To promote effective regulation of mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized this week’s second Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation. The following is based on a session led by Anu Bajaj, Adviser, Financial Sector Team at DFID. You can download her presentation here.

CGAP and DFID are collaborating on work that explores how social welfare payments – government to person (G2P) transfers – could help to bring poor people into the formal financial system using branchless banking:

Until very recently, most G2P (government-to-person) payments were carried out in person and in cash. However, because such methods pose security risks and require high transaction costs for payers and beneficiaries, governments are increasingly switching to electronic delivery.

Government payment systems vary widely by country. Plan Familias in Argentina, for example, offers a debit card re-loadable only by the government. Funds must be drawn within 1 month or the beneficiary loses them, and they may not deposit additional funds into the prepaid account. In Brazil, the Ministry of Social Development is in the process of migrating 12 million recipients of Bolsa Familia, the financial program that represents 25% of Brazilian families, away from an electronic benefit card, and toward the option of a simplified account. In South Africa, several million of the country’s more than 9 million grant recipients receive their funds via a debit card from the nation’s largest bank or a smartcard from payment system provider Net1 UEPS Technologies.

While there’s been some exploration of the business case for agents and providers, we wanted to look at the implications for decision makers. Key takeaways:

• Some schemes may require specific regulatory approval or exemption to actually increase access to banking services;
• Social welfare departments may require or benefit from financial advice in designing payment elements and even appointing payment agencies (e.g. banks);
• Large scale schemes may affect payment system and financial sector through choice of standards and instruments;
• The current economic climate offers opportunities for a “big push forward” for financial inclusion with multiple developmental and economic growth spin offs;
• Financial regulators can enable and support this process through constructive engagement.

In this session we asked for a show of hands – how many banking and payment officials in the room have reached across department lines to speak with their social welfare departments to see how they could collaborate? Only a few hands went up, with this comment: “Dialogue doesn’t equal agreement.”

DFID and CGAP will have a Focus Note on this topic in the next few weeks.