equipped with biometric readers. - ATMs’ operation and geographical distribution: In March 2021, the BCRA approved a policy aimed at achieving multiple financial inclusion objectives, one of which is to improve the ATMs’ operation and geographical distribution. One measure focuses on improving the operation of ATMs to reduce downtime and extending the network to reach cities and towns where there is no such service today. As an incentive, the portion of non-remunerated minimum reserve requirements is lowered as long as financial institutions meet the provisions laid down in the new regulation. - Digital identification: The RENAPER (the national registry of individuals) has developed the Digital Identity System that links the IDs with biometric information. This public policy enables a digital legal identity that acts as a pillar to promote financial inclusion policies, allowing for instance the remote opening of bank and non-bank accounts for natural and legal persons. - 4. Simplified accounts - Cuenta Gratuita Universal (CGU, universal free account): This bank account may be opened only with the national identity document (DNI) and used with a limited balance and transactions (due to simplified due diligence procedures for its opening). Banks cannot charge any opening or maintenance fees and must open an account upon request from an unbanked individual, remotely or in person. - 5. Payment system - Electronic money transfers are instant and free of charge. - Creation of a Uniform Virtual Key: CVU is a way to identify customer accounts in Payment Services Providers (virtual accounts). It improves the traceability of transfers between customer bank accounts and payment services provider accounts. - Payment by Transfer Program: the BCRA approved the Payment by Transfer Program with a view to further boosting electronic payments. The program was launched in December 2020 and will be completed by November 2021. This scheme seeks to expand the reach of instant transfers and is based on an open-payment ecosystem that is interoperable (bank and non-bank accounts), immediate (automatic crediting of funds for merchants) and flexible (cards, QR codes, biometrics). - Interchange Fee/Multi-brand acquiring: the BCRA has set a schedule with the maximum interchange fee that financial institutions can apply to merchants for card-based payment transactions (debit, credit and purchase cards). This maximum fee allows a fraction of the fee to be allocated to the acquiring industry, which ensures that participating merchants receive card payments. - Period for merchants to get paid after debit or credit card sales: financial institutions agreed with the BCRA on shortening to 1 business day the period for merchants to get paid after a debit card sale is made. Also, they agreed on shortening to 8 business days the period for micro and small businesses to get paid after a credit card sale is made. - Electronic means of payment: As part of the policy approved in March 2021 (see above), the BCRA encourages financial institutions to (i) support the use of electronic means of payment associated with sight deposit accounts in pesos held by natural persons; and (ii) boost the use of electronic checks (ECHEQ) and electronic credit invoices. - 6. Credit - Credit information sharing: the Credit Registry operated by the BCRA (Central de Deudores del Sistema Financiero, CENDEU,) captures all credit reporting information supplied by regulated financial institutions from individuals and firms. Since 2017 the CENDEU also discloses positive information which must include the person’s credit history over the past 24 months. This allows for better information sharing between the financial and commercial markets, in order to increase transparency in the financial system. - Credit to new borrowers: As part of the policy approved in March 2021, the BCRA provides incentives to financial institutions to expand credit for natural persons and MSMEs with no outstanding loans. ### Regulatory framework - The Charter of the BCRA establishes (section 3) that the purpose of the Central Bank is to promote –within the framework of its powers and the policies set by the National Government– monetary and financial stability, employment, and economic development with social equality. - The Productive Financing Law established that the National Government must develop a National Strategy for Financial Inclusion with the aim of promoting financial inclusion (Act 27.440, section 208). ### Measures of success / Quantitative targets - See State of Financial Inclusion and Financial Inclusion Report. ### Fintech Strategy — Announced / Enacted - There is no explicit fintech strategy. However, the BCRA, recognizing the opportunities and challenges of the application of technology in financial services, has been adapting and establishing regulations to build a more inclusive and efficient financial system. - Payment Service Providers (PSP) and Other Non-Financial Credit Providers (a group that includes digital lending companies), were regulated by the BCRA in 2020. ### Fintech Strategy — Key objectives - The BCRA has been working on the development of the financial sector, through different regulations regarding innovation in financial services. Public sector initiatives that promote financial innovation could be divided into four groups: - 1. The provision of public goods, in the economic sense (that is, services that are non-rival and non-excludable), and their regulation. - 2. Taking advantage of externalities and network effects in the payment sector, reducing the use of cash with the introduction of different electronic means of payment. - 3. Changes in the industrial organization of the payment sector to improve competition and reduce the costs of financial services. *Source: APPENDIX 2 – DETAILED CASE STUDIES — Argentina (wpiea2021221-print-pdf).* ### 4. Regulation to enhance financial consumer protection. ### 4. Regulation to enhance financial consumer protection. ### Activities covered - Payments and credits are the main activities covered by the Central Bank. - There are 69 Payment Service Providers and 366 Other Non-Financial Credit Providers, of which 43 are fintech companies, registered with the BCRA. - There are also 3 digital banks. - Equity crowdfunding activity is under the supervision of the Securities and Exchange Commission (CNV). - Local fintech ecosystem activities also comprise P2P lending and cryptocurrencies. ### Implemented measures — provision of public goods and legal framework - Since 2016, the BCRA has allowed banks to open accounts remotely (Com. A 6059); system supports validation of fingerprints and the National Identity Document. - Digital documents related to financial services were admitted (contracts, personal files, electronic invoice, electronic check, promissory note, and, in the foreseeable future, time deposit certificate). - Electronic signature and digital signature are both legally recognized and used to accept terms and hire services (digital lending). - BCRA regulation created the e-check; since 2019 firms and people can generate e-checks with electronic signatures (Com. A 6071, A 6578, A 6728). - BCRA allowed banks to operate with cloud-computing services (Com. A 6354). - BCRA created a database containing the credit history of persons and firms (CENDEU): provides information about debtor behavior during the last 12 months and the balance due; both banks and fintech companies can access it. - Electronic invoices approved by AFIP can be traded in secondary markets authorized by the CNV or via computing systems facilitating factoring operations. ### Implemented measures — payments, interoperability, and competition - Electronic transfers of funds are available online free of charge by BCRA regulation (Com. A 5194). - Payment Service Providers (PSPs) provide electronic wallets, prepaid cards, and cash in/cash out services. Payment accounts in PSPs are interoperable with bank accounts. Each PSP account is identified with a Uniform Virtual Key (CVU, which consists of 22 digits); bank accounts use a Uniform Bank Key (CBU) (Com A 6510). - Clients can choose an Alias-CVU and/or Alias-CBU as a pseudonym instead of numeric CBU/CVU (Com A 6044 and 6510). - BCRA established a QR standard code for charging clients so any electronic wallet or mobile banking application can read a QR generated by the acquiring party (Com. A 6425). - DEBIN (immediate debit) is a pull electronic transfers method allowing bank customers to accept or reject debit orders issued by third parties; debit and credit of funds are immediate (Com. A 6099). - Policy actions to improve competition in the acquiring market and a progressive annual schedule to reduce the interchange fee for debit and credit cards to increase retailers’ acceptance of electronic payments. - BCRA created the Mobile Payment Platform compelling banks to offer: (a) Electronic wallets; (b) Payment button; (c) Mobile POS (dongles). - Transfers 3.0 introduced to expand immediate transfers and build an open digital payment ecosystem aiming for a cashless payment system. - Banks are allowed to have a stake in fintech (Com. A 6277). ### Regulation to enhance financial consumer protection - Main focus of fintech regulation by the Central Bank regards PSPs and Non-Financial Credit Providers (NFCP): supervision and transparency of products and services offered to the consumer. PSPs and NFCPs are required to register with BCRA and comply with respective information regimes. - BCRA jointly with the CNV issued a warning concerning the use of cryptocurrencies, covering: no legal tender, high volatility, operational disruptions, cyber risks, lack of warranties, fraud, asymmetrical information / lack of transparency, AML/CFT risks, cross-border nature. - Cybersecurity: Communication A 7266 established a guideline for proper response and recovery from cyber-incidents (following FSB information); guideline contemplates governance, planification and preparation, analysis, mitigation, restoration and recovery, coordination and communication, and continuous improvement. - Entrepreneur Capital Act (N° 27.349) (2017) focuses on equity crowdfunding and falls under CNV. Productive Financing Act (N° 27.440) allows CNV to regulate other collective financing schemes like crowdlending. ### Regulatory framework and institutional arrangements - Central Bank mandate: Act N° 24.144 and financial institutions law Act N° 21.526. Principle determining Central Bank scope is financial intermediation. Financial institutions law article 3° allows extension of Central Bank regulatory authority (taking into consideration the volume of operations and credit and monetary policies, in conjunction with article 4 G) to cover financial activities. - Financial Innovation Unit created within the BCRA; recently incorporated a Financial Inclusion section and a Financial Literacy division placed under the Financial Inclusion Unit. ### Measures of success / Quantitative targets - BCRA is working on the project of 'faster payments' or payments with electronic money transfer aiming for interoperability between bank accounts and PSP accounts so each electronic wallet could make a QR payment generated by the other party. ### State of Financial Inclusion — access points - As of December 2020, there were 44,456 access points in the financial system. - In 2020, total number of access points rose by 45% (previous growth rates ranged from 5% to 9% year-on-year since 2017). ACSFs emerged by end-2018 and reached a peak in 2020 with more than 12,000 points. - At provincial level, 48% of access points concentrated in Buenos Aires City and the province of Buenos Aires. - As of December 2020, Argentina had 12.9 access points per 10,000 adults; Buenos Aires City: 27.2. - 48.3% of municipalities had at least one access point as of December 2020 (up from 41.2% in December 2019). - 92.1% of the adult population was living in a municipality with at least one access point as of December 2020. ### State of Financial Inclusion — internet and accounts - As of December 2020, in 20% of municipalities—in which 3% of the population lives—no internet connection was reported (fixed or mobile). All municipalities of 100,000 or more inhabitants had both connections; municipalities of less than 2,000 people: only 40% had both types. - Penetration rate of bank accounts: 91% of the adult population as of December 2020 (more than 31 million people). Record opening of more than 5 million bank accounts in Q2 2020 explains a 9 percentage-point rise between March and June 2020. - By end-2020: 90% of adults had at least one deposit account; current account holding stood at 21%. - Non-bank account ownership rose from 3% of adults in March 2019 to 24% in December 2020 (more than 8 million people). - Barely 2% of adults (~800,000 people) had non-bank accounts only at end-2020; 60% of these were between 15 and 24 years old. ### State of Financial Inclusion — demographics and geography - Gender: end-2020 no gender gap in holding bank accounts; male proportion exceeds female by 3 p.p. in non-bank accounts and current accounts. - Age: non-bank account ownership for 15-29 age group: 32% in December 2020; over-65: 4%. - Geography: as of December 2020, five regions had >85% of adults with at least one bank account. There was a 7 percentage-point gap between NEA (highest) and Cuyo (lowest). Non-bank accounts show regional disparity (Center: 26.6% vs. NOA: 16.9% at end-2020). ### Transactions through Electronic Means of Payment (MPE) and cash withdrawals - Number of transactions per adult rose to two-digit annual rates in 2018 and 2019: prepaid cards 75%, electronic transfers 33%, debit cards 18%. - In 2020, volume of electronic transfers per adult rose 90%; remote payments with debit cards grew 227% in 2020, increasing their share in total payments with that instrument by 15 p.p. - In 2020, for every 100 cash withdrawals per adult there were 222 transactions through MPEs (up 19% vs 2019): breakdown: 110 debit card transactions, 77 credit card, 7 prepaid cards, 28 electronic transfers. - E-commerce in 2020: billing grew by 124%, purchase orders by 84%, number of purchasers increased by 1 million vs 2019. ### Credit — coverage and composition - As of October 2020, 47.2% of adults had at least one credit product in the broad financial system. - Private banks: 27.5% of adults had at least one credit product; public banks: 11.3%. - Non-bank credit card issuers (ETCNB) reached 15% of adults; other non financial credit providers (OPNFC) 7.3%. - Public banks’ stock per debtor: average balances of 10 times the minimum wage (SMVM); private banks: 5.8 times the SMVM. - Bank credit cards used by 37.3% of adults; personal loans 21.3%; mortgage loans 0.6%. - Region: Patagonia and Center Region: 50% and 49% of population with at least one credit product; Cuyo 43%, Northwestern 42%, Northeastern 40%. - Gender (Oct 2020): 44.4% of women and 49.9% of men had at least one credit product — a 5.5 p.p. gender gap. Within financial institutions subset the gap is 3.8 p.p.; within PNFCs: 0.1 p.p. for ETCNBs and 0.7 p.p. for OPNFCs. - Age: 15-34 age group: 27% with at least one credit product; 65+ : 59%; 35-64: 62%. ### Challenges to financial inclusion in Argentina - Cash usage: high number of bank account holdings contrasted with limited use of electronic payments and channels. - Connectivity: divergences across regions and demographic groups in computer and internet access (examples: Buenos Aires City computer access 79.7% and internet 91.8% vs NEA 56.9% and 79.7%). - Physical infrastructure: vast territory and dispersed population; as of December 2020, 71% of municipalities with less than 2,000 adults had no access point; 15% had only one type of access point. Municipalities with 100,000+ inhabitants: 100% had 4 or more types of access points. - Credit and saving: raising percentage of people that save and borrow from the financial system. - Consumer protection and financial literacy: (i) provide users tools and information to make informed decisions and avoid cyber-frauds and scams; (ii) expand digital financial literacy nationwide, especially among the most vulnerable. ### State of Fintech - In 2016-2019, BCRA implemented the “Financial Innovation Roundtable” and a “Financial Innovation Hackathon.” - Local fintech ecosystem: 272 enterprises offering mainly payment and credit services; BCRA reports 40% of fintech firms active in payments. - In 2018 fintech ecosystem had 133 companies; by 2020 main sector was digital payments (loan sector shifted to second place). - Q4 2020: CVU accounts reached 10.7 million people, a 300% increase vs Q4 2019. - Fintech credit grew about 80% from 2019 to 2020, mainly concentrated in one firm. Two types of fintech credit companies: balance sheet lenders and crowdlending platforms. - Fintech consumer loans: initially small-sized and short-term, increasingly larger amounts and longer terms; effective annual rates for consumer loans tend to be higher than credit card financing or personal loans in banking sector. - BCRA publishes a biannual report on PNFC performance (outstanding debt, delinquency rate, interest rates, number of loans); initial assessment indicates delinquency rates are higher in fintech companies than in the banking system. - Most fintech credit companies fall under BCRA regulatory perimeter due to last year's regulation, improving consumer protection and market functioning. ### Interactions between Financial Inclusion and Fintech Strategies - Financial innovation regulation changed banks’ onboarding processes and broadened means of payments; new players increased competition and enabled banks to enlarge service portfolios. - In lending, banks and fintech have different funding costs and client profiles. Banks can grant credit lines to NFCPs which can lend and deepen inclusion; need to enhance consumer protection for NFCP users to avoid over-indebtedness. ### Results — BCRA pandemic response and credit programs - BCRA designed low-cost financing tools for MSMEs; 2018 data: 53% of micro companies were granted financing vs 96% of big companies. - Credit to independent workers: zero-interest credit lines up to AR$150,000 deposited into workers' credit cards; financial institutions must grant financing in pesos at zero interest to beneficiaries published by AFIP; financial institutions may deduct part from reserve requirements. As of October 2020, more than 570,000 interest-free loans allocated and total amount reached more than AR$67 million. - Credit to MSMEs: - Special lines at maximum annual nominal interest rate of 24%: total amount allocated March–October 2020: AR$544 million; until August 2020 reached 105,536 companies. - MSMEs Plus line for firms not in Credit Registry but with access to public guarantee fund: until October 2020, 5,927 companies used financing, total AR$2,905,057 thousand. - Financing Line for Productive Investment of MSMEs: banks pushed to grant loans equal to 7.5% of their deposits. Two credit lines: (i) capital goods and facilities at 30% interest rate; (ii) working capital at 35% interest rate. As of December 2020, 53,737 companies received financing under productive investment line: total AR$141,129,350 thousand for objective (i) and AR$25,761,113 thousand for objective (ii). - BCRA measures in March 2021 on reserve requirement incentives to foster inclusion and electronic payments: too early to assess impact. ### Ways Forward - Digitalization increased use of financial services but poses problems: i. unequal access to digital infrastructure (devices and internet) that may amplify exclusion if digital data is used to access other products; ii. uneven digital skills and financial knowledge; iii. cybercrime: digital fraud and scams negatively impacting use of digital financial services. *Source: wpiea2021221-print-pdf - 4. Regulation to enhance financial consumer protection.* ### 257.6 thousand in 2017). Meanwhile, the use of remote channels (transactions via smartphones and other mobile devices) ### wpiea2021221-print-pdf ### Brazil — Financial inclusion - Remote channel transactions (via smartphones and other mobile devices) rose by 19% over the referenced period and account for about 35% of total financial transactions. - 86.5% of Brazilian adults hold some type of financial account. - 45% of adults use credit operations. - Credit penetration varies by income: - 11% of low-wage earners (up to one minimum wage) used credit operations in 2017 (2018 Financial Citizenship Report). - 8.6% of micro-entrepreneurs used credit operations in 2017 (2018 Financial Citizenship Report). - Principal obstacles to financial inclusion and fintech development: - Income inequality. - Regional disparities. - Uneven transition from physical to digital financial infrastructure. - Lack of widespread internet access. ### Brazil — State of Fintech - Brazil is one of the largest fintech ecosystems in Latin America (along with Mexico, Colombia and Argentina). - Drivers: traditional banking system with limited consumer-oriented culture and high borrowing costs; high smartphone penetration; widespread internet access; relatively young population. - Market structure and firms (as of 2018): - Hundreds of fintech startups emerged in the last decade, mainly in São Paulo. - 70% of fintech startups claimed to be operating only in Brazil; 30% confirmed cross-border operations. - 58% of startups had between 1 and 10 employees. - Main technologies used: Big Data and Analytics, APIs and open platforms, and mobile applications. - Key impediments to fintech development (listed in 2018): - Lack of a regulatory framework or inadequacy thereof. - Competition with large banks that control the financial market. - Consumers’ concerns about fraud and data mishandling (cybercrimes). ### Brazil — COVID-19 regulatory responses and institutional developments - CMN Resolution no. 4792 (adopted in 2020) expanded on CMN Resolution 4656 to allow direct credit companies (SCDs) to: - Issue post-paid payment instruments (credit cards). - Obtain financial resources to provide credit via on-lending and lending operations from the Brazilian Development Bank (BNDES). - Sell or assign credits to investment funds in general, not only to the receivable instrument fund (FIDC). - The resolution also: - Allowed investment funds in general (not only FIDCs) to act as creditors in operations intermediated by peer-to-peer loan companies (SEPs). - Permitted investment funds to perform corporate control of SCDs and SEPs, only indirectly, through a legal person headquartered in Brazil. - Definitions from the regulatory context: - SCD: financial institution responsible for loan, financing, and acquisition of credit rights; operates with its own capital. - SEP: financial institution responsible for financial intermediation operations (peer-to-peer loan and financing operations) in which funds collected from creditors are directed to debtors via an electronic platform. - Open Banking Initiative (OBI) facilitates sharing of data and services among financial institutions, payment institutions and other institutions licensed by the BCB through opening and integration of systems. ### Brazil — Interactions between financial inclusion and fintech strategies - Findex survey findings: - 58% of Brazilians without a financial account cite high fees or lack of financial resources as the main impediment. - 60% of Brazilians indicated having access to both cell phone services and the internet. - 70% of Brazilians have mobile bank accounts. - Global average connectivity cited as 25% (for comparison). - BCB (Central Bank of Brazil) strategic approach: - Financial inclusion objectives (Agenda BC#) are pursued through fostering technological innovation. - Financial inclusion and fintech strategies are closely linked; financial technology seen as key to sustainable access to financial services. ### Brazil — Results - Regulatory changes led to an increase in the number of institutions providing payment services and intensified competition. - Key results of stronger competition: - Improved quality of services, especially user experience. - Reduction in charges and fees. - Greater access to products and services. - Increase in payment accounts provided by electronic money issuers, facilitating broader access to digital services. - In line with CMN Resolution 4656, new credit companies can operate independently and with legal certainty without needing to act as banking correspondents: - These companies bring new technologies in onboarding and credit risk assessment. - Rise in number of SCDs and SEPs authorized by the BCB. - Benefits to SMEs both directly (easier access to credit via fintech specialization in SME credit) and indirectly (competition encouraging other institutions to provide SME credit). ### Brazil — Ways forward and regulatory safeguards - Risks associated with greater financial inclusion via fintech are similar to those for incumbent institutions when fintech firms fall within BCB regulatory scope. - Cybersecurity risk is increasingly emphasized; affects all financial and payment institutions. - CMN and BCB regulation requires institutions licensed by the BCB to implement and maintain a cybersecurity policy oriented to confidentiality, integrity, and availability of data. - BCB regulatory sandbox: - First cycle to begin in the second half of 2021. - Duration period of one year, extendable for the same period. - Limited to 10 to 15 participants. - Main goal: foster innovation and improve competition in the financial system. - Strategic priorities for prioritization include “fostering credit provision to micro and small entrepreneurs” and “financial and payment solutions with potential effects on fostering financial inclusion”. --- ### Chile — Financial inclusion strategy and measures - No national financial inclusion strategy in place (as stated). - Institutional steps: - Financial Inclusion Unit created by the Ministry of Planning in 2011. - Financial Inclusion Advisory Committee created in 2014. - National Financial Education Strategy published in October 2016. - Major implemented measure: - Banco Estado program providing basic payment accounts requiring only a valid government ID and a dense network of bank correspondents. - Use of non-card-based electronic funds transfers has been growing; in 2008 banks were mandated to make instant interbank electronic funds transfers available. - Public credit guarantee schemes for SMEs: FOGAPE and FOGAIN. ### Chile — Measures of success and quantitative metrics - Banco Estado program outcomes: - More than 12 million active accounts. - By September 2020 almost 70% of the debit cards in Chile were issued by Banco Estado. - Assets of Banco Estado comprise only about 15% of the total banking system. - Findex data (2017): - 74% of adults in Chile hold at least one payment account. - Latin American comparator: 54% (for context). - Access to credit products: - Approximately 47% of adults hold at least one credit product, mainly credit cards. ### Chile — State of fintech and regulatory developments - No national fintech strategy currently in place (as stated). - Fintech activity areas: electronic transfers, digital payments, credit issuance, crowdfunding / alternative trading platforms, robo-advisory, virtual asset custodial services. - Ministry of Finance proposed a bill to regulate different fintech activities to: - Promote competition in payment markets and encourage innovation. - Address risks in currently unregulated areas (AML/CFT, cybersecurity, regulatory arbitrage, prudential risks). - Provide legal assurances to fintechs via proportionate modifications to sectoral regulations (without changing contractual law, civil code, or insolvency laws). - Specific regulatory aims in the bill: - Regulate crowdfunding platforms and related services; cover robo-advisory, credit scoring, alternative trading platforms. - Introduce a framework for Open Banking in Chile. - Central Bank actions: - Internal reorganizations to understand and enable new participants. - Updated regulations for operation and administration of low value payment systems and low value payment service providers to promote interoperability, develop new business models, and ensure safety of payments. ### Chile — State of financial inclusion, fintech outcomes, and COVID-19 effects - Fintech ecosystem growth: - IDB-Finnovista Fintech Radar indicates consistent growth; “payments and remittances” is the most important segment followed by “lending.” - Ecosystem grew by 49% from 2018 to the second semester of 2019 (Finnovista statistic). - 2017 regulatory change allowed nonbank entities to function as sub-acquirers, incentivizing fintech entrants in sub-acquiring space and contributing to increased use of electronic payments. - Introduction of prepaid cards law and related 2016 payment regulation changes expanded ability of nonbank entities to issue payment accounts. - Invoice-backed finance and crowdfunding: - High volumes of invoice-backed finance transactions performed through crowdfunding platforms. - Invoice transfer system by the tax authority reduced administrative costs and supported invoice-backed finance. - COVID-19 impacts: - Mobility restrictions increased online transactions, especially electronic fund transfers. - Greater need for digital payments among businesses fueled sub-acquirers and payment initiation services. - Government cash transfers often processed through traditional financial institutions rather than fintechs; potential reasons include relatively low development of digital wallet fintechs at pandemic onset, dominance of Banco Estado, and lack of direct access to certain financial infrastructure. ### Chile — Results and observations - Entry of fintech sub-acquirers and electronic money issuers is partially attributable to regulatory changes, though granular transaction volume data by provider type is not available. - Fintech-issued basic digital payment accounts have emerged, but their volume remains very low compared to Banco Estado-issued payment accounts. - Crowdfunding platforms appear to handle significant invoice-backed finance volumes, supported by the tax authority’s invoice transfer system, though platforms are largely unregulated. ### Chile — Ways forward and impediments - Upcoming Fintech bill will likely frame near-term regulatory discussions. - Central Bank identifies digital payments as a priority focus area. - Impediments to fintech development cited by market participants: - Difficulties accessing capital and attracting local or international talent. - Relatively small size of the local economy affecting scaling and incentivizing moves abroad. - Lack of a clear regulatory framework; regulatory developments could improve platform security and attract users and investors. - Highly concentrated payment card market historically created entry barriers for new payment service providers and hampered innovation; transition from three-party to four-party model is underway but challenging. - Challenges and regulatory responses: - Government issued a bill to regulate interchange fees to ease transition to a four-party model. - Central Bank plans to increase security of instant interbank electronic fund transfers by regulating underlying compensation and liquidation processes, using proportionality principles to promote interoperability and entry of new platforms. - Expected future regulatory measures: - Enactment of a fintech law regulating crowdfunding and Open Banking. - Transition to a four-party model in payment cards. - New Central Bank regulation for low-value payment clearing infrastructure to promote interoperability and facilitate entry of new platforms. *Source: wpiea2021221-print-pdf* ### 1. Expanding and increasing the relevance of financial products and services. ### 1. Expanding and increasing the relevance of financial products and services. ### Policy scope and implementation - Four strategic pillars: - Expanding and increasing the relevance of financial products and services. - Creating stronger financial capacities and knowledge, as well as confidence in the financial system. - Strengthening financial and digital infrastructures for greater access and use of formal financial services. - Developing an institutional governance that allows for greater coordination in the implementation of financial education and inclusion strategies. - Implementation horizon and budget: - The policy will be implemented over a 5-year horizon, with an approximate investment of US$3.7 million, by the Ministries of Finance, Education, Agriculture and Rural Development, Commerce, Industry and Tourism, among others. ### Implemented measures — 1. Access to credit - National Guarantee Fund (Fondo Nacional de Garantías): - Mixed capital institution founded in 1982 to improve access to credit of small and medium-sized firms. - Uses a model of credit guarantees to provide third-party credit risk mitigation through the absorption of a lender’s partial losses on loans made to defaulting businesses, in return for a fee. - Supports loans intended to finance working capital, housing, education, among others. - Bancoldex: - Government-owned development bank created to stimulate business growth. - Lends to financial intermediaries (not directly to businesses) which in turn grant loans to final beneficiaries. - Provides non-financial services, including training and advising. - FINAGRO (Fondo para la Financiación del Sector Agropecuario): - Public mixed-capital credit institution under a special regime of the Ministry of Agriculture and Rural Development. - Promotes the rural sector by providing financing tools to stimulate investment; channels resources through financial intermediaries to agricultural producers. - Banco Agrario de Colombia: - Public financial institution founded in 1999 to provide banking services to the rural sector and finance agricultural, livestock, forestry and agro-industrial activities. - Aims to advance access to credit in remote areas where private institutions may not operate; part of the Ministry of Agriculture and Rural Development. ### Implemented measures — 2. Financial infrastructure - Banking agents: - Model created in 2006 allowing retailers, supermarkets, drug stores, and others to provide financial services on behalf of financial institutions (bill payments, deposits, withdrawals, transfers). - Lower set-up and operating costs expand financial coverage in municipalities with limited commercial bank branches. - Digital and mobile agency: - 2020 regulation initiative allows the agent model to be conducted digitally or through mobile means, in addition to physical locations. - Non-financial third parties can provide financial services through mobile apps or digital platforms in remote or rural areas, aiding trust in the digital payments ecosystem. ### Implemented measures — 3. Payment ecosystem - Modernization of the low-value payments system: - Objective: reduce cash use, promote financial products, and generate transactional information to expand access to more sophisticated financial services. - 2020 regulatory framework goal: increase the share of adults who make electronic payments or purchases online from 20 to 50 percent by 2025. - Simplified and digital deposit products (created between 2007 and 2011): - Types: electronic deposits, simplified savings accounts, electronic savings accounts. - Characteristics: - On-demand deposit accounts with simplified opening procedures if pre-established limits on transactions, balances and number of accounts per user are met. - Simplified procedure requires basic information: user’s full name, valid ID number, phone number, and date of birth. - Exempt from taxation on financial transactions if total monthly withdrawals are less than 65 Tax Value Units (UVT), roughly three times the minimum wage. - Purpose: facilitate creation of a financial history from transactions to enable transition to more comprehensive financial services. - TransfiYa: - Transactions platform operated by ACH-Colombia, an automated clearing house owned by private banks. - Users can send, receive, or request money using only their mobile number. - Interoperable ecosystem currently free of charge and working across twelve financial institutions; this number is expected to grow over the next year. - Note on commercial registration and account access: - Using Registro Único Empresarial y Social data, Valderrama et al. (2021) estimate that 71.2 percent of total registrations correspond to natural persons and 28.7 percent to legal persons, suggesting simplified and digital accounts may facilitate niche P2B ecosystems. ### Implemented measures — 4. Financial inclusion governance - Banca de las Oportunidades: - National Government program to promote access to credit and other financial services among low-income households, micro, small and medium-sized businesses, and entrepreneurs. - Produces official financial inclusion data and conducts research on financial infrastructure, inclusive insurance, determinants of access to credit, among others. - Created by Decree 3078 of 2006, incorporated into Decree 2555 of 2010, currently under the administration of Bancóldex. - National institutional framework: - Decree 2338 of 2015 created the Intersectoral Committee for Financial Inclusion for policy orientation and coordination. - Decree 457 of 2014 created the National Administrative System for Economic and Financial Education and the Intersectoral Committee for Economic and Financial Education to design guidelines for quality economic and financial education. - CONPES 4005 will unify the Intersectoral Committee for Financial Inclusion and Intersectoral Committee for Economic and Financial Education into a single body. ### Regulatory framework — 1. Main regulatory framework - Decree 2555 (Ministry of Finance, 2010): - Defines the main regulatory framework for Colombian financial, insurance and securities markets. - Integrates previous regulations by repealing or reinstating over 160 decrees and resolutions existing before 2010. ### Regulatory framework — 2. Financial inclusion-specific regulations - Agency model framework: - Adopted in 2006 with Decree 2233; allows contracts between financial institutions and non-financial third parties (supermarkets, drugstores) to provide financial services. - Regulation of banking agents was incorporated into Decree 2555; services expanded over time (e.g., Decree 1121 of 2009 authorized opening savings accounts; Decree 1491 of 2015 allowed opening electronic deposit accounts through simplified procedures). - Simplified and digital deposit products: - Simplified savings accounts established in 2009 by Superfinanciera’s External Circular Letter 053 (additional specifications in External Circular Letter of 2013). - Electronic savings accounts created in 2007 with Law 1151; Article 70 regulated through Decree 4590 in 2008. - Electronic deposits created in 2011 with Decree 4687; core product for companies specialized in electronic payments. - Infrastructure for movable asset-based lending: Secured Transactions Law (Law 1676, 2013): - Aimed at increasing access to finance of medium and small-sized enterprises by making movable property (inventory, machinery, accounts receivable) usable as collateral. - Expanded types of assets subject to security interests; created a centralized collateral registry operated by Confecámaras; introduced new enforcement mechanisms (Direct payment; Special enforcement). - Companies specialized in electronic payments (SEDPEs): - Created by Law 1735 of 2014; Decree 1491 of 2015 provided further specifications. - Provide transactional services (payments, transfers, collections) through electronic deposits; not authorized to grant loans. - Must comply with anti–money laundering and terrorism financing regulations but are expressly exempted from some traditional KYC procedures (verifying clients’ economic activity, income and expenses). - Digital agency model: - Decree 222 of 2020 allows banking agent model to be conducted digitally or through mobile means; unifies regulation and definition of electronic deposits, simplified savings accounts, and electronic savings accounts. - Modernizes rules governing low-value consumer loans (créditos de consumo de bajo monto, CCBM). - CCBM characteristics: - Extended to individuals who have not previously held any credit product in the financial system; - Maximum loan amount is four times the monthly minimum wage (regardless of income). The Financial Superintendence of Colombia may increase this amount to up to eight minimum wages; - CCBMs may be a revolving line of credit and cannot be provided through credit card systems; - CCBMs’ loan loss provision regime is that of consumer loans, but with an independent interest rate certification process; - Financial institutions that offer CCBMs may establish origination processes that differ from traditional methodologies. - Promotion of factoring: - Decree 358 of 2020 creates a centralized registry for electronic billing purposes to consolidate the factoring market. - Low-value payments system reforms (Decree 1692, December of 2020; modifies Decree 2555 of 2010): - Key innovations: - Allowing participation of new players in merchant-acquiring activity; - Stronger corporate governance requirements for entities administering payment systems; - Greater transparency in access rules for potential new participants; - Segmentation and definition of different activities in the payments ecosystem; - Definition of the purpose and irrevocability of the payment. - Information and monitoring: - External Circular Letter 025 of 2007 made mandatory municipal-level reporting on banking agents, loan disbursements and deposit products. - Further specifications introduced in External Circular Letter 039 of 2008 and 007 of 2013. *Prepared by Freddy Castro, Director, and Michael Bryan, Senior Professional, Banca de las Oportunidades.* ### 3. Consumer protection and financial literacy ### 3. Consumer protection and financial literacy ### Institutional framework and consumer rights - Law 1328 of 2009 created a financial consumer protection regime: - Financial literacy was incorporated as a consumer right. - Financial entities have an obligation to offer educational tools and programs to their clients. - Law 1748 of 2014 made mandatory the provision of timely and clear information to consumers on financial products and services. ### Measures of success / Quantitative targets (National Development Plan 2018-2022) - The 2018-2022 PND includes three goals related to financial inclusion: - 85% of Colombian adults can access a deposit or credit product (in September 2020 the indicator reached 87.1%); - 68% of Colombians living in rural areas can access the financial system (in September 2020 the indicator reached 63%); - 77% of all adults in the country have active products in the financial system (in September 2020 the indicator reached 73%). - Data sources: - Financial obligations registry of TransUnion (one of the two credit bureaus operating in Colombia) is used for the indicators reported in this section. - The National Government also collects survey-based perception data; the indicators above are constructed using TransUnion registry data. ### Fintech strategy: objectives and status - The development of the fintech ecosystem is part of the 2020 Financial Literacy and Inclusion Policy and the regulatory agenda of the Financial Regulation Unit (URF) of the Ministry of Finance. - Colombia currently has no separate fintech strategy. - The Intersectoral Committee for Financial Inclusion oversees implementation of the 2016 National Financial Inclusion Strategy and maintains public-private discussion through a Fintech Subcommittee on topics including digital identity, crowdfunding, digital payments, and regtech. - Colombia’s fintech legislative approach is incremental: define operations, participants, and regulatory standards while retaining flexibility to adapt to market developments. ### Implemented regulatory measures and initiatives - General approach: - Promote technological channels, products, and services to reach the financially excluded while ensuring consumer protection, financial stability, and integrity. - Build standards and principles to encourage competition and innovation. - SEDPEs as fintech innovations: - Creation of SEDPEs to foster digital payments, electronic transactions, and complementary financial information records to facilitate access for underserved groups. - SEDPEs provide digital services under a technologically-driven operation scheme and integrate into the fintech ecosystem. - Investment crowdfunding: - Analysis of regulatory requirements began in 2017. - Decree 1357 of 2018 regulates collaborative financing under simplified standards. - Equity investment by financial institutions in fintech: - Decree 2443 of 2018 authorized credit institutions, financial services companies, and asset managers to make equity investments in innovation companies and financial technology. - Regulatory Sandbox: - The Financial Superintendence’s innovaSFC strategy launched a regulatory sandbox to test products and services (examples include data analytics, artificial intelligence, and payment systems). - Low-value payments system: - URF published a technical document and conducted workshops in 2019 to promote digital payments. - Decree 1692 of 2020 facilitates fintech participation in the low-value payments value chain (e.g., merchant-acquiring activities). - Open banking and account portability: - URF seeks to adopt a voluntary open banking scheme with a public-private discussion agenda in 2021 to generate inputs for a secure information-sharing regulatory framework. - URF will conduct analysis of portability models worldwide and assess benefits, risks, and regulatory/supervisory challenges. - Fintech innovation in the securities market: - Decree No. 661 of 2018 encouraged use of new technology-based tools within the securities market. ### State of financial inclusion — Global Findex findings for Colombia - Data note: Global Findex data are collected with Gallup, Inc. through nationally representative surveys; in Colombia the survey covers roughly 1.000 individuals. - Key indicators and comparisons: - 45.8% of respondents report having an account at a bank or another type of financial institution or report personally using a mobile money service in the past 12 months. - This indicator grew by 6.8 percentage points between 2014 and 2017. - This indicator is 8.6 percentage points below the Latin American average. - Account ownership by individual characteristics (percentage of age 15+): - Women: Colombia 42.5; Latin America and the Caribbean 51.3; Upper middle income countries 69.3 - Adults belonging to the poorest 40%: Colombia 35; Latin America and the Caribbean 41.9; Upper middle income countries 62.4 - Adults out of the labor force: Colombia 30.8; Latin America and the Caribbean 43.3; Upper middle income countries 61.6 - Adults living in rural areas: Colombia 41.2; Latin America and the Caribbean 52.6; Upper middle income countries 72.9 - Percentage reporting saving or setting aside any money in the past 12 months using any mode of saving: 8.7%—a decrease of 3.6 percentage points compared to 2014. *Content based on "3. Consumer protection and financial literacy" from wpiea2021221-print-pdf* ### 3.5 and 18.2 percentage points below the regional and upper middle-income countries average. ### wpiea2021221-print-pdf - 3.5 and 18.2 percentage points below the regional and upper middle-income countries average. ### Financial inclusion overview - The percentage of respondents who report borrowing any money (by themselves or jointly with someone else) for any reason and from any source in the past 12 months is 21.2%, a 0.5 percentage points decrease over three years. - This borrowing indicator is 0.4 percentage points above the Latin American average, but 1.2 below the upper middle-income countries average. - By September 2020, 87.1% of adults, 31.6 million, had access to the formal financial system (at least one deposit product or credit). ### Financial infrastructure and coverage - ATMs per 100,000 adults: - Colombia: 42.35 - Chile: 49.69 - Mexico: 58.82 - Peru: 112.65 - Commercial bank branches per 100,000 people: - Colombia: 14.86 - Mexico: 14.49 - Chile: 13.9 - Peru: 7.23 - Since 2015, there is at least one physical banking agent in 100% of the municipalities, including rural ones. ### Geographical, gender, and demographic distribution - Access to at least one deposit product (as of September 2020): 85% of adults. - Access to credit products (as of September 2020): 35.2% of adults. - Age-group access to deposits or credit: - Ages 41–65: 94.5% of adults - Ages 26–40: 85% of adults - Ages 18–25: 78.7% of adults - Adults over 65: 80.7% of adults - Gender gap in access to financial products (September 2020): - Adult men with access to at least one financial product: 88.8% - Adult women with access to at least one financial product: 83% - Gap: 5.8 percentage points, increased by 0.5 percentage points relative to 2019. - Urban/rural access to accounts or loans: - Urban areas: 95.5% of adults - Dispersed rural municipalities: 57.8% of adults ### State of Fintech and digital deposit products - Number of fintech companies in Colombia (2020 Latin American Fintech Report): 200 (26% growth over the last year). - Fintech activity breakdown: - Lending: 48 companies (almost 25% of the market) - Payments and remittance services: 43 companies (22% of the market) - Business technologies to financial institutions: 28 firms (14% of the ecosystem) - Enterprise finance management services: 25 firms (13% of the ecosystem) - Other activities: scoring, identity and fraud, personal financial management, crowdfunding, insurance, trading, wealth management and digital banking. - Digital and simplified deposit product statistics (end-2019 vs 2018): - Electronic deposits: 6.7 million (a 36.9% increase vs 2018); 38.3% of accounts active; about 60% of deposits owned by women. - Simplified savings accounts: about 4.2 million (an 83.3% increase vs 2018); offered by seven financial institutions; about 60% active; 65% held by women. - Electronic savings accounts: approximately 4.2 million; 52.3% active; 84.5% held by women vs 15.5% by men. ### Financial inclusion during the COVID-19 pandemic and 'Ingreso Solidario' - Colombia ranked first in the enabling environment for financial inclusion in 2020 in the Global Microscope, for the third time in a row; other top Latin American countries: Peru (2nd), Uruguay (3rd), Argentina (4th). - The Economist Intelligence Unit (EIU) found Colombia’s financial authorities’ response to COVID-19 more effective than that of the other 54 countries in the analysis. - 'Ingreso Solidario' (IS) design and reach: - Monthly transfer: roughly $45 per month to poor households not part of prior programs. - By July 2020, IS had benefited 1.2 million previously unbanked households. - IS innovations: digital deployment through digital accounts and mobile wallets; use of simplified savings accounts and electronic deposits; remote customer enrollment and data-sharing protocols enabled by Decree 518 of 2020. - Implementation stages and outreach: - April 2020: 1.4 million households with an active deposit account in one of 22 financial institutions received their first transfer. - April–May 2020: coordinated strategy to enroll unbanked individuals through digital accounts. - May–June 2020: remaining households assigned a single financial institution by municipality; disbursements via authorized branches or agents. - Impacts on financial inclusion from IS: - More than 650 thousand beneficiaries reactivated or opened a financial product. - More than 759 thousand beneficiaries opened or reactivated a deposit product. ### Policy frameworks, institutions, and initiatives - National goals and plans: - National Development Plan goal: reach an access indicator of 85%—with 77% of adults effectively using their products—by 2022. - 2020 National Financial Literacy and Inclusion Policy: strengthen institutional governance and improve coordination; create a permanent high-level Intersectoral Committee. - Regulatory and institutional initiatives: - InnovaSFC (Superfinanciera) core components: - Regulatory sandbox (la Arenera) to test new products and services in a controlled environment. - elHub: Superfinanciera’s point of contact with fintech stakeholders to aid navigation of regulatory and supervisory frameworks. - Regtech initiative to leverage technology within Superfinanciera, optimizing internal processes and reducing operational burdens for the industry. - Financial literacy efforts: programs such as Banca de las Oportunidades developing digital financial education and projects for vulnerable groups. ### Results and milestones - Progress since 2008: access indicator rose from 55.5% to 87.1% by September 2020, implying more than 13 million Colombians recently entered the financial system. - Innovation milestones: growth of simplified and digital deposit products; operational launch of several companies specialized in electronic payments (SEDPEs); a2censo—the first investment crowdfunding platform from Colombia’s Stock Exchange; participation in regulatory sandbox pilots at the InnovaSFC Hub. ### Ways forward (policy recommendations and priority actions) - Close access gaps for rural population, young people and women; improve the use of transactional products across all demographics. - Continue development of payment systems and apply technological innovations at larger scale. - Remove connectivity barriers in remote areas and promote use of digital financial tools. - Continue exploring behavioral traits behind demand for financial services. - Specific priorities listed: - Expand internet connectivity: - 2019 internet subscriptions per 100 people: 13.8 landline internet subscriptions and 58.7 mobile Internet subscriptions (International Telecommunications Union); both below the OECD average. - 2019 household internet access: 61.6% of households in municipal seats vs 20.7% among households in rural settlements. - 2019 internet access by income: 88.9% of high-income households vs 20.9% of low-income households had landline or mobile internet. - Consolidate an inclusive regulatory framework: adopt progressive and proportional regulation recognizing fintech risks to stability, fraud, money laundering and consumer protection. - Spur financial literacy initiatives: strengthen consumer sophistication to make effective use of innovative products and increase awareness of fraud in a digital environment. ### Connectivity and digital adoption actions taken - Law 1978 of 2019: modernize institutional framework; create Communications Regulation Commission (CRC) as sole independent regulator; create Fund for Information and Communication Technologies. - 2019 spectrum auction in 700, 1,900 and 2,500 MHz bands: expected to give around a million Colombians mobile internet access for the first time over the next five years; upgrade mobile networks in municipalities with less than 100,000 inhabitants from 2G and 3G to 4G over four years. - 2019 National Government Rural Connectivity Plan: deploy Internet access infrastructure in municipal seats and public connectivity solutions in rural settlements of more than 100 inhabitants affected by armed conflict, poverty, illicit economies or institutional frailty. - By mid-2020: 1,000 digital zones with free internet access installed in rural areas of 381 municipalities, benefiting 577,718 inhabitants; 757 digital zones installed in 705 urban areas. - Digital adoption study (Centro Nacional de Consultoría, 2020): - People not actively engaging with the internet fell from 42% to 20% between 2016 and 2020. - Internet use purposes in 2020: 47% for entertainment, chats and emails alone (was 32% in 2016); 27% use internet to educate themselves and interact on social platforms (five percentage points increase vs 2016); 6% at an advanced level and make transactions online (three percentage points increase over four years). *Source: wpiea2021221-print-pdf - 3.5 and 18.2 percentage points below the regional and upper middle-income countries average.* ### 54.4 percent on average in Latin America and the Caribbean ### 54.4 percent on average in Latin America and the Caribbean ### State of fintech (Dominican Republic) - Fintech industry traceable to 2007 with approval of the Payment Systems Regulation and implementation of the RTGS system by the Central Bank; catalyzed private initiatives such as tPago. - The regulatory framework specific to fintech is concentrated in payments activities and cyber risks regulations, informed by one-on-one meetings with industry participants. - In 2019, the Dominican Association of Fintech Companies (ADOFINTECH) was created to encourage technology applied to financial services and currently consists of 35 members: - 7 operate in digital payments - 4 in insurance - 10 in financing - 9 in financial management - 2 fintech accelerators - 2 technology providers to financial institutions - 1 operates in FX trading - As of end-2019, 55 companies were identified as fintech operators in the Dominican Republic; fewer than half were members of ADOFINTECH. 22 of these companies were surveyed for regulatory guidance. - Recommendations from the survey included enhanced customer education/engagement, creating a forum for information exchange, cross-border cooperation with fintech regulators, evaluating fiscal implications, and unifying norms for digital banking. - Key obstacles identified by ADOFINTECH: - The relatively small size of the Dominican market. - Dominican Financial Intermediation legislation regulates small-scale intermediation, imposing regulatory cost on intermediation-focused fintech firms. - Current regulatory norms calling for “same-operation-same-regulation”. - Lack of agreement on enforcement of contracts in unregulated credit markets, subject to general consumer protection rules. - Examples of fintech-enabled innovations: mobile app for online banking, enhanced ATM functions, use of RTGS for quick payments. - tPago: a mobile payments platform managed by GCS Systems integrating multiple financial, telecom, and service entities; currently has more than 1 million users; uses USSD channel; transactions performed in real time with daily clearing settled in Central Bank RTGS. ### Interactions between financial inclusion and fintech strategies (Dominican Republic) - Financial inclusion is an objective of fintech strategy but not the sole motivation; fintech development is also associated with financial stability and payment system efficiency. - Regulatory actions for financial inclusion have been taken since 2006, including client protections, microcredit and financial intermediation reforms, and promotion of basic financial activity through bank subagents. - Short-term fintech strategic actions are aimed primarily at payment products; support for financial inclusion expected through greater competition in digital payments. - Central Bank actions to enable non-bank payment service providers and fintech companies to operate under a clear regulatory framework to promote competition, reduce service fees, and increase inclusion for poorly integrated sectors (including agricultural and small-scale trading sectors, low income households, and persons with low educational attainment). - Central Bank Strategic Institutional Plan 2018-2021 includes evaluation and possible regulation of fintech companies; implemented actions: - Incorporation of the Central Bank to the IDB Regional Fintech Ecosystem project - Initial diagnosis by the IDB recommending a survey - Survey of existing fintech companies by the Central Bank - Public consultations on modifying the Payment Systems Regulation to: - Include nonbank payment service providers in regulatory scope - Strengthen client protection for payment system users and other payment services - Create electronic payment entities subject to authorization by the Monetary Board and operational requirements - Enable an electronic payment account managed by financial intermediation and fintech entities - Create electronic payment agents (pharmacies, hotels, supermarkets, bank subagents, etc.) to enable, fund, and manage electronic payment accounts - The proposed modification of the Payment Systems Regulation has been reviewed by the Superintendency of Banks, INDOTEL, and industry participants; a consensual document awaits presentation to the Monetary Board for final approval. ### Results (Dominican Republic) - The formal Financial Inclusion Strategy is very recent; observed results mainly reflect earlier regulatory initiatives. - Number of loans issued nearly doubled as a share of population from 25% in 2010 to 47% in 2019. - Access to personal savings accounts rose from 76% of the population in 2015 to 82% in 2019; active use remained around 78% in a given year. - Bank subagents became more geographically dispersed since 2015, but many rural areas, especially low-population provinces, remain financially underserved. ### Ways forward and obstacles (Dominican Republic) - Identified potential obstacles to fintech development: - Relatively small size of the Dominican financial market and limited economies of scale - Current regulatory framework and burdensome supervisory processes could slow innovation - Tax obligations on fintech transactions, and high transaction fees - Low levels of financial education - Limitations in digital skill levels of end users - Strategies to remove obstacles: - Approval and adoption of the Secured Transactions Law to reduce SME credit risk profile and expand opportunities for credit fintech firms - Proposed modification of the Payment Systems Regulation to address regulatory obstacles for payment-specialized fintech firms - Financial literacy initiative to enhance user understanding of digital financial platforms - As regulation promotes competition, fees and commission rates are expected to drop - General Directorate of Internal Taxation is studying fiscal aspects of fintech activity ### Cybersecurity strategy (Dominican Republic) - 2013: Dominican Republic joined the Budapest Convention on Cybercrime and ratified its provisions into domestic law. - Central Bank developed an Information and Cybersecurity Regulation (ICR) for the financial sector to define a common legal basis for entities connected to the national payment system. - November 2018: BCRD Monetary Board approved a Cybersecurity Strategic Plan 2018-2021 aimed at: - (i) addressing deficiencies in technological infrastructure (creation of threat management and prevention capabilities) - (ii) capacity building (including establishment of cybersecurity culture at BCRD) - (iii) governance - Cybersecurity Incidents Response Center being created with a forensic laboratory and a threat-intelligence unit to prevent, detect, and respond to cyberattacks; center will cover the central bank and financial institutions connected to it. - Authorities broadening cybersecurity measures beyond financial sector; INDOTEL’s Healthy Internet initiative to promote social awareness of cybersecurity threats. ### Financial inclusion and fintech overview (Honduras) - Financial Inclusion Strategy: Published in July 2015 by the National Commission of Banks and Insurance (CNBS); main goal poverty reduction via access to a wide range of financial services, financial education, and technical skills. - Implemented measures: - Technical cooperation agreements (Sparkassen Foundation) - Reports on financial inclusion indicators - Amended regulatory framework - Trained over 300 financial education facilitators - Regulatory context: - No regulation limits charges for payment system services; charges are market-determined. - Central Bank of Honduras (BCH) maintains a low-cost policy in its Real Time Gross Settlement System (LBTR). - Refund of 8% of tax amount for purchases with debit or credit cards (Article 3 of Legislative Decree No.113-2011). - Basic accounts regulated with limits on amounts traded and balances in mobile and electronic wallets; April 2020 CNBS requirement for new channels to access resources in this account type. - Fintech Strategy: - No country-level strategy defined; CNBS and BCH created committees and the Financial Innovation Board (MIF) in October 2019 with IDB support. - MIF principles: promoting competition, innovation and financial inclusion; technological neutrality; proportionality; user protection; financial stability; prevention of illicit operations. - MIF objectives include drafting regulations for fintech, protecting users, encouraging innovation and knowledge-sharing, expanding technological infrastructure, promoting financial education, and ensuring risk management. - Activities covered: Digital banking, marketplace and P2P lending, and payments. Two MIF working groups: payments and transfers; transversal technologies (digital onboarding, Open Banking, APIs) and alternative financing. - Fintech startups initially focused on payments and transfers; some credit activities funded by own capital and crowdfunding without intermediation; prototypes in crowd-lending, microinsurance, personal finance management. - Foreign companies participate in market associated with established financial institutions (example: KIVA). - Implemented measures and regulatory outlook: - Differentiated regulation for non-bank electronic money issuers exists and is under review to expand coverage proportionally to risks. - Goal is updating existing regulations to remove obstacles to fintech development; existing regulations allow 100% digital operations. - Public, academic, and private incubators/accelerators support fintech ventures (not exclusively fintech-focused). - Supported by IDB, CNBS and BCH are creating a Financial Innovation Hub. - No significant systemic risks detected from fintech due to current scale; potential need to expand regulatory framework as ecosystem grows. - In 2021 CNBS and BCH expected to issue new provisions on electronic payment services replacing INDEL, and a White Paper on crowdfunding. - Multidisciplinary committees within BCH and CNBS study new business models while monitoring AML/CFT and cybersecurity risks. - Regulatory reforms expected to allow entry of new players; reforms to Law on Payment Systems and Securities Settlement discussed but not ratified. - Measures of success: - Success measured by improvements in alternative financing schemes and open credit scoring systems. - Limiting factors: need for payment system interoperability, incentives to use electronic means, improvements in secure digital onboarding. - Identification of fintech ecosystem companies and creation of Fintech Association of Honduras are current measures of success; future achievements include new payment service provider regulation, Financial Innovation Hub, and White Paper on alternative financing. - Periodic monitoring of access and usage indicators through CNBS Financial Inclusion Report, Financial Stability Reports, and BCH Work Reports; reporting includes number and amount of operations in "Innovative Payment Means" (electronic wallets). - State of financial inclusion (data as of 2019): - 174 electronic wallets for every 1,000 adults - 50.3% of adults over 18 years of age have some type of deposit - 15.7% of adults over 18 have some type of credit - 815 debit cards for every 1,000 adults - 3 points of service for every 10,000 adults - 8 correspondent agents for every 10,000 adults - 15 ATMs per 1,000 km - 36.5% of the total credits granted by the Financial System were granted to women - 43.4% of the total deposit accounts were held by women - CNBS Financial Inclusion Plan for Women in Honduras (three-year timeline launched in 2019); by end-2021 expected strategic objectives: - Design and execute gender policies that ensure equity in all CNBS activities - Collect, analyze and apply information related to the financial inclusion of women in Honduras - Design effective communication strategies with key stakeholders - Issue evidence-based regulation to improve financial inclusion of women in Honduras - Improve supervisory practices that support financial stability and financial inclusion of women - Obstacles to greater financial inclusion in Honduras: - Dominance of informal sector and micro-enterprises leading to low profitability and high credit risk, high financing costs - Legal and regulatory framework imposing barriers to innovation and competition, limiting new actors - Little sex-disaggregated and other critical data to identify demand segments - Limited knowledge of modalities to serve excluded population segments - Restrictive access requirements to financial products and services - Traditional institutions undertaking digital transformation individually rather than in collaboration with fintechs, generating "islands" - Lack of financial education, especially among poorest segments - Limited technological infrastructure coverage and affordability - Little supervision to protect financial users - No medium and long-term public policy for financial inclusion involving multiple government entities - Policy challenge: - Difficulty evaluating impact of financial inclusion policies due to lack of critical information linking access to financial products and usage by different population segments. - Strategies to overcome policy challenges: - CNBS made new commitments following Alliance for Financial Inclusion (AFI) Maya Declaration for period 2020-2022. *Source: wpiea2021221-print-pdf - 54.4 percent on average in Latin America and the Caribbean* ### 1. Develop the National Strategy for Financial Education to promote financial education in Honduras; ### 1. Develop the National Strategy for Financial Education to promote financial education in Honduras ### Recommended institutional and data actions - Develop the National Strategy for Financial Education to promote financial education in Honduras. - Create Data Capture Disaggregated by Sex and other variables, to generate statistics to measure the progress on financial inclusion, as well as generate new statistical indicators with a gender focus. - Review existing regulations related to Inclusion and Financial Education and expand the regulatory framework in line with developments in the digital financial services market. - Generate a prudential and non-prudential regulatory framework to develop fintech initiatives in a reliable and innovation-friendly technological ecosystem. ### State of fintech in Honduras - To date, there are no clear obstacles to the development of financial technology in Honduras (except some restrictions imposed by the INDEL regulation that is currently under review) aligned with the Cambridge survey (indicating that the ability to perform digital onboarding may be limited). - Fintech activity is regulated by: - The Office of Management and Public Innovation, created through Executive Decree PCM-076-2020, reporting to the Presidency of the Republic, which among its various functions will govern policies and standards related to Information Technology and cybersecurity; - Digital Government of Honduras, which is a division of the Secretary of State, whose vision is to be a regulator of digital services in Honduras, creating a digital culture supported by information technology. ### COVID-19 impact and fintech uptake - In the face of the health crisis, fintech companies have facilitated many financial transactions without physical presence and at lower costs for users and institutions. - To mitigate the impact of the COVID-19 pandemic, the government delivered a voucher of L4,000 to more than 70 thousand households, carried out electronically through a cell phone text message. - The pandemic increased: - the frequency of changes in transaction monitoring systems; - the adjustment to digital channels; - the use of digital platforms; - follow-up processes by Compliance Officers. ### Advantages, disadvantages, and risks of fintech - Advantages of fintech: - User-centered business model; - Low cost; - Expedient service; - Convenience for the beneficiary; - Tracking the destination of monetary transfers. - Disadvantages of fintech: - Access to an electronic medium (which is limited in some population segments); - Interruption in the telephone signal coverage in certain rural areas; - Internet access (which is not uniform across the country). - Risks: - Most risks are related to cybersecurity. - Important protections include: protection of personal data, transaction confidentiality, and security of technological platforms. - Supervised financial institutions must comply with approved regulations on the management of information and communication technologies as well as those products or services that use electronic networks. - For fintech ventures outside traditional supervision, the regulator should establish general guidelines on the security of electronic platforms. ### Policy challenges and objectives - Policy challenges: - Fintech companies’ culture of innovation and flexibility and low need for capital can make them consumer-centric problem-solvers. - Among traditional banking entities, fintech companies are not always seen as strategic complementary partners, creating a market dichotomy. - Policy objectives set by the Financial Innovation and Technology Committee of the BCH: - Promote an environment of collaboration and cooperation with the public and private sector through the Financial Innovation Board (MIF), and where appropriate, draft strategy proposals; - Review and adapt the regulatory framework that facilitates the provision of payment and transfer services, in line with the principles of international best practices; - Promote cooperation with national and international organizations supporting the development of fintech ecosystems and financial innovation; - Promote training and participation in national and international events of the government agencies that are members of the Committee as well as for public entities on the topics of innovation and financial technology; - Promote a comprehensive digital transformation strategy within the BCH. ### Measures and coordination to achieve objectives - Both the Fintech Committee of the CNBS and the Financial Innovation and Technology Committee of the BCH: - Lead initiatives to identify new fintech ventures and monitor regulations applied to the fintech ecosystem, crowdfunding and innovation hub; - Jointly evaluate prevailing or emerging fintech business models that may impact financial system stability and depth; - Coordinate and promote the objectives of the MIF and create new strategic alliances. - Continuous communication and coordination between public and private sectors facilitate ecosystem development. - International organizations such as the IDB and USAID have been useful partners. ### Market context and regulation gaps - Since 2019, the Fintech Committee of the CNBS established primary objectives of financial deepening and protection of the financial end-user. - The BCH focuses on fintech companies delivering payments and transfers and is working to establish a regulatory framework that facilitates provision of these services to the unbanked. - Currently, the Honduran market is experiencing growth in fintech ventures, but their regulatory purview is limited since at the country level there is no Fintech Law or other such regulation. ### Results and key financial inclusion indicators (reported in the Financial Inclusion Report 2020) - Number of service locations (Puntos de Servicio): from 3,316 in 2015 to 8,029 in 2019. - Percentage of adults with a deposit account: 43.0 in 2017 to 50.3 in 2019. - Number of debit cards per 1,000 adults: 595 in 2015 to 815 in 2019. - Percentage of adults with any kind of credit: 14.8 percent in 2015 to 15.7 percent in 2019. - Number of electronic wallets per 1,000 adults: 144 in 2017 to 174 in 2019. - Number of people receiving credit from OPDF: just over 60 thousand in 2015 to 104 thousand in 2019; the size of the loan portfolio more than doubled. - Note: causality between adopted measures and these results is hard to establish econometrically. ### Ways forward and policy recommendations - Define a fintech strategy at the government level that outlines major national objectives for fostering technological innovation linked to financial inclusion and aligned with country development goals. - The BCH plans to: - expand training on fintech products and services; - propose an effective and broad regulatory and supervisory approach that addresses advantages and risks posed by fintech; - determine channels for better monitoring and timelier data collection. - Regarding AML/CFT: - BCH and CNBS are working on necessary changes to improve monitoring systems (analysis of monitoring alerts, statistical studies of customer behavior, approvals by highest authorities). - Few fintech companies have implemented systems to monitor clients to reduce money laundering risks. - It will be necessary to determine how to mitigate these risks in the fintech sector by mandating adequate information management of fintech clients. - Through the MIF, BCH, and CNBS: - Initiatives have been created to identify new players, learn business models, and collect basic statistics to monitor systemic importance. - Current regulations will be modified as necessary to limit identified risks in a systematic and proportional manner. *Source: wpiea2021221-print-pdf - 1. Develop the National Strategy for Financial Education to promote financial education in Honduras* ### 7. Measurement: the Bank of Mexico conducted surveys on individuals’ financial competencies ### 7. Measurement: the Bank of Mexico conducted surveys on individuals’ financial competencies ### Measurement and surveys - The Bank of Mexico conducted surveys on individuals’ financial competencies and on users’ satisfaction with the quality of financial services. - The NPFI annual workplan was issued in July 2020. - Currently, 20 policy measures are already in place; 27 are to be implemented during the second half of 2020 and the first quarter of 2021. ### Financial literacy initiatives and implementation - The Ministry of Finance, as Executive Secretary of the National Committee on Financial Education (CEF), monitors all initiatives on Financial Literacy and is responsible for implementation of the National Strategy of Financial Literacy. - Implemented measures: - A curriculum on financial literacy and skills for K-12 was developed. - Training courses on financial education for teachers in vulnerable municipalities are being implemented; currently, 7,000 teachers have received training. - A collaboration agreement was signed between NAFIN and the Ministry of Labor to provide financial literacy training to beneficiaries of social programs, especially young adults. ### Regulatory framework supporting financial inclusion - Remote onboarding: banks can open accounts and grant commercial and consumer loans by electronic devices. - Open Banking: Application Programming Interfaces (APIs) will help create an ecosystem in which third parties may offer financial services on behalf of financial institutions. - Fintech Law: brings financial services closer to sectors traditionally not well served by the traditional financial system and promotes the use of new technologies to offer more and better financial products. ### Fintech — Law to Regulate Financial Technology Institutions (LRITF) - Principles of the LRITF: financial inclusion, financial innovation, promotion of competition, consumer protection, financial stability, preventing illicit operations, and technology neutrality. - LRITF established two new kinds of financial entities: Collective financing institutions and electronic payment funds institutions. - LRITF obligations and tools: - Obligation for financial providers to establish APIs that allow connectivity and access of other interfaces developed by financial providers or third parties. - Mandate to develop APIs to exchange open data, aggregate data, and transactional data. - Establishment of a regulatory sandbox for temporary authorization of innovative business models that use tools or technologies different from those existing in the market at the moment of authorization. - Consideration of the creation of a Financial Innovation Group. - Potential contributions to financial inclusion: - Increase competition among financial service providers. - Allow innovative financial intermediaries to provide products and services to segments of the population that traditional providers may not serve due to higher operating costs. - Timeline: - Draft sent to Congress in 2017. - Issued and published in the Official Gazette of the Federation on March 9, 2018, and entered into force on March 10, 2018. ### Financial Innovation Group (as described in LRITF) - Purpose: establish a space for exchange of opinions, ideas, and knowledge between public and private sectors to learn about innovations in financial technology and plan their development and orderly regulation. - Participants: Ministry of Finance (SHCP), the Bank of Mexico (BANXICO), CONDUSEF, CNBV, CONSAR, CNSF; SHCP chairs the Group and selects and invites private-sector representatives. - Operational rules: must meet at least once a year; extraordinary meetings may be called; fintech firms can approach financial authorities at any point. ### Accounts for minors and AML/CFT constraints - Reform announced as part of the Program to Promote the Financial Sector to allow population between the ages of 15 and 18 to open bank accounts without intervention of parents or guardians, subject to AML/CFT regulations. - Permitted uses: accounts can only be used to receive electronic transfers from governmental programs, salaries, or wages. - Legislative note: The Federal Executive presented the initiative on January 16, 2019 before the Permanent Commission of the Congress of the Union; the Decree amending relevant laws was published on March 27 (text cut off in source). ### Measures of success / Quantitative targets (NPFI goals set for 2024 vs. 2018 baseline) - Objective 1: Facilitate access to financial products and services for individuals and SMEs. - Percentage of adult population holding at least one financial product: 68.3% → 77.2% - Percentage of SMEs which have had access to financing since they started operating: 45.9% → 63.5% - Percentage of adult population with at least one account: 47.1% → 64.5% - Number of accounts for every 10 thousand adults: 12,969.5 → 16,680.5 - Objective 2: Increase digital payments within general population, businesses and the three levels of government. - Number of transactions and electronic transfers per capita per year: 36.7% → 60.4% - Percentage of adults who use their bank account for payments: 63.8% → 85.3% - Objective 3: Strengthen infrastructure to facilitate access to and provision of financial products and services and to reduce information asymmetries. - Percentage of residents living in localities within 4km from a financial access point: 87.3% → 90.0% - Percentage of municipalities with at least one financial access point: 76.6% → 89.6% - Percentage of adults that utilized a financial access point: 69.5% → 79.8% - Objective 4: Increase the economic and financial literacy of the population. - Score of Financial Literacy Index: 58.2% → 60.5% - Objective 5: Strengthen access to information and to mechanisms of financial protection. - Percentage of adult population who compared financial products and services before acquiring them: 28.9% → 35.0% - Number of annual online visits to the financial authorities’ comparison tool by every 10 thousand adults: 47.0% → 93.8% - Objective 6: Promote financial inclusion for vulnerable groups, such as women, migrants, older adults, indigenous people and rural population. - Average of the urban/rural gap of financial product holding: 15.1 pp → 7.5 pp - Average of the gender gap of financial product holding: 7.4 pp → 0.0 pp - Gender divide (number) in account holding: 1.3 pp → 0.0 pp *Source: wpiea2021221-print-pdf - 7. Measurement: the Bank of Mexico conducted surveys on individuals’ financial competencies* ### 2020. On June 9, 2020, two Resolutions were published in the Official Gazette. The first one issued by the Ministry of ### wpiea2021221-print-pdf - 2020. On June 9, 2020, two Resolutions were published in the Official Gazette. The first one issued by the Ministry of ### Legal and regulatory changes (June 9, 2020 and related) - On June 9, 2020 two Resolutions were published in the Official Gazette: - The first, issued by the Ministry of Finance and Public Credit, amended article 115 of the Credit Institutions Law. - The second, issued by the National Banking and Securities Commission (CNBV), modified the general provisions applicable to credit institutions. - Both Resolutions regulate implementation of the legal reform allowing opening of deposit accounts by adolescents aged 15 years and above in their own right. - On June 9, 2020 the AML/CFT regulatory framework applicable to credit institutions was amended to regulate opening of accounts for minors (15-17 years old), establishing the identification data of their parents or guardians accounts. - On November 19 and 24, 2020 the AML/CFT regulatory framework applicable to popular finance companies and cooperative savings and loans companies was amended to raise the threshold for opening simplified identification accounts (low risk). ### AML/CFT developments and requirements - March and June 2019 AML/CFT General Rules (applicable to ten sectors of the Mexican financial system) were amended to establish, among others: - Digital onboarding (identification data and documentation); - Electronic record keeping to promote financial inclusion while complying with AML/CFT regulations. - AML/CFT General Rules for financial technology institutions (electronic payments and crowdfunding entities) published on September 10, 2018 include: - Implementation of a methodology to assess ML/FT risks for Fintech institutions; - Minimum requirements for Customer Due Diligence (CDD); - An AML/CFT manual describing measures and procedures to comply with the General Rules; - Information sharing between Fintech institutions and other national and foreign financial institutions. - AML/CFT regime for Financial Institutions that operate with Virtual Assets (VAs) approved by Banxico establishes, in general terms: - The customer’s due diligence policy (including identifying politically exposed persons); - The implementation of a risk-based approach; - Reporting of purchases and sales of VAs convertible into legal tender and of suspicious transactions; - The obligation to keep the information for a period of 10 years. - Regulatory expectations for fintech and other firms include: - Adequate KYC policy; - Submit Currency and Suspicious Transactions Reports to the SHCP through the CNBV; - Internal compliance structures, AML/CFT manuals, AML/CFT training; - Keep KYC information and reports for at least 10 years; - Immediate suspension of transactions and services for customers on blocked persons lists. ### Fintech Law (LRITF), scope, and implementation - The Law to Regulate Financial Technology Institutions (LRITF) was passed on March 9, 2018. - LRITF creates and regulates two types of Financial Technology Institutions (FTI): 1. Collective financing institutions: - Types regulated: Debt collective financing (personal and business lending), real estate crowdfunding; Equity/Capital collective financing; Joint ownership and royalties collective financing. - Debt crowdfunding variants include P2P, P2B, Real estate financing, enterprise factoring, and leasing. 2. Electronic payment funds institutions: - Purpose: issuance, administration, redemption and transmission of electronic payments through mobile apps, interfaces, websites or other electronic means. - Authorized activities include opening e-money accounts, transfers among clients, transfers in Mexican Pesos (or foreign currency/virtual assets subject to Banxico authorization), delivering money or virtual assets equivalent to electronic payment funds, and maintaining updated accounts registers. - The Law established: - A regulatory sandbox ("Modelos Novedosos") for experimentation by companies and regulated financial entities; - Obligations to develop Application Programming Interfaces (APIs) for connectivity and data exchange (open data, aggregate data, transactional data); - A definition for virtual assets: "the representation of value registered electronically and used by the public as a means of payment for all types of legal acts and whose transfer can only be carried out through electronic means". - Requirement that FTI and credit institutions obtain Banxico authorization to operate with virtual assets. - Secondary regulations and CNBV circulars address operational aspects: cybersecurity, minimum capital requirements, continuity plans, financing and investment limits for crowdfunding, accounting and financial information, use of electronic devices, and regulatory reporting. - Authorization milestones: - On January 22, 2020 the first E-money institution authorization was granted to NVIO Pagos México, S.A.P.I. de C.V., Institución de Fondos de Pago Electrónico. - On March 16, 2021 the first crowdfunding institution authorization was granted to Fundary, S.A.P.I. de C.V., Institución de Financiamiento Colectivo. - On March 18, 2021 two more E-money institutions were authorized: Trafalgar Digital, S.A. de C.V., Institución de Fondos de Pago Electrónico and BRX Payments, S.A. de C.V., Institución de Fondos de Pago Electrónico. - As of the document, only four Financial Technology Institutions have been authorized, while more than 90 fintech firms submitted authorization requests. ### Financial inclusion — state, metrics, and disparities - Key aggregate and survey figures: - 74% of the urban population holds at least one financial product. - 75% of persons between 30 and 39 years of age hold at least one financial product. - Global Findex (2017): - Only 37% of adults hold a bank account (18 ppts less than the Latin America average of 55%). - Chile: 74%; Brazil: 70%. - Youth (15-24): Mexico 33%; Chile 75%; Brazil 47%. - 91% of adults still use cash for transactions under $500 MXN. - 47% of Mexicans pay utility bills in cash (Latin American average 41%). - 32% of Mexican adults received or made a digital payment (Chile 65%; Brazil 58%). - ENIF 2018 (National Survey of Financial Inclusion) findings: - 1 of every 3 Mexicans does not hold any type of financial service or product; - 1 out of every 3 holds a credit product; - 1 out of every 4 holds an insurance product; - Less than half of the adult population holds a retirement savings account; - 87% of the adult population either made unplanned purchases or did not follow a monthly budget; - 8% of adults have had some kind of financial training. - Urban gender divide (selected figures): - 80.3% of men living in urban areas hold at least one financial product; women 69%; - Payroll account/card: men 53.9%; women 43.4%; - Account/card for government transfers: women 8.4%; men 2.5%; - Savings account: men 55.0%; women 48.2%; - Debit card: men 44.2%; women 37.7%; - Mobile banking via cell phone: men 33.2%; women 28.1%; - Credit account: men 38.5%; women 33.2%; - Insurance: men 33.4%; women 25.7%; - Retirement savings account: men 56.7%; women 39.1%. - Rural gender divide (selected figures): - At least one financial product: women 57.9%; men 56.1%; - Account/payroll card with bank: men 31.2%; women 20.0%; - Account/card for government transfers: women 27%; men 7.4%; - Savings account: women 41.6%; men 36.2%; - Debit card: men 21.9%; women 19.6%; - Mobile banking via cell phone: men 16.1%; women 10.6%; - Credit card: men 33.5%; women 21.5%; - Insurance: women 18.2%; men 17.9%; - Retirement savings account: men 34.6%; women 15.9%. ### Drivers, progress, and quantitative changes (2012–2018) - Drivers of inclusion in past years: - 2014 financial reform creating the National Council of Financial Inclusion and National Committee of Financial Education; - Introduction of simplified accounts regime; - Channeling government transfers through bank accounts; - Expansion of banking agents and payment aggregators. - Changes between 2012 and 2018 (CNBV-INEGI): - Account ownership: 2012 = 36% ; 2018 = 47% ; Change = 11 (percentage points) - Credit: 2012 = 27% ; 2018 = 31% ; Change = 4 (percentage points) - Insurance: 2012 = 22% ; 2018 = 25% ; Change = 3 (percentage points) - Retirement savings accounts: 2012 = 28% ; 2018 = 40% ; Change = 12 (percentage points) - Debit and credit cards usage: 2012 = 56% ; 2018 = 74% ; Change = 18 (percentage points) ### State of fintech, usage, infrastructure, and obstacles - Fintech sector trends: - From 2016 to 2017 the number of fintech enterprises increased by 50%. - By 2018, 69% of fintech firms were less than 3 years old. - Accounts linked to a mobile phone increased by 410% from Q2 2016 to 2020. - From Q2 2016 to 2020 the number of POS terminals increased by 57%; number of retail businesses with POS grew by 14%; volume of transactions through them increased by 56% from Q4 2016 to 2019. - Infrastructure gaps and digital access (2020 data from IFT and INEGI): - 414 municipalities (16.8%) without ANY mobile service coverage in 2020. - At the locality level, 51.3% of people do not have access to either 3G or 4G mobile services. - Only 16% of internet users utilize connectivity for online banking operations, compared to 91% for entertainment (INEGI, 2019). - Demand-side constraints: - Only 1 in 3 adults keep a budget; - 27% of adults do not hold a bank account because they do not trust financial institutions; - 7% of the adult population had a problem with identity theft, credit card cloning, or were victims of fraud (ENIF 2018). - Supply-side constraints: - Fintech Law regulates only two types of fintech enterprises; many fintech-like activities fall under other laws or supervisory authorities (CNBV, CNSF, CONSAR); - More fintech entities need to be established; banks and microfinance entities must offer broader digital products. ### Measures, targets, and indicators - No formal national fintech strategy; Fintech Law enacted and secondary regulation progressing. - No formal success measures or targets announced/enacted for 2021. - Sandbox engagement indicator: 81 firms submitted applications for the 2020 Sandbox Challenge; 36 were subject to technical evaluation; 6 reached the final stage. - Fintech sector expected to support NPFI targets by 2024 for indicators including: - Percentage of SMEs with access to financing since they started operating; - Percentage of adult population with at least one account; - Number of transactions and electronic transfers per capita per year; - Percentage of adults using bank accounts for payments. ### Risks, mitigation, and supervisory technology - Risks from fintech and new technologies: - Financial risks (leverage and business risks); - Operational risks (cyber and legal risks); - Macrofinancial risks. - Risk mitigation measures in Law and secondary regulations: - Full disclosure of risks and safeguards on consumer rights, privacy, and data protection; - Secondary regulations addressing financial, operational, market risks, corporate governance, and minimum capital; - Adoption of a strong AML/CFT regulatory regime following international principles (FATF). - CNBV initiatives: - Launched a comprehensive SupTech project to automate supervision of Financial Technology Institutions and support AML/CFT oversight across supervised entities. - National Risk Assessment 2020 included a section on Financial Technology Institutions and identified virtual assets providers as an emerging risk with high probability and impact. ### Policy directions, ways forward, and next steps - Policy objectives and actions in NPFI: - Address low ownership and usage of financial products via development banks, regulatory changes, easing account opening/usage requirements, and reducing barriers to mobility in financial services. - Increase overall digital payments usage by promoting digital payments among governmental entities, firms, and the population. - Expand physical and digital access points and increase connectivity coverage in rural areas; reinforce identity validation systems and digital security; strengthen information systems underpinning service provision. - Improve financial literacy through education in schools and programs for the general population. - Promote transparency tools to increase disclosure of financial products’ conditions, costs and benefits; strengthen consumer protection and product security protocols. - Increase accessibility for vulnerable groups by leveraging social program delivery and encouraging use of financial infrastructure for remittances. - Specific next steps called for: - Continue reviewing and authorizing fintech applications without further delay (more than 90 applications pending at time of document); - Develop financial competencies given Mexico scored 58 points in the Index of Financial Literacy (2 percentage points lower than the G20 average) and scored 11.8 points below the G20 average on financial behavior; - Balance promotion of financial innovation with countering ML/FT risks and cyber-fraud; mitigate cyber risks and manage operational risks from third-party providers; - Consider eventual inclusion of fintech entities to channel government transfers while securing timely delivery to vulnerable beneficiaries. - Pandemic context: - COVID-19 accelerated digital demand and prompted fintech participants to strengthen digital strategies, encourage non-cash alternatives, and present an opportunity to increase financial education and electronic payments uptake. *Source: wpiea2021221-print-pdf - 2020* --- _Source: https://www.imf.org/-/media/files/publications/wp/2021/english/wpiea2021221-print-pdf.pdf_