How to beat the 3 challenges to building inclusive digital financial services

Investment & FinancingSustainability

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February 10th, 2022

The pandemic has greatly increased demand for global digital financial services – but making sure they are inclusive is just one of the challenges the sector faces.



Project Lead, Financial Innovation, World Economic Forum


Executive Director, Cambridge Centre for Alternative Finance, the University of Cambridge Judge Business School


Associate Director of Business & Operations, Cambridge Centre for Alternative Finance, the University of Cambridge Judge Business School


  • The pandemic has increased the need for digital financial services – but significant obstacles remain.
  • The World Economic Forum and Cambridge Centre for Alternative Finance are collaborating to work on solutions.
  • Building digital infrastructure for financial services is most pressing.


The COVID-19 pandemic has accelerated the digital transformation of almost all industries. In financial services, lockdowns, social distancing, and remote working have in most countries increased the need for digital payments, banking, and other products for individuals and firms to effectively manage their financial lives. As a result, the need for accessible and affordable digital financial products is even more apparent in the pursuit of inclusive and equitable economic recovery and growth. As digital business becomes the norm, substantial challenges remain in the development of inclusive digital finance.


Over the past several months, the Forum, in collaboration with the Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge Judge Business School, has co-hosted a series of regional roundtables focused on fostering partnerships that advance inclusive digital financial services. Covering four regions – sub-Saharan Africa, the Middle East, and North Africa, Latin America and the Caribbean, and Asia-Pacific – each of these roundtables brought together leaders from financial technology (fintech) firms, incumbent financial institutions, central banks, financial regulators, and the development community to discuss the primary challenges and opportunities.


Each region – and frankly, every jurisdiction – has a unique context that shapes the growth trajectory of digital financial services. Yet, these roundtable discussions revealed that many stakeholders face very similar challenges in their respective countries and regions to scale up inclusive services. It was also made apparent that partnership-based solutions that involve both public and private sector stakeholders have the potential to address many of these common challenges. Three of the most prevalent challenges discussed, coupled with some of the potential solutions, were:


1. How fintech firms should navigate the regulatory landscape


Financial regulatory regimes have historically been designed for large financial institutions, with more established and well-understood business models. Most fintechs aspire to operate in a safe and compliant manner, but both within individual jurisdictions and across borders innovative financial-service providers often struggle to understand, let alone comply with, the relevant regulations. While many financial regulators have in recent years introduced measures like innovation offices and regulatory sandboxes, firms often still face a patchwork of requirements from multiple agencies, alongside significant uncertainty about the future evolution of regulation. Moreover, relatively small domestic markets in many countries necessitate fintechs to scale internationally; yet the challenge of understanding and meeting regulatory requirements is often compounded when operating in multiple jurisdictions.


So what can be done? In each regional roundtable, it became clear that open dialogue and candid exchange between regulators and fintech are essential steps towards addressing these challenges. Through ongoing dialogue, regulators have the opportunity to better understand the technologies and business models driving innovation, and fintech gets the opportunity to learn more about specific regulatory approaches and requirements, as well as the opportunity to discuss how existing regulatory frameworks might create an undue burden. Having a regular dialogue is not groundbreaking, but can be extremely effective in developing innovator-regulator relationships that inform evidence-based regulation. Many roundtable participants pointed to national or regional regulator-fintech forums, either in person or via digital means, as a low-cost, high-impact solution.


Figure: Digital financial services are a complex and fluid ecosystem

Digital financial services are a complex and fluid ecosystem


2. How to promote financial and digital literacy


Despite gains in financial inclusion and the rapid uptake of smartphones and other technologies, financial and digital literacy both remain barriers to broader and sustainable adoption of digital financial services. Inadequate financial literacy, a long-recognized challenge around the world, has been further compounded by insufficient digital literacy, while new consumer risks emerge from the increasing use of digital financial intermediaries, channels, and instruments. Roundtable participants across regions found that a combination of strategies and interventions can help provide the educational foundation needed to better protect consumers and investors and enable a more inclusive and sustainable adoption of digital financial services.


These strategies were generally grouped into “top-down” approaches – usually, a national strategy involving the central bank, regulators, educational authorities, financial institutions, fintech, and the media; and “bottom-up” approaches, generally focused on individual digital financial services providers embedding educational tools in the design and deployment of their products and services. In both cases, effective partnerships were seen as key to success – including working with a diverse group of stakeholders across public and private sectors, leveraging trusted media, and collaborating closely with civil society organizations – to creating relevant, engaging, and interactive educational content and experiences that address pressing gaps in both financial and digital literacy.


3. How to develop the digital financial infrastructure


Perhaps the most fundamental challenge identified across regions was the need to develop a more fit-for-purpose digital infrastructure to enable the scaleable provision of digital financial services by both fintech and financial incumbents alike. Digital financial infrastructure includes essential technological components such as mobile and broadband networks to support connectivity; as well as digital identity, data standards, and protocols needed for onboarding customers, enabling transactions, and protecting privacy.


Developing the infrastructure for the digital economy is a cross-industry, society-wide imperative, and thus requires a concerted effort from governments, technology providers, infrastructure builders, and stakeholder groups within the digital finance ecosystem. Efforts in this space are significant, including the Forum’s EDISON Alliance, which cultivates partnerships around digital inclusion between the public and private sectors. However, so much more can be done through forging collaborative, innovative partnerships focused on developing national, regional, and worldwide digital financial infrastructure.


These challenges speak to the complex and fluid ecosystem in which digital financial services operate. Approaching challenges with this ecosystem view, involving all the key stakeholder groups from both public and private sectors, is necessary to identify what kinds of partnership-based solutions best address them.


Over the coming year, the Forum and the CCAF will continue to convene working groups stemming from this series of regional roundtables to both expand upon and deepen existing partnership models. An inclusive economic recovery demands a thriving and sustainable digital financial services sector – and this requires all of us to play our part in forging innovative partnerships to tackle common challenges.


This article was originally published by World Economic Forum, on December 21, 2021, and has been republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License. You can read the original article here. The views expressed in this article are those of the author alone and not of the WorldRef.


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