Unlocking Fintech Opportunities: Leveraging Digital Public Goods for Inclusive Finance

In emerging economies, inclusive instant payment systems (IIPS) are spearheading a revolution. As these systems evolve, particularly in regions like Africa and Southeast Asia, they potentially represent a direct pathway for the $10 trillion informal economy – a potential fintech market – to participate in the digital financial sector.

While IIPS is hailed as the linchpin of financial inclusion in emerging economies, the reality is that not all instant payment systems are designed with full inclusivity in mind. Simply put, some systems have user fees that are too high for people earning two dollars a day to afford and some don’t work with all of a citizen's banks, digital financial providers and merchants. The result is that billions of people — potential fintech customers — remain unbanked or underserved despite most having a mobile phone. This stark reality prompts the question: why are individuals being left behind in the fintech revolution meant to serve everyone?

Digital Public Goods as the Solution

Developing countries are adopting digital public goods (DPGs) to modernize their IIPS to be fully inclusive. This approach seeks to maximize IIPS benefits while minimizing exclusionary impacts. Endorsed by the UN Secretary General’s Roadmap for Digital Cooperation, digital public goods are defined by the Digital Public Goods Alliance as an alternative to proprietary solutions: “Open source software, open data, open AI models, open standards and open content that adhere to privacy and other applicable laws and best practices, do no harm, and help attain the Sustainable Development Goals,” such as digital financial inclusion. By making unlike financial services platforms work together, DPGs make it possible for a nation’s central bank, financial institutions and hub operators to collaborate to bring an entire population into the digital economy.

DPG-enabled IIPS presents a unique business opportunity for fintechs because they offer the potential to loop in more customers into the digital economy, especially the financially underserved. Most importantly, this can be achieved even in remote areas where access to traditional banking is limited.

Advantages of Digital Public Goods:

• Inclusive design: IIPS designed with DPGs prioritize financial inclusion, ensuring that digital financial services reach even the most remote and underserved populations.
• Government-to-person (G2P) payments: A DPG-powered IIPS can extend the reach of G2P payments, providing a more cost-effective and secure way for governments to provide financial assistance to citizens.
• Financial track record: A DPG-enabled IIPS can help create the necessary financial track record for individuals to access additional services such as loans and insurance, crucial for improving lives and managing risk.
• Cost reduction: A DPG-enabled IIPS can significantly reduce transaction costs. This is especially important for low-income individuals, where traditional transaction fees prevent them from becoming customers.
• Scalability and interoperability: A DPS-enabled IIPS can seamlessly integrate banks, savings and credit cooperative organizations (SACCOs), and non-bank service providers, allowing for widespread scalability and interoperability.
• Digital sovereignty: Creating resilient digital sovereignty frameworks alongside the development of a DPG-enabled IIPS can propel financial inclusion through payment systems that empower universal access to financial services.

Substantial Business Opportunities for Fintechs

A DPG-enabled IIPS presents a myriad of substantial business opportunities for fintechs. Their innovative approach not only redefines the conventional notions of payment systems but also brings more of the population into the digital economy opening up new avenues for fintechs to thrive. The synergistic integration of DPGs with IIPS unveils a range of advantages that extend beyond mere technological enhancements, offering a new ground for fintechs to flourish and contribute to inclusive economic growth. These advantages include:

1. Access to more customers: A DPG-enabled IIPS facilitates seamless connectivity and also enables a broader spectrum of financial service providers to tap into a more extensive pool of customers. This, in turn, fosters the expansion of financial inclusion by reaching previously underserved populations.
2. Opening up new markets: The adoption of IIPS, particularly those leveraging DPGs, empowers financial service providers to venture into untapped markets. This is crucial in regions characterized by limited traditional banking infrastructure or fragmented financial offerings. In these regions, the enhanced connectivity provided by interoperability becomes instrumental in establishing a foothold and addressing the unique needs of diverse market segments.
3. Customization and differentiation: Gaining access to a larger customer base not only broadens the reach of fintechs but also presents a strategic opportunity for customization. Fintechs can tailor their offerings to align with specific market needs, thereby enhancing relevance and resonance with diverse user segments. This level of customization addresses the varied preferences and requirements of different markets and allows fintechs to differentiate their products and services in a competitive landscape.

In essence, a DPG-based IIPS provides fintechs with a technological infrastructure that adheres to global standards and serves as a catalyst for positive socio-economic change.

The business opportunities created by this innovative approach extend beyond profit-making, encompassing a transformative journey towards inclusive financial services that empower individuals and uplift communities. Fintechs, by embracing and harnessing the potential of DPG-based IIPS, position themselves at the forefront of the future of finance but also foster a more inclusive and equitable global economy for all.