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Technology Alone Cannot Deliver Successful Interoperability in Digital Financial Services

Governance and business incentives needed for pro-poor payment systems to work well

WASHINGTON, January 19, 2017 /PRNewswire-USNewswire/ — No matter how well designed the technology, interoperability in digital financial services will not reach its full potential unless the right business structure and incentives are in place, CGAP found in its new report, Digital Finance Interoperability and Financial Inclusion: A 20-Country Scan.

When financial service providers and regulators talk about interoperability, it brings to mind images of switches, platforms and software – in short, the technical tools that allow modern payment systems to work together.

But CGAP’s new global survey of interoperability finds that seamlessly exchanging payments quickly and cheaply – an important means for connecting poor people to the formal economy – is about more than the technical connections.

A successful interoperable payment system depends upon three elements, it said:

  • Governance and operating rules covering how participants make decisions, jointly manage operations and consider risk must be in place;
  • Business agreements that balance the economic interests of participants, from pricing to brand marketing, are needed in order to incentivize them to exchange payments; and
  • The technical infrastructure connecting participants, which can be anything from a payment switch or a bilateral connection to a third-party service, must be sound.

Greta L. Bull, CEO, CGAP said, “Interoperability is important for the development of digital financial services, as it provides a better experience for low-income consumers and introduces efficiencies and scale into the payment system. Many countries are exploring pathways to interoperability. What this research demonstrates is that there is no one formula for achieving interoperability.”

The survey also made the following findings:

  1. Timing: Although various systems and technical infrastructure may be in place, it takes time for changes in financial behavior to happen and for end users to understand how to use the system.
  2. Focus on Technology is Shortsighted: Although interoperable systems may involve technology, other crucial elements such as good governance and business incentives are essential. The end result will be more people using formal financial services and businesses benefiting from increased uptake.
  3. Chicken or Egg? Digital financial services is not necessarily a precondition to set up an interoperable system, and there is no clear route or timing to set up the system. Some interoperable systems are market driven and some are government and policy driven; it depends on the country context.

CGAP’s survey is a first of its kind and shows the progress made toward interoperability in 20 countries, including India, Kenya, Egypt and Mexico, across three continents. It provides an overall assessment of payments made to and from small-value transactional accounts through three types of interoperable systems between three or more providers, two providers and through a third party that connects various providers to each other.

CGAP Working Paper: Digital Finance Interoperability and Financial Inclusion: A 20-Country Scan, by Pablo Garcia Arabehety, Gregory Chen, William Cook and Claudia McKay.

PowerPoint Slide Deck is available here.




CGAP (Consultative Group to Assist the Poor) is a global partnership of over 30 leading organizations that seek to advance financial inclusion. CGAP develops innovative solutions through practical research and active engagement with financial service providers, policy makers, and funders to enable approaches at scale. Housed at the World Bank, CGAP combines a pragmatic approach to responsible market development with an evidence-based advocacy platform to increase access to the financial services the poor need to improve their lives. More here.