Financial Inclusion, Interoperability and Market Development in the East African Community
Date
2023
Authors
Cracknell, David
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research Consortium
Abstract
The digital finance revolution in East Africa contributed to a rapid evolution in financial
services, and especially in mobile money-based services. Today, the ability of a
customer to make end-to-end transactions from one provider to any other is assumed
to be critical for continued rapid financial sector development. Interoperability is
believed to promote financial inclusion by promoting greater and cheaper access to
a wide range of financial services. This paper contributes to questions on the benefits
of interoperability from an industry perspective, the anticipated value proposition for
customers, and pricing structures. It establishes how interoperability has worked in
practice across East Africa. From this perspective, it determines the factors that have
influenced the success or lack thereof in interoperability and considers the impact of
interoperability on financial inclusion. The paper looks to the future in assessing how
financial technology can enhance interoperability. It presents lessons for Sub-Saharan
Africa from East African financial inclusion, market development and interoperability.
The paper closes with a discussion of what the research findings mean for future
interoperability. In the absence of comprehensive data, the paper has relied upon
extensive secondary research followed by discussions with 30 primary respondents.
Regional and international respondents were drawn from regulators, policy makers,
payment specialists, donors, and financial sector specialists. The study notes the
impressive results in the value and volume of payments that can be derived from an
interoperable platform, citing the evolution of Safaricom’s M-Pesa and Equity Bank’s
digital banking platforms in Kenya. However, the findings question the assumed
benefits of scheme interoperability, noting the limited interoperability achieved
to date across East Africa, partly resulting from the commercial and competitive
positions taken by industry participants. The position of regulators and policy makers
is evolving as pressure to implement nationally interoperable platforms increases and
the definition of interoperability evolves to include data and payment interoperability.
Financial technology, in particular shared platforms, banking as a service, and cloud based solutions can enhance interoperability, but policy needs to evolve to support
these advances.
Description
Keywords
Payment interoperability, digital interoperability, fintech ecosystem, digital finance ecosystem, payment regulation, financial inclusion, financial sector development, East African financial system.