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Mobile!Payments!and!Financial!Inclusion:!
Kenya,!Brazil,!and!India!as!Case!Studies!
!
Jane!K.!Winn!|!jkwinn1@uw.edu!
University*of*Washington*School*of*Law*
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Legal!Studies!Research!Paper!No.!2015C29!
in!Research!Handbook!on!Electronic!Commerce!Law!(John!A.!Rothchild!ed.,!
Edward!Elgar,!forthcoming!2016)!
!

Electronic copy available at: http://ssrn.com/abstract=2655728

 Mobile'Payments'and'Financial'Inclusion:''Kenya,'Brazil,'and'India'as'Case'Studies'
Jane%K.%Winn*%

Abstract'
Although% financial% inclusion% is% now% recognized% as% an% essential% element% of% any% economic% development%
strategy% that% includes% poverty% reduction,% a% majority% of% the% worlds% poor% remain% excluded% from% formal%
financial% services.% % Since% 2007,% the% Kenyan% mobile% payment% scheme% MGPesa% has% captured% world%
attention%as%a%financial%inclusion%success%story,%although%no%other%countries%have%been%able%to%reproduce%
that%success.%%This%paper%considers%the%impact%of%the%regulatory%environment%on%mobile%payments%as%a%
channel% for% delivering% inclusive% financial% services% using% Kenya,% Brazil% and% India% as% case% studies.% % While%
Kenya% succeeded% in% rapidly% increasing% financial% inclusion,% the% Safaricom% mobile% network% operator%
offering%the%MGPesa%service%ended%up%controlling%99%%of%market%for%mobile%payments,%posing%challenges%
for% regulators% and% prospective% competitors% later% trying% to% dislodge% it% from% its% dominant% position.% % By%
contrast,% Brazil% made% slow% and% steady% progress% toward% achieving% 99%% financial% inclusion% among%
recipients% of% its% Bolsa& Familia% social% welfare% program% through% incremental% improvements% in% its% legacy%
electronic%payment%systems%and%by%creating%a%network%of%business%correspondents%for%banks.%%Progress%
in%India%has%been%slower%as%a%result%of%adopting%a%broad%perspective%on%financial%inclusion%and%pursuing%
multiple%initiatives%simultaneously,%but%inclusive%financial%services%in%India%may%finally%be%poised%to%take%
off.%%Early%attempts%to%regulate%mobile%payments%and%business%correspondents%erected%regulatory%and%
technological%barriers%to%their%adoption,%but%the%new%payment%bank%regulatory%framework%may%finally%
have% removed% those% barriers% for% good.% % In% partnership% with% the% banking% industry% and% to% promote%
competition,% India% has% created% an% open,% public% platform% for% clearing% and% settlement% of% electronic%
payments,%and%has%begun%using%the%new%RuPay%card%network%together%with%the%new%Aadhaar%national%
identity%scheme%to%deliver%direct%benefit%transfers%to%the%poor.%

Contents'
I.%Introduction%.................................................................................................................................%2%
II.%Innovating%Inclusive,%Sustainable%platforms%...............................................................................%6%
A.%Types%of%Innovation%................................................................................................................%7%
B.%Networks%and%Standards%.........................................................................................................%8%
C.%Platforms%and%Pricing%Models%.................................................................................................%9%
D.%Sustainable%Inclusion%............................................................................................................%11%
III.%The%MGPesa%Success%Story%in%Kenya%.........................................................................................%12%
IV.%The%Banking%Correspondent%Success%Story%in%Brazil%................................................................%17%
V.%Inclusive%Innovation%as%a%Public%Good%in%India%.........................................................................%20%
VI.%Conclusion%...............................................................................................................................%25%

*
%Professor,%University%of%Washington%School%of%Law.%

Electronic copy available at: http://ssrn.com/abstract=2655728

I.'Introduction'
% The%term%mobile%payment%system%may%refer%to%any%of%a%wide%variety%of%processes%used%
to%make%payments%with%mobile%phones,1%including:%
Direct%carrier%billing,%such%as%donations%made%to%charity%using%a%mobile%phone;2%
Mobile%phone%credit%card%readers%used%at%the%point%of%sale,%such%as%Square;3%
PayPal%QR%codes%scanned%by%merchants%at%the%point%of%sale;4%
Connecting% mobile% phones% to% a% merchants% point% of% sale% terminal% with% near% field%
communication,%such%as%Apple%Pay;5%
Making%purchases%from%Internet%sites%using%a%browser%on%a%mobile%phone;%or%
Purchasing%apps%for%a%mobile%phone%or%making%inGapp%purchases%on%a%mobile%phone.%
As%diverse%as%these%mobile%payment%systems%are,%none%of%them%have%yet%achieved%widespread%
acceptance%anywhere%in%the%world.%%The%most%successful%mobile%payment%systems%are%used%by%
the%poor%in%developing%countries%and%are%based%on%entirely%different%technology%and%business%
models.%
% The%blockbuster%global%success%story%of%mobile%payments%in%a%developing%country%is%the%
MGPesa%system%launched%in%Kenya%in%2007.%%In%2012,%the%World%Bank%estimated%that%one%in%three%
mobile%money%users%worldwide%were%in%Kenya%although%Kenya%has%less%than%1%%of%the%worlds%
population.6%%Before%MGPesa%was%launched,%around%85%%of%adults%in%Kenya%did%not%have%access%
to% formal% financial% services.% By% 2014,% adults% without% access% to% formal% financial% services% had%
fallen% to% 25%,% roughly% equivalent% to% the% levels% in% Lithuania,% Malaysia,% Poland,% Slovakia,% and%
Thailand,%and%a%lower%rate%than%in%Saudi%Arabia.7%%Although%many%factors%and%institutions%have%
contributed% to% the% success% of% Kenyas% financial% inclusion% efforts% in% recent% years,% the% rapid%
takeoff%of%MGPesas%mobile%payment%network%in%the%late%2000s%was%clearly%a%decisive%factor%in%
jumpGstarting%Kenyas%phenomenal%progress.%

1
%Shaping&the&M2Payments&Future:&Kenya&vs.&the&U.S.,%UNIBUL%CREDIT%CARD%BLOG,%
http://blog.unibulmerchantservices.com/shapingGtheGmGpaymentsGfutureGkenyaGvsGtheGuGs/.%%
2
%Charitable&Giving&Via&Your&Cell&Phone:&Is&the&Convenience&Worth&It?,%CHARITY%WATCH%(Aug.%1,%2010),%
https://www.charitywatch.org/charitywatchGarticles/charitableGgivingGviaGyourGcellGphoneGisGtheGconvenienceG
worthGitG/70.%
3
%Martha%C.%White,%Mobile&Card2Processing&Machines&for&Marketers&on&the&Road,%N.Y.%TIMES%(Apr.%9,%2012),%
http://www.nytimes.com/2012/04/10/business/mobileGcardGprocessingGmachinesGforGmarketersGonGtheG
road.html.%
4
%Alistair%Barr,%PayPal%launches%Payment%Code%to%smooth%inGstore%buying,%USA%Today,%October%8,%2013%
http://www.usatoday.com/story/tech/2013/10/08/paypalGpaymentGcode/2939731/.%
5
%Mike%Isaac,%A&Day&with&Apple&Pay,%N.Y.%TIMES%(Jan.%2,%2015,%7:33%AM),%
http://bits.blogs.nytimes.com/2015/01/02/aGdayGwithGappleGpay/.%
6
%Wolfgang%Fengler,%How&Kenya&Became&a&World&Leader&for&Mobile&Money,%WORLD%BANK%BLOG%(July%16,%2012),%
http://blogs.worldbank.org/africacan/howGkenyaGbecameGaGworldGleaderGforGmobileGmoney.%
7
%Asli%DemirgucGKunt%et%al.,%The&Global&Findex&Database&2014:&Measuring&Financial&Inclusion&Around&the&World%84%
(The%World%Bank,%Policy%Research%Working%Paper%No.%7255,%2015),%available&at%http://wwwG
wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/04/15/090224b082dca3aa/1_0/Rendere
d/PDF/The0Global0Fin0ion0around0the0world.pdf.%

2%

Electronic copy available at: http://ssrn.com/abstract=2655728

 Kenyas% rapid% success% in% increasing% digital% financial% inclusion 8 %was% based% on%
technological% innovations% that% had% been% developed% by% and% for% the% Global% South% of% less%
developed% countries.% % According% to% the% World% Bank,% threeGquarters% of% the% worlds% poor% are%
unbanked.9%%Exclusion%from%formal%financial%services%is%often%both%a%symptom%and%a%cause%of%
extreme%poverty.%%Lack%of%access%to%basic%financial%services%imposes%risks%and%costs%on%the%poor%
that%are%virtually%unknown%to%the%more%affluent,%and%that%the%poor%are%less%equipped%to%bear.%%
Increasing% financial% inclusion% is% now% seen% as% a% critical% element% of% any% strategy% to% alleviate%
poverty.% % Leveraging% the% rapid% rise% in% mobile% phone% adoption,% Kenya% was% able% to% achieve%
financial%inclusion%by%providing%a%simple%remittance%service%that%works%seamlessly%and%reliably%
on% even% the% most% basic% telephone% handsets.% % MGPesa% bypassed% the% complexity% of% modern%
banking%at%a%time%when%traditional%bricksGandGmortar%banks%in%advanced%market%economies%are%
finding%it%ever%more%difficult%to%compete%with%alternative%financial%services.%%In%a%stunning%role%
reversal,%some%have%suggested%that%the%Global%North%of%more%developed%countries%might%have%
something%to%learn%from%the%Global%South%about%innovation%in%financial%technology%and%business%
models.10%%
% With%passing%time,%however,%it%is%becoming%clear%that%mobile%payments%will%not%be%the%
financial%inclusion%panacea%they%once%appeared%to%be.%%The%success%of%MGPesa%has%not%been%easy%
to%reproduce%in%other%countries:%even%Safaricom%itself,%the%mobile%carrier%that%provides%the%MG
Pesa%service%in%Kenya,%could%not%recreate%its%success%just%across%the%border%in%Tanzania.11%%There%
are%two%fundamental%challenges%that%must%be%resolved%in%order%for%a%disruptive%technology%like%
mobile%payments%to%have%a%transformative%impact%on%the%lives%of%the%poor:%%it%has%to%make%sense%
to%the%poor%to%use%the%service,%and%it%has%to%make%sense%to%service%providers%to%offer%the%service.%%
The% success% of% MGPesa% in% Kenya% demonstrates% that% both% challenges% can% be% addressed%
simultaneously,%but%the%absence%of%any%other%countries%able%to%reproduce%the%speed%and%scale%
of%Kenyas%success%demonstrates%how%difficult%that%is%to%do.%%%
The%logic%of%the%lives%of%the%poor%is%often%difficult%for%outsiders%to%grasp.12%%As%a%result,%
many% innovative% solutions% developed% to% benefit% the% poor% never% achieve% widespread% adoption%
even% though% their% value% appears% obvious,% making% their% lack% of% adoption% mystifying% to% their%

8
%Kate%Lauer%and%Timothy%Lyman,%Digital&Financial&Inclusion:&&Implications&for&Customers,&Regulators,&Supervisors,&
and&Standard2Setting&Bodies%1%(CGAP,%Working%Paper,%2015),%available&at%
http://www.cgap.org/sites/default/files/BriefGDigitalGFinancialGInclusionGFebG2015.pdf%
9
%World%Bank%Press%Release,%New%Database%Shows%Three%Quarters%of%Worlds%Poor%Are%Unbanked,%April%19,%2012,%
available&at%http://www.worldbank.org/en/news/pressGrelease/2012/04/19/newGdatabaseGshowsGthreeGquartersG
ofGworldsGpoorGareGunbanked.%
10
%Reuben%Kyama%&%Anca%Teodorescu,%Role&Reversal&as&African&Technology&Expands&in&Europe,%PHYS.ORG%(Aug.%13,%
2014),%http://phys.org/news/2014G08GroleGreversalGafricanGtechnologyGeurope.html.%
11
%GUNNAR%CAMNER%ET%AL.,%GSMA,%WHAT%MAKES%A%SUCCESSFUL%MOBILE%MONEY%IMPLEMENTATION?:%LEARNINGS%FROM%MGPESA%IN%
KENYA%AND%TANZANIA%(2009),%available&at%http://www.gsma.com/mobilefordevelopment/wpG
content/uploads/2012/03/WhatGmakesGaGsuccessfulGmobileGmoneyGimplementation.pdf;%see&infra%text%at%notes%
62G65%describing%Vodacoms%later%success%in%Tanzania%but%without%the%dominant%market%position%it%enjoys%in%Kenya.%
12
%David%L.%Kirp,%What&Do&the&Poor&Need?&Try&Asking&Them,%N.Y.%TIMES%(Aug.%8,%2015),%
http://www.nytimes.com/2015/08/09/opinion/sunday/davidGlGkirpGwhatGdoGtheGpoorGneedGtryGaskingGthem.html;%
see&generally&KATHERINE%BOO,%BEHIND%THE%BEAUTIFUL%FOREVERS:%LIFE,%DEATH,%AND%HOPE%IN%A%MUMBAI%UNDERCITY%(2014).%

3%
sponsors.%%Understanding%why%adoption%rates%for%appropriate%technologies13%such%as%mobile%
payments%are%low%among%the%poor%in%developing%countries%requires%ethnographic%research%into%
the%context%within%which%the%poor%make%decisions,%as%well%as%careful%attention%to%the%real%cost%
of%using%new%products%and%services%as%opposed%to%their%nominal%price.14%
% Putting% together% the% right% package% of% features% and% prices% that% will% cause% a% mobile%
payment% system% to% take% off% is% not% just% a% problem% for% mobile% payment% service% providers% in%
developing% countries.% % Mobile% payment% penetration% rates% remain% even% lower% in% developed%
countries% than% in% developing% countries.% % According% to% the% most% recent% World% Bank% statistics,%
only% 2%% of% all% adults% worldwide% were% using% mobile% payment% services% in% 2014.15%% When% the%
relatively% high% utilization% rates% for% mobile% payments% in% some% developing% countries% are% taken%
into%account,%it%becomes%obvious%that%most%adults%in%advanced%market%economies%see%very%little%
value%in%mobile%payments,%notwithstanding%all%the%media%hype%about%them.%%%
The%economic%theories%of%network%effects%and%multisided%platforms%can%help%to%explain%
why%it%is%difficult%to%secure%the%support%of%enough%service%providers%to%guarantee%the%success%of%
digital%financial%inclusion%efforts.16%When%network%effects%are%present,%the%utility%of%each%user%
of% a% network% increases% as% the% number% of% other% users% on% the% network% increases.% % A% platform%
operator% has% to% create% the% framework% within% which% all% the% different% stakeholder% groups%
participating% in% a% platform% can% interact.% % In% order% for% a% network% to% achieve% a% critical% mass% of%
adoptions% and% take% off,% there% must% be% strong% incentives% for% potential% users% to% join% the%
network.% % One% way% to% generate% strong% enough% incentives% to% achieve% takeoff% is% to% allow% a%
platform%operator%to%develop%a%pricing%model%that%generates%enough%revenue%to%cover%the%cost%
of%incentives%to%bring%on%board%stakeholders,%who%might%otherwise%be%indifferent%to%the%success%
of% the% platform.% % Because% MGPesa% was% successful% in% tapping% into% latent% demand% for% mobile%
remittance%services,%it%could%charge%users%of%its%remittance%services%fees%high%enough%to%cover%
the%costs%of%recruiting%a%national%network%of%agents%to%provide%the%service.%
This% chapter% about% international% perspectives% on% the% regulation% of% mobile% payment%
systems%is%one%of%a%collection%of%essays%analyzing%recent%developments%in%electronic%commerce%
law.%%It%focuses%on%the%use%of%mobile%payment%systems%as%a%tool%for%achieving%digital%financial%
inclusion%in%developing%countries%because%it%is%in%those%markets%that%the%most%successful%mobile%
payment% systems% in% the% world% can% be% found.% % In% the% last% decade,% almost% every% developing%
country%in%the%world%has%launched%some%kind%of%digital%financial%inclusion%program,%and%mobile%
payment%systems%play%a%major%role%in%many%of%those%efforts.%%This%chapter%will%provide%a%general%

13
%The%notion%of%appropriate%technology%was%first%suggested%in%1961%by%E.F.%Schumacher%who%drew%on%the%ideas%
of%Gandhi.%%Kelvin%W.%Willoughby,%TECHNOLOGY%CHOICE:%A%CRITIQUE%OF%THE%APPROPRIATE%TECHNOLOGY%MOVEMENT%15%(1990).%
14
%Joseph%Wong%&%Dilip%Soman,%Introduction:&Rethinking&Innovation,%in%INNOVATING%FOR%THE%GLOBAL%SOUTH:%%TOWARDS%AN%
INCLUSIVE%INNOVATION%AGENDA%3%(Dilip%Soman,%Janice%Gross%Stein%&%Joseph%Wong%eds.,%2014).%%
15
%Asli%DemirgucGKunt%et%al.,%The&Global&Findex&Database&2014:&Measuring&Financial&Inclusion&Around&the&World%2%
(The%World%Bank,%Policy%Research%Working%Paper%No.%7255,%2015),%available&at%http://wwwG
wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/04/15/090224b082dca3aa/1_0/Rendere
d/PDF/The0Global0Fin0ion0around0the0world.pdf%
16
%Joseph%Farrell%&%Garth%Saloner,%Standardization,&Compatibility,&and&Innovation,%16%RAND%J.%ECON.%70%(1985);%JeanG
Charles%Rochet%&%Jean%Tirole,%Platform&Competition&in&Two2Sided&Markets,%1%J.%EUR.%ECON.%ASSN%990%(2003).%

4%
overview%and%comparison%of%three%highGprofile%examples%of%digital%financial%inclusion%programs%
in%Kenya,%Brazil,%and%India:17%
Kenya%used%a%combination%of%disruptive%innovation%and%light%touch%regulation%to%permit%
its%leading%mobile%network%operator,%Safaricom,%to%run%a%payment%system%largely%outside%
the% formal% banking% system.% % Safaricoms% new% platform% for% inclusive% financial% services%
took% off% quickly% by% offering% a% narrow% range% of% services% with% a% simple,% userGfriendly%
interface.% % However,% Safaricoms% 99%% share% of% the% new% market% it% created% later% posed%
challenges% to% Kenyan% regulators% hoping% to% promote% competition% in% the% market% for%
inclusive%financial%services.%
Brazils% successful% digital% financial% inclusion% strategy% is% based% on% its% banking% system%
rather% than% mobile% telephony% because% this% approach% permitted% Brazil% to% leverage%
decades%of%incremental%technological%innovations%in%its%banking%industry.%%Decades%ago,%
Brazils% banks% began% investing% heavily% in% information% technology% to% cope% with% periodic%
bouts%of%hyperinflation,%and%operating%a%national%computerized%interbank%bill%payment%
system.% % When% the% Workers% Party% government% expanded% the% scope% of% direct% benefit%
transfers% to% the% poor,% Brazils% banks% created% an% efficient% distribution% system% by%
dramatically% increasing% the% number% of% business% correspondentsincluding% lottery%
houses,%construction%goods%stores,%supermarkets,%bakeries,%butcher%shops,%pharmacies,%
post%offices,%gas%stations,%and%department%storesauthorized%to%serve%as%cashGin,%cashG
out%points%for%the%banks.%
India%has%made%the%least%progress%to%date,%but%has%set%its%sights%on%the%most%ambitious%
financial% inclusion% goals,% and% is% finally% closing% in% on% achieving% those% goals.% % India% is%
creating%an%open,%interoperable%public%foundation%for%new%electronic%payment%services%
in% order% to% promote% competition% among% financial% service% providers% and% to% insure% the%
compatibility% of% new% financial% services% with% its% social% banking% objectives.% % After% the%
regulations% initially% issued% to% govern% mobile% payment% and% business% correspondent%
services% proved% too% restrictive,% the% regulatory% framework% was% overhauled% to% strike% a%
better% balance% between% prudential% safeguards% and% market% incentives.% % Indias% current%
system% for% delivering% government% assistance% to% the% poorin% the% form% of% goods% and%
services%doled%out%directly%by%governmentis%being%replaced%with%a%new%system%of%cash%
transfers% made% using% the% new% RuPay% card% network,% the% new% Aadhaar% digital% national%
identity%system,%and%bank%accounts.%%
Each% of% these% countries% has% made% significant% progress% in% financial% inclusion% by% using% very%
different% digital% financial% inclusion% strategies,% suggesting% that% while% mobile% payment% systems%
may% play% an% important% role% in% increasing% financial% inclusion,% the% focus% of% financial% inclusion%

17
%The%World%Bank%classifies%Kenya%as%a%low%income%country,%India%as%lower%middle%and%Brazil%as%an%upper%
middle%income%country,%although%both%India%and%Brazil%suffer%from%severe%income%inequality%and%have%large%
populations%living%in%absolute%poverty.%%DemirgucGKunt%et%al.,%supra&note%13.%%As%of%2014,%the%World%Bank%defined%
lowGincome%economies%as%those%with%a%gross%national%income%(GNI)%per%capita%of%$1,045%or%less;%middleGincome%
economies%as%those%with%a%GNI%per%capita%of%more%than%$1,045%but%less%than%$12,746;%and%highGincome%economies%
as%those%with%a%GNI%per%capita%of%$12,746%or%more.%The%dividing%line%between%lowerGmiddleGincome%and%upperG
middleGincome%economies%is%at%a%GNI%per%capita%of%$4,125.%Updated&Income&Classifications,%THE%WORLD%BANK%(July%3,%
2014,%8:59%AM),%http://data.worldbank.org/news/2015GcountryGclassifications.%

5%
programs% should% be% on% maximizing% the% value% digital% financial% services% offer% both% users% and%
service%providers,%rather%than%on%a%particular%delivery%channel.%

II.'Innovating'Inclusive,'Sustainable'platforms'
% The%World%Bank%explains%the%connection%between%financial%inclusion,%poverty%alleviation,%
and%development%strategy%in%the%following%terms:%
WellGfunctioning% financial% systems% serve% a% vital% purpose% by% offering%
savings,%payment,%credit,%and%risk%management%services%to%individuals%and%firms.%%
Inclusive% financial% services% are% those% with% a% high% share% of% individuals% and% firms%
that% use% financial% services.% % Without% inclusiveness% in% financial% systems,% people%
must% rely% on% their% own% limited% savings% to% invest% in% education% or% become%
entrepreneurs.% % Newly% founded% enterprises% must% likewise% depend% on% their%
constrained%earnings%to%take%advantage%of%promising%growth%opportunities.%%This%
can%contribute%to%persistent%income%inequality%and%slow%economic%growth.18%
A%recent%policy%paper%published%by%the%Gates%Foundation%reiterates%these%basic%insights%in%the%
following%terms:%
[R]oughly%2.5%billion%people%in%the%world%dont%have%access%to%a%traditional%bank%
account77%%of%whom%live%on%less%than%$2%a%day.%%The%problem%is%not%that%the%
poor%dont%use%or%need%financial%servicesstudies%show%that%they%dobut%that%
the% tools% which% the% economically% disadvantaged% are% forced% to% utilize% are%
unreliable,%expensive%and%hard%to%use.%%As%a%result,%they%usually%struggle%to%stitch%
together% a% patchwork% of% informal,% often% precarious% arrangements% to% manage%
their%financial%lives.%%Research%shows%that%the%right%financial%tools%at%critical%times%
can% determine% whether% a% poor% household% can% capture% an% opportunity% to% move%
out%of%poverty,%or%weather%a%shock%without%being%pushed%deeper%into%poverty.19%
As%a%result%of%rising%levels%of%economic%development%generally%and%targeted%efforts%to%improve%
financial%inclusion%in%particular,%the%rate%of%participation%in%formal%financial%institutions%in%most%
countries% is% rising.% % However,% progress% reflected% in% aggregate% national% statistics% often% hides%
growing%income%inequality%within%national%economies.20%In%other%words,%while%many%are%being%
lifted% out% of% poverty% and% into% active% roles% in% the% formal% economy,% many% individuals% remain%
mired%in%absolute%poverty%with%little%hope%of%gaining%access%to%formal%financial%services.%%Among%
the%institutional%barriers%that%exclude%them%from%formal%financial%services%are%high%costs,%high%
minimum%account%requirements,%physical%distance,%and%lack%of%proper%documentation.%

18
%THE%WORLD%BANK,%GLOBAL%FINANCIAL%DEVELOPMENT%REPORT:%FINANCIAL%INCLUSION%15%(2014),%available&at%
http://siteresources.worldbank.org/EXTGLOBALFINREPORT/Resources/8816096G1361888425203/9062080G
1364927957721/GFDRG2014_Complete_Report.pdf.%
19
%BILL%&%MELINDA%GATES%FOUNDATION,%THE%LEVEL%ONE%PROJECT%GUIDE:%DESIGNING%A%NEW%SYSTEM%FOR%FINANCIAL%INCLUSION%4%
(2015),%available&at%https://leveloneproject.org/wpGcontent/uploads/2015/04/TheGLevelGOneGProjectGGuideG
DesigningGaGNewGSystemGforGFinancialGInclusion1.pdf.%
20
%Wong%&%Soman,%supra%note%12.%%

6%
 Walter%Wriston,%CEO%of%Citicorp%during%the%1970s,%was%among%the%first%to%recognize%the%
integral% role% of% information% technology% in% modern% financial% services% when% he% noted% that%
information%about%money%has%become%almost%as%important%as%money%itself.21%%Innovations%in%
information% technology% hold% the% promise% of% radically% reducing% the% cost% of% providing% financial%
services%to%lowGincome%individuals%who%only%maintain%small%balances%in%their%accounts,%the%cost%
for%individuals%to%establish%their%identities%when%opening%or%accessing%accounts,%and%the%cost%in%
time%spent%and%distance%traveled%for%individuals%to%access%those%accounts.%%Because%so%many%of%
the% structural% factors% contributing% to% financial% exclusion% can% be% reduced% by% innovations% in%
information%technology,%digital%financial%inclusion%strategies%have%now%taken%center%stage.%

A.'Types'of'Innovation'
In% 1997,% Harvard% Business% School% professor% Clayton% Christensen% published% his% seminal%
study%of%innovation%in%business,%The&Innovators&Dilemma:&When&New&Technologies&Cause&Great&
Firms&to&Fail.%22%%Rather%than%study%easy%cases%involving%the%failure%of%marginal%firms%to%adapt%to%
technological%innovation,%Christensen%set%himself%the%much%more%difficult%task%of%explaining%why%
firms% with% a% strong% track% record% of% successfully% adapting% to% changing% conditions% over% time%
unexpectedly% stumble% in% the% face% of% some% kinds% of% technological% innovation.% % To% do% this,%
Christensen% distinguished% between% the% kind% of% sustaining% innovation% that% is% focused% on%
perfecting% existing% products% and% the% kind% of% disruptive% innovation% that% Joseph% Schumpeter%
described% as% the% creative% destruction% of% capitalism.23%% Established% firms% that% have% a% strong%
reputation% for% excellence% in% sustaining% innovation% often% have% difficulty% responding% to%
innovations% that% threaten% the% viability% of% their% core% competences% because% doing% so% might%
undermine% their% reputation% for% consistent% excellence.24%% On% the% other% hand,% startups% with% no%
reputation%other%than%as%innovators%are%free%to%fail%repeatedly%while%they%create%entirely%new%
products%and%services.%
Incumbents% in% financial% services% markets% often% find% it% even% more% difficult% to% engage%
disruptive%innovation%than%firms%in%other%sectors%of%the%economy%because%they%are%subject%to%
intense% regulatory% oversight% designed% to% guarantee% the% safety% and% soundness% of% financial%
markets.%%This%problem%is%exacerbated%in%many%developing%countries%by%the%common%practice%of%
overriding% market% mechanisms% for% allocating% credit% with% government% controls% intended% to%
support%national%economic%development%objectives.%%In%the%absence%of%information%technology%
innovation% to% radically% lower% the% costs% of% delivering% financial% services,% banks% in% developing%
countries%face%the%further%challenge%of%the%high%cost%of%maintaining%a%brickGandGmortar%branch%
network% in% areas% where% demand% for% transactional% services% would% be% high,% while% savings% rates%
would% be% low.% % For% these% reasons,% sustaining% innovation% strategies% aimed% at% conventional%

21
%Walter&Wriston,%WIKIPEDIA,%https://en.wikipedia.org/wiki/Walter_Wriston.%
22
%CLAYTON%M.%CHRISTENSEN,%THE%INNOVATORS%DILEMMA:%WHEN%NEW%TECHNOLOGIES%CAUSE%GREAT%FIRMS%TO%FAIL%(1997).%
23
%JOSEPH%A.%SCHUMPETER,%CAPITALISM,%SOCIALISM%AND%DEMOCRACY%83%(1944).%
24
%C.K.%Prahalad%&%Gary%Hamel,%The&Core&Competence&of&the&Corporation,%HARV.%BUS.%REV.,%MayGJune%1990,%at%79.%%

7%
banking%services%are%unlikely%to%produce%lasting%increases%in%the%rate%of%financial%inclusion,%while%
disruptive%innovation%strategies%such%as%MGPesa%hold%such%promise.25%%
In%2014,%Christensen%crowdGsourced%a%followGup%study%of%business%innovation%strategy%
designed%to%discover%why,%in%the%aftermath%of%the%Global%Financial%Crisis,%so%many%firms%were%
awash%with%financial%capital%but%were%investing%so%little%in%the%kind%of%innovation%that%might%help%
restore% economic% prosperity% generally.26%% Because% his% focus% had% shifted% to% the% contribution% of%
innovation% to% economic% growth% generally,% rather% than% just% its% impact% on% incumbents% in%
established% markets,% Christensen% proposed% a% new% taxonomy% for% describing% different% forms% of%
innovation:%
PerformanceGimproving% innovations% which% replace% old% products% with% new% and% better%
models.%%
Efficiency% innovations% which% help% companies% make% and% sell% mature,% established%
products%or%services%to%the%same%customers%at%lower%prices.%%
MarketGcreating%innovations%which%transform%complicated%or%costly%products%so%radically%
that%they%create%a%new%class%of%consumers,%or%a%new%market.27%%
Innovative% mobile% payment% services% in% advanced% market% economies% with% mature,%
technologically%sophisticated%financial%services%tend%to%fall%into%the%performanceGenhancing%or%
efficiency%categories.%%In%lowGincome%developing%countries,%mobile%payment%services%such%as%MG
Pesa%have%the%potential%to%serve%as%market%creating%innovations%because%no%market%for%formal%
financial% services% yet% exists% that% can% serve% the% poor% profitably.% % Even% using% cutting% edge%
technologies,%however,%governments%in%most%developing%countries%face%formidable%challenges%
in%trying%to%create%markets%for%digital%financial%services%from%scratch.%%%

B.'Networks'and'Standards'
All%digital%financial%services,%whether%targeting%mainstream%customers%or%the%financially%
excluded,% operate% as% networks.28%% Networks% are% often% associated% with% externalities,% i.e.,% costs%
and%benefits%incurred%by%those%not%party%to%a%transaction%and%not%reflected%in%the%price,%because%
the%value%of%a%network%to%one%user%increases%as%a%function%of%the%number%of%other%users%on%the%
network.29%%For%example,%buying%a%fax%machine%priced%to%cover%only%the%costs%of%producing%and%
distributing% the% machine% permits% users% to% enjoy% the% positive% externality% of% being% able% to%
communicate%with%anyone%else%who%owns%a%fax%machine,%without%any%obligation%to%compensate%
those% other% owners% for% access.% % The% positive% and% negative% externalities% associated% with%
networks%are%referred%to%as%network%effects.%%%
Many% markets% for% information% and% communication% technology% (ICT)% products% are%
characterized% by% strong% network% effects,% which% tends% to% make% it% difficult% to% launch% new%
25
%As%a%middle%income%developing%country,%Brazil%was%able%to%increase%its%rate%of%financial%inclusion%successfully,%
without%disruptive%innovation,%because%its%banking%system%used%sustaining%innovation%to%add%a%network%of%retail%
cashGin,%cashGout%points%to%its%existing%electronic%payment%processing%systems.%
26
%Clayton%M.%Christensen%&%Derek%van%Bever,%The&Capitalists&Dilemma,%HARV.%BUS.%REV.,%June%2014,%at%60.%
27
%Id.%at%62G63.%%
28
%Jane%K.%Winn,&Governance&of&Global&Mobile&Money&Networks:&The&Role&of&Technical&Standards,%8%WASH.%J.L.%TECH.%
&%ARTS%197%(2013).%
29
%Farrell%&%Saloner,%supra%note%14.%

8%
products,%but%easy%to%sustain%existing%products.%%This%chicken%and%egg%effect%arises%because,%
until%a%network%has%many%users,%it%is%difficult%to%attract%users,%but%once%a%network%has%achieved%a%
critical% mass% of% adoptions,% it% becomes% very% easy% to% attract% more% users.% % This% also% means% that%
users%of%a%successful%network%may%become%lockedGin%to%using%that%network,%i.e.,%reluctant%to%
switch% to% a% new% network% even% if% it% offers% superior% performance,% if% sponsors% of% competing%
networks% cannot% convince% them% that% a% new% network% will% have% at% least% as% many% users% as% the%
current% one.% % If% the% benefits% of% user% lockGin% accrue% to% the% first% network% to% be% established% in% a%
market,% making% it% difficult% for% later% entrants% to% challenge% its% market% dominance,% then% that%
network% enjoys% a% first% mover% advantage.% Thus,% a% fundamental% strategic% challenge% facing%
promoters% trying% to% get% a% new% network% to% take% off% is% to% find% incentives% strong% enough% to%
overcome%the%reluctance%of%users%locked%in%to%an%existing%system%to%join%the%new%network.%%
Networks% are% defined% by% standards,% and% may% be% physical,% electronic% or% virtual.30%If% a%
network%is%based%on%open,%public%standards%rather%than%closed,%proprietary%standards,%the%risk%
of% lockGin% may% be% reduced.31%% This% is% because% open% standards% promote% competition% among%
multiple%producers%using%the%same%standard,%while%proprietary%standards%enhance%the%market%
power%of%a%single%producer.%%If%standards%are%made%freely%available%to%the%public,%then%barriers%
to% entry% and% switching% costs% for% consumers% may% be% lowered.% % While% individual% enterprises%
seeking%a%firstGmover%advantage%will%be%most%interested%in%closed,%proprietary%standards,%later%
entrants% in% the% market% will% favor% open,% public% standards.% % Private% sector% actors% will% often% join%
together%to%develop%open,%public%standards%governing%product%features%that%are%not%perceived%
as%a%source%of%competitive%advantage%for%individual%firms.%%By%contrast,%if%a%product%feature%is%
perceived%to%provide%a%unique%competitive%advantage,%its%developer%might%be%expected%to%resist%
standardization% of% that% feature,% which% would% open% it% up% to% competitors.% % Active% collaboration%
among% competitors% to% develop,% implement,% and% keep% standards% updated% is% one% way% high%
switching%costs%and%lockGin%can%be%avoided.%%In%markets%for%financial%services%in%advanced%market%
economies,%banks%often%collaborate%on%the%development%of%payment%system%standards%because%
banks%expect%to%compete%on%complementary%products%and%services.%

C.'Platforms'and'Pricing'Models'
A%multiGsided%platform%allows%interaction%between%consumers%or%%producers%in%different%
but% related% markets.% % While% direct% network% effects,% like% those% described% in% the% fax% machine%
example%above,%can%fuel%the%growth%of%any%network,%the%growth%of%multiGsided%platforms%is%a%
function%of%indirect%network%effects,%or%positive%externalities%linking%complimentary%markets.%%
The% Apple% iPhone% is% a% multiGsided% platform% because% the% market% for% app% developers% and% the%
market%for%phone%users%are%complimentary:%%increasing%the%number%of%app%developers%increases%
the% positive% network% effects% enjoyed% by% phone% users% and% vice% versa.% The% key% to% a% successful%
platform%pricing%model%is%to%charge%high%enough%prices%to%more%committed%stakeholders%on%one%
side%to%cover%the%costs%of%subsidizing%adoption%by%more%ambivalent%stakeholders%on%the%other%

30
%A%railroad%is%a%physical%network,%the%Internet%is%an%electronic%network,%and%sneaker%net%is%a%virtual%network%
(transferring%data%from%one%computer%to%another%by%walking%between%the%computers%holding%the%data%on%portable%
storage%media%such%as%a%floppy%disk%or%flash%drive).%%
31
%CARL%SHAPIRO%&%HAL%R.%VARIAN,%INFORMATION%RULES:%A%STRATEGIC%GUIDE%TO%THE%NETWORK%ECONOMY%(1999);%Mark%A.%Lemley%
&%David%McGowan,%Legal&Implications&of&Network&Economic&Effects,%86%CALIF.%L.%REV.%479%(1998).%

9%
side.32%% Unlike% conventional% pricing% models% that% require% recovering% the% costs% of% producing%
goods%or%services%plus%some%return%on%capital%in%the%form%of%profits,%platform%pricing%requires%
raising% enough% money% from% some% participants% to% win% the% participation% of% others% without%
reference%to%actual%production%costs.33%%For%example,%global%card%payment%networks%charge%high%
interchange%fees%to%merchants%that%accept%card%payments,%some%of%which%are%passed%on%to%
cardholders%as%incentives%to%use%cards%instead%of%cash.%%%
With%the%power%to%collect%and%distribute%revenue%from%different%stakeholder%groups%and%
to% regulate% conduct% on% the% platform,% operators% of% successful% platforms,% supported% by% strong%
network%effects,%exercise%de%facto%regulatory%authority%over%platform%users.34%%While%there%may%
be% a% consensus% among% economists% and% entrepreneurs% that% broad% discretion% to% depart% from%
marginal%cost%pricing%for%platform%services%is%an%essential%prerequisite%to%the%successful%take%off%
of%platforms,%regulators%have%been%skeptical%that%to%allow%a%private%regulator%to%exercise%such%
broad%discretion%will%serve%the%public%interest.%%When%the%private%regulatory%power%of%a%platform%
operator% is% exercised% for% the% benefit% of% some% stakeholders% at% the% expense% of% others,% national%
competition%and%antitrust%laws%have%been%imposed%to%limit%the%freedom%of%a%platform%operator%
to%set%prices.35%%%
Nowhere%has%the%conflict%between%platform%operators%demanding%discretion%to%choose%
among% pricing% models% and% regulators% trying% to% limit% platform% operators% discretion% on% pricing%
matters%been%more%acute%than%the%market%for%card%payment%services.%%One%of%the%key%factors%
contributing%to%the%global%dominance%of%the%Visa%and%MasterCard%payment%networks%has%been%
the% success% of% their% platform% pricing% model.% % The% main% stakeholder% groups% in% card% payment%
networks% include% cardholders,% banks% issuing% cards,% merchants% accepting% card% payments,% and%
banks% acquiring% card% receivables% from% merchants.% % Their% pricing% models% require% merchants% to%
accept%a%relatively%high%discount%rate%for%card%payments,%and%require%acquiring%banks%to%split%the%
revenue% they% collect% from% merchant% discounts% with% issuing% banks.% % Using% the% fees% paid% by%
merchants%to%acquiring%banks%to%create%incentives%for%issuing%banks%to%issue%more%cards%and%for%
consumers%to%make%more%payments%by%card%in%lieu%of%cash%or%check%created%a%powerful%engine%
driving%the%growth%of%the%Visa%and%MasterCard%networks.%%While%the%contribution%of%this%pricing%
model% to% helping% a% payment% platform% achieve% take% off% is% clear,% it% also% raises% difficult% issues%
under% competition% and% antitrust% law.36%% It% has% also% spawned% intense% political% controversy% in%
Europe% and% America% where% regulators% and% retailers% have% fought% major% card% network% pricing%
policies%on%a%variety%of%grounds%for%decades.37%

32
%Andrei%Hagiu,%Software&Platforms,%in%THE%OXFORD%HANDBOOK%OF%THE%DIGITAL%ECONOMY%59%(Martin%Peitz%&%Joel%
Waldfogel%eds.,%2012).%%
33
%DAVID%S.%EVANS,%INTERCHANGE%FEES:%THE%ECONOMICS%AND%REGULATION%OF%WHAT%MERCHANTS%PAY%FOR%CARDS%(2011).%
34
%Kevin%J.%Boudreau%&%Andrei%Hagiu,%Platform&Rules:&Multi2Sided&Platforms&as&Regulators,%in%PLATFORMS,%MARKETS%
AND%INNOVATION%163%(Annabelle%Gawer%ed.,%2009);%Jane%K.%Winn,%Technical&Standards&as&Data&Protection&Regulation,&
in%REINVENTING%DATA%PROTECTION?%191%(Serge%Gutwirth%et%al.%eds.,%2009).%
35
%See&generally%MARIA%CHIARA%MALAGUTI%&%ALESSANDRA%GUERRIERI,%EUROPEAN%CREDIT%RESEARCH%INSTITUTE,%MULTILATERAL%
INTERCHANGE%FEES:%%COMPETITION%AND%REGULATION%IN%LIGHT%OF%RECENT%LEGISLATIVE%DEVELOPMENTS%(2014),%available&at%
http://www.ceps.eu/system/files/ECRI%20RR15a.pdf.%
36
%Natl%Bancard%Corp.%v.%Visa%U.S.A.,%Inc.,%779%F.2d%592%(11th%Cir.%1986)%(upholding%the%freedom%of%card%networks%to%
split%fees%in%the%face%of%an%antitrust%challenge).%
37
%See&generally%JANE%K.%WINN%&%BENJAMIN%WRIGHT,%THE%LAW%OF%ELECTRONIC%COMMERCE%%7.07%(4th%ed.%Supp.%2014).%%

10%
%

D.'Sustainable'Inclusion'
Christensens%idea%of%market%creating%innovation%requires%an%innovator%to%create%both%
market% institutions% and% new% products% simultaneously.% % That% might% have% been% an%
insurmountable% challenge% for% even% the% most% disruptive% innovators% before% the% information%
revolution%radically%lowered%the%cost%of%sharing%information%and%taking%collective%action.%%Today,%
marketGcreating%innovation%is%a%hallmark%of%many%of%the%most%successful%companies%in%the%world:%%
Google,% Apple,% Amazon,% Microsoft,% eBay,% and% Facebook% have% created% both% new% markets% and%
new% products% distributed% within% those% markets.% % These% successful% ICT% disruptors% now% enjoy%
strong%network%effects%and%use%platform%pricing%models%to%fuel%their%growth,%making%them%both%
product%vendors%and%de%facto%regulators%of%the%markets%they%have%created.%%If%marketGcreating%
innovation% is% recognized% as% the% goal% of% most% digital% financial% inclusion% strategies% in% countries%
with%high%rates%of%financial%exclusion%today,%then%network%effects%and%platform%pricing%models%
should%be%recognized%critical%factors%in%those%strategies.%
In% the% face% of% mounting% evidence% that% MGPesas% success% as% a% digital% financial% inclusion%
strategy%will%be%difficult%to%reproduce%in%other%countries,%attention%has%shifted%from%the%channel%
used%to%deliver%inclusive%financial%services%to%the%critical%success%factors%required%to%make%the%
operation%of%a%digital%financial%inclusion%system%sustainable.%%In%this%context,%sustainable%does%
not%refer%to%biological%ecosystem%sustainability%but%the%sustainability%of%hybrid%social%business%
models% that% try% to% fuse% public% distributional% goals% with% private% economic% incentives.% % At% a%
minimum,% sustainable% digital% financial% services% will% require% a% compelling% value% proposition% for%
service%providers%and%end%users%plus%a%platform%governance%strategy.%%For%MGPesa%in%Kenya,%the%
value% proposition% for% users% was% fast,% cheap,% reliable% remittance% services% from% urban% to% rural%
areas,% while% for% agents% it% was% fee% income.% % For% banking% correspondents% in% Brazil,% the% value%
proposition%for%users%was%fast,%cheap,%and%reliable%access%to%banking%services%at%retail%merchants%
and%the%value%proposition%for%banking%agents%was%increased%traffic%in%their%stores%and%increased%
customer%loyalty%in%addition%to%modest%fee%income.%%Before%various%regulatory%and%technological%
barriers%were%recently%removed,%mobile%money%and%banking%correspondent%services%in%India%did%
not%offer%a%clear%value%proposition%to%either%users%or%service%providers.%%However,%Indias%new%
RuPay%payment%card%network%appears%likely%to%offer%a%clear%value%proposition%to%both%users%in%
terms% of% fast,% cheap,% and% reliable% access% to% direct% benefit% transfers,% and% to% banks% and% their%
correspondents%in%terms%of%new%fee%revenues.%
Empirical%research%into%the%financial%lives%of%the%poor%has%revealed%how%difficult%it%can%be%
to%convert%latent%endGuser%demand%into%recurring%consumption%that%is%embedded%in%the%fabric%
of%endGusers%lives.38%%This%is%partly%because%the%financial%lives%of%those%living%in%absolute%poverty%
turn%out%to%be%as%complex%as%the%financial%lives%of%the%wellGoff.39%%It%is%also%because%the%process%of%
collecting%hard%evidence%about%which%poverty%alleviation%strategies%work%and%which%do%not%work%
has%barely%begun.40%%In%the%absence%of%concrete%information%about%the%actual%costs%and%benefits%

38
%Wong%&%Soman,%supra%note%12.%
39
%DARYL%COLLINS%ET%AL.,%PORTFOLIOS%OF%THE%POOR:%HOW%THE%WORLDS%POOR%LIVE%ON%$2%A%DAY%(2009).%%
40
%DEAN%KARLAN%&%JACOB%APPEL,%MORE%THAN%GOOD%INTENTIONS:%IMPROVING%THE%WAYS%THE%WORLDS%POOR%BORROW,%SAVE,%FARM,%
LEARN,%AND%STAY%HEALTHY%(2012).%%

11%
to%the%poor%of%different%choices,%it%is%very%difficult%for%outsiders%to%guess%what%will%be%perceived%
as%clearly%offering%a%net%benefit%over%whatever%they%are%doing%today.%
Because% digital% financial% inclusion% services% often% exist% within% newly% created% markets,%
there%may%also%be%a%shortage%of%information%about%which%business%models%are%viable%for%service%
providers% and% which% are% not.% % NonGgovernmental% organizations% such% as% the% Bill% and% Melinda%
Gates%Foundation41%and%MicroSave42%have%pointed%out%that%only%inclusive%financial%services%that%
can%be%operated%at%a%profit%for%the%service%provider%are%sustainable%in%the%economic%sense.%
Mandating%that%operators%of%nascent%platforms%fully%internalize%all%costs%associated%with%
their%services%before%their%platforms%have%been%successfully%launched%may%put%insurmountable%
barriers%in%the%way%of%their%success.%%One%strategy%for%keeping%the%costs%of%protecting%consumer%
interests% low% might% be% to% automate% processes% for% mitigating% as% many% risks% as% possible% in% the%
design% of% the% payment% platform% itself.% % If% electronic% payments% are% only% offered% as% push%
payments%sent%by%the%payor%and%not%pull%payments%requested%by%the%payee,%then%fraud%risks%
can% be% reduced.% % If% electronic% payments% are% fully% executed% in% real% time,% without% the% delays%
associated% with% older% forms% of% electronic% payments,% then% the% risk% to% consumers% from% using%
them%is%similar%to%that%associated%with%cash.43%
% Kenya,%Brazil,%and%India%each%approached%the%challenge%of%increasing%their%national%rates%
of%financial%inclusion%with%different%institutional%endowments,%stakeholder%constituencies,%and%
policy%choices%embedded%in%their%regulatory%frameworks.%%The%following%general%principles%may%
help% to% explain% variations% in% the% role% played% by% mobile% payment% systems% in% digital% financial%
inclusion%strategies%in%these%three%countries:%
Mobile% payment% systems% are% just% one% of% many% distribution% channels% that% may% play% a%
significant%role%in%enabling%financial%inclusion;%%
The%value%proposition%for%both%users%and%service%providers%must%be%clear;%and%
Some%mechanism%must%be%found%to%cover%the%cost%of%launching%the%network.%

III.'The'MHPesa'Success'Story'in'Kenya'
% A%surprisingly%wide%array%of%factors%contributed%to%the%success%of%MGPesa%in%Kenya:%%%
The% Central% Bank% of% Kenya% (CBK)% had% been% advocating% greater% openness% to% marketG
based%development%strategies%before%being%approached%by%Safaricom%for%permission%to%
conduct%a%mobile%payment%pilot;%
Penetration%of%mobile%phones%in%Kenya%had%increased%sharply%in%recent%years;%
A% strong% national% identity% system% that% reduces% the% cost% of% knowGyourGcustomer/antiG
money%laundering%compliance%for%service%providers;%

41
%%BILL%&%MELINDA%GATES%FOUNDATION,%FIGHTING%POVERTY,%PROFITABLY:%TRANSFORMING%THE%ECONOMICS%OF%PAYMENTS%TO%BUILD%
SUSTAINABLE,%INCLUSIVE%FINANCIAL%SYSTEMS%(2013),%available&at%
https://docs.gatesfoundation.org/Documents/Fighting%20Poverty%20Profitably%20Full%20Report.pdf.%
42
%Jitendra%Balani%et%al.,%MicroSave&India&Focus&Note&#115,&Lessons&from&the&Costing&Study&on&BC&Networks%(2015),%
available&at%http://www.microsave.net/files/pdf/IFN_115_Lessons_from_BC_Costing_Study.pdf.%
43
%BILL%&%MELINDA%GATES%FOUNDATION,%THE%LEVEL%ONE%PROJECT%GUIDE,%supra%note%17.%%

12%
 The% volume% of% remittances% sent% by% urban% migrants% back% to% family% members% in% rural%
areas%had%also%been%increasing;%
The%basic%research%and%development%of%the%mobile%payments%technologies%that%became%
MGPesa%was%subsidized%by%aid%organizations%and%foreign%investors;%
The% CBK% agreed% to% allow% Safaricom,% the% dominant% mobile% network% operator% in% Kenya%
that%was%jointly%owned%by%the%Kenyan%government%and%Vodafone,%to%launch%a%pilot%first%
with%the%understanding%that%Safaricom%would%keep%CBK%updated%on%the%progress%of%the%
pilot%and%that%a%regulatory%framework%for%mobile%payments%would%be%established%later%if%
the%pilot%succeeded;%%
Safaricom% spent% a% year% and% a% half% testing% the% viability% of% mobile% payments% as% a%
microfinance%loan%repayment%mechanism%and%refining%the%service%before%uncoupling%it%
from%microfinance%and%launching%MGPesa%as%a%general%remittance%and%payment%service;%
and%
The%political%violence%that%erupted%following%the%disputed%December%2007%presidential%
election%brought%travel%in%Kenya%to%a%temporary%halt,%which%in%turn%blocked%the%use%of%
more%familiar%remittance%systems%based%on%sending%cash%to%rural%areas%overland%by%bus.%
In% retrospect,% it% is% now% clear% that% many% of% the% other% countries% that% have% had% difficulty%
reproducing%Kenyas%success%with%MGPesa%did%not%benefit%from%an%equivalent%number%of%critical%
success%factors%working%together%simultaneously.44%
% In%the%1990s,%the%Safaricom%mobile%network%operator%was%established%as%a%subsidiary%of%
Telkom%Kenya,%the%public%telephone%company,%and%the%UK%mobile%network%operator%Vodafone%
was% allowed% to% acquire% a% 40%% interest.% % In% the% midG2000s,% Safaricom% first% approached% the%
Communications% Commission% of% Kenya% (CCK)% to% seek% permission% to% offer% a% mobile% payment%
service% but% the% CCK% declined% to% act% on% the% request,% feeling% that% regulation% of% payments% was%
outside%the%scope%of%its%authority.%%When%Safaricom%approached%the%CBK%seeking%permission%to%
launch%its%MGPesa%service,%it%was%still%jointly%owned%by%the%government%of%Kenya%and%Vodafone,%
and%controlled%about%70%%of%the%mobile%telephony%market%in%Kenya.%
After%aid%workers%in%Africa%discovered%in%the%early%2000s%that%mobile%phone%subscribers%
without%access%to%formal%financial%services%were%using%transferable%mobile%airtime%credits%as%a%
form%of%currency,%research%began%to%find%ways%to%convert%that%informal%funds%transfer%system%
into% a% formal% one. 45 %% Financial% and% institutional% support% from% the% UKs% Department% for%
International% Development% and% Vodafones% Corporate% Social% Responsibility% department% were%
critical%to%developing%technology%that%eventually%became%the%MGPesa%payment%system:%
In%2003,%DFIDs%Financial%Deepening%Challenge%Fund%(FDCF)%provided%a%oneGoff%grant%to%
Vodafone% through% its% subsidiary% Safaricom,% to% pilot% and% launch% a% mobile% banking%
solution% in% Kenya% called% MGPESA% (which% means% mobile% money).% The% grant% helped% to%

44
%Why&M2Pesa&Is&Hugely&Successful&in&Kenya&and&Less&So&Elsewhere,&UNIBUL%CREDIT%CARD%BLOG,%
http://blog.unibulmerchantservices.com/whyGmGpesaGisGhugelyGsuccessfulGinGkenyaGandGlessGsoGelsewhere/.%%
45
%Simon%Batchelor,%Changing&the&Financial&Landscape&of&Africa:&An&Unusual&Story&of&Evidence2Informed&Innovation,&
Intentional&Policy&Influence&and&Private&Sector&Engagement,%IDS%BULL.,%Sept.%2012,%at%84.%

13%
 bring%about%a%substantial%shift%in%Vodafones%internal%strategy%towards%mobile%banking.%
Without%FDCF%support,%Vodafone%would%not%have%started%this%initiative.46%
Safaricom%spent%a%considerable%amount%of%time%testing%the%technology%in%the%field%with%
the%help%of%Faulu%Kenya,%a%microfinance%institution.%%During%this%period,%significant%changes%in%
interface% design% and% the% business% model% of% agents% were% made% to% address% problems% that%
emerged.%%Perhaps%the%most%surprising%result%of%the%field%tests%with%Faulu%was%the%discovery%that%
accepting% microfinance% repayments% actually% complicated% the% bookkeeping% by% microfinance%
institutions% rather% than% simplifying% it,% so% the% decision% was% made% to% shift% the% focus% away% from%
supporting% microfinance% institutions% to% a% funds% transfer% system% for% more% general% use. 47%%
Although%the%roots%of%Kenyas%strong%modern%national%identity%system%lie%in%the%hated%kipande%
system% imposed% on% Kenyan% men% as% part% of% a% forced% labor% regime% under% British% colonial% rule,%
Safaricom%nevertheless%enjoyed%reduced%compliance%costs%in%building%the%MGPesa%system%as%a%
result%of%that%legacy.48%
The%technological%innovation%proposed%by%Safaricom%was%met%by%regulatory%innovation%
on%the%side%of%CBK.%%For%some%time%before%Safaricom%applied%for%permission%to%conduct%a%mobile%
payment%pilot,%the%CBK%had%been%exploring%how%the%idea%of%better%regulation%could%be%applied%
in%Kenya.49%%Regulators%at%CBK%made%the%decision%to%permit%Safaricom%to%proceed%with%its%pilot%
even% though% mobile% financial% services% were% in% a% largely% undefined% regulatory% space. 50%%
Stephen% Mwaura,% the% head% of% national% payment% system% regulation% at% CBK% when% MGPesa% was%
launched,%described%his%interactions%with%Safaricom%at%that%time%in%the%following%terms:%%I%get%
data%every%month%and%if%there%is%data%I%want%I%write%and%they%send%it%to%me%straight%away.%We%
frequently%visit%them%and%observe%what%they%do.%We%have%access%to%their%records,%their%people,%
and%their%systems%continuously.51%
% The%CBKs%informal%oversight%of%Safaricom%was%memorialized%in%a%series%of%no%objection%
letters,% and% backstopped% with% oversight% of% the% trust% accounts% at% commercial% banks% where%
Safaricom%deposited%the%credit%balances%held%by%customers%in%the%MGPesa%system.%%In%response%
to%complaints%from%banks%and%at%the%request%of%the%Ministry%of%Finance,%the%CBK%conducted%a%
risk%assessment%of%MGPesas%operations%and%concluded%that%it%was%satisfied%with%the%safety%and%
soundness%of%Safaricoms%handling%of%risks,%and%confirmed%that%it%did%not%consider%Safaricom%to%
be%in%the%banking%business.52%%Such%a%high%degree%of%selfGrestraint%would%be%remarkable%even%in%

46
%DFIDs&Support&to&Mobile&Phone&Banking&(M2Banking)&for&the&Poor,%DEPT%FOR%INTL%DEV.%(Feb.%12,%2008),%
http://webarchive.nationalarchives.gov.uk/+/http:/www.dfid.gov.uk/MediaGRoom/NewsGStories/2008/DFIDsG
supportGtoGmobileGphoneGbankingGmGbankingGforGtheGpoorG/.%
47
%David%Cracknell,%MicroSave&Briefing&Note&#159,&The&Safaricom&M2PESA&Pilot&Test%(2015),%available&at%
http://www.microsave.net/files/pdf/BN_159_Safaricom_M_PESA_Pilot_Test.pdf;%Nick%Hughes%&%Susie%Lonie,%M2
PESA:&Mobile&Money&for&the&Unbanked:&Turning&Cellphones&into&242Hour&Tellers&in&Kenya,%INNOVATIONS:%TECH.,%
GOVERNANCE,%GLOBALIZATION,%Winter/Spring%2007,%at%63.%
48
%Joseph%W.%Ndalilah,%Colonial&Capitalism&and&the&Making&of&Wage&Labour&in&Kimilili,&Kenya:&190021963,%INTL%J.%
HUMAN.%&%SOC.%SCI.,%Dec.%2012,%at%282.%
49
%Nick%Carver,%Interview:&Stephen&Mwaura&Nduati,&Central&Bank&of&Kenya,%5:1%SPEED,%2010,%at%9.%
50
%LORETTA%MICHAELS,%ACCENTURE%DEVELOPMENT%PARTNERS,%BETTER%THAN%CASH:%%KENYA%MOBILE%MONEY%ASSESSMENT%50%(2011),%
available&at%http://pdf.usaid.gov/pdf_docs/PBAAC032.pdf.%
51
%Carver,%supra%note%47,%at%11.%
52
%MICHAELS,%supra%note%46,%at%50.%

14%
an%advanced%market%economy%with%a%longGstanding%tradition%of%lightGtouch%regulation,%such%as%
the%UK.%%%
In%2014,%after%many%years%of%informal%monitoring%and%dialogue%between%regulators%and%
the% operators% of% new% payment% systems% in% Kenya,% the% CBK% issued% a% comprehensive% National%
Payment% System% Regulation.% % This% updated% the% law% governing% modern% payment% systems% and%
formalized% the% policies% and% procedures% that% had% developed% though% its% informal% dialogue% with%
Safaricom.% % Among% the% issues% addressed% was% whether% a% payment% service% could% require%
exclusivity% from% its% agents,% with% the% CBK% rejecting% exclusivity.% % In% addition,% the% CBK% issued%
guidelines%for%correspondents%of%banks%in%2010,%which%it%revised%in%2013.53%%
In% 2015,% it% looked% like% Safaricoms% MGPesa% service% might% finally% face% some% serious%
competition% in% Kenya.% % Airtel% Kenya,% the% Kenyan% subsidiary% of% the% Indian% mobile% network%
operator% Bharti% Airtel,% had% earlier% brought% a% complaint% against% Safaricom% for% antiGcompetitive%
practices%in%connection%with%the%exclusivity%requirements%it%imposed%on%its%agents,%and%in%2014,%
the% Communications% Authority% of% Kenya% ruled% in% Airtel% Kenyas% favor,% opening% up% Safaricoms%
national%network%of%cashGin%cashGout%points%to%its%competitors.54%%In%2014,%the%Communications%
Authority% of% Kenya% also% granted% several% mobile% virtual% network% operator% licenses:% % mobile%
virtual%network%operators%acquire%wireless%capacity%wholesale%from%traditional%mobile%network%
operators%that%own%network%infrastructure,%then%resell%wireless%services%to%the%public.%%Equity%
Bank% was% granted% such% a% license% to% provide% a% new% Equitel% mobile% payment% service% in%
competition%with%MGPesa.55%%Equity%Bank%will%partner%with%Airtel%Kenya%which%in%2015%had%about%
23%% of% the% mobile% telephony% market% in% Kenya% compared% to% 67%% for% Safaricom% and% 10%% for%
Orange.56%%%
Equity%Banks%challenge%to%MGPesa%is%based%in%part%on%the%use%of%overlay%SIM%or%thin%
SIM% technology% that% allows% a% mobile% phone% built% to% hold% only% one% SIM% card% to% be% used% as% a%
dualGSIM%phone.57%%Thin%SIM%technology%was%pioneered%in%China%a%decade%ago%and%involves%the%
use%of%a%paperGthin%plastic%sheet%with%an%embedded%chip%that%can%be%laid%on%top%of%any%SIM.58%
Safaricom% responded% to% the% challenge% from% Equity% Bank% by% lodging% a% complaint% with% the%
Communications%Authority%of%Kenya%about%security%issues%related%to%the%use%of%thin%SIM%cards,%

53
%Denise%Dias%et%al.,%Supervision&of&Banks&and&Nonbanks&Operating&Through&Agents:&&Practice&in&Nine&Countries&and&
Insights&for&Supervisors%6%(CGAP,%Working%Paper,%2015),%available&at%
http://www.cgap.org/sites/default/files/WorkingGPaperGSupervisionGofGBanksGandGNonbanksGOperatingGthroughG
AgentsGAugustG2015.pdf.%
54
%Hilary%Heuler,%How&Kenyas&Mobile&Money&Is&Opening&Up&Now&Middlemen&Have&Been&Set&Free,%ZDNET%(Aug.%22,%
2014),%http://www.zdnet.com/article/howGkenyasGmobileGmoneyGisGopeningGupGnowGmiddlemenGhaveGbeenGsetG
free/.%
55
%Equity&Banks&EQUITEL&to&Challenge&Mpesa,%AFRIBANKS%(July%20,%2015),%http://africanbanks.co.ke/equityGbanksG
equitelGtoGchallengeGmpesa/.%%
56
%Omar%Mohammed,%Safaricom&and&Airtel&Kenya&Are&Taking&Their&Latest&Mobile2Money&Spat&to&Court,%QUARTZ%
AFRICA%(July%16,%2015),%http://qz.com/455663/safaricomGandGairtelGkenyaGareGtakingGtheirGlatestGmobileGmoneyG
spatGtoGcourt/.%%
57
%ICT%Africa,%The&Pros&and&Cons&of&Thin&SIM&Technology,%ROAMING%NEWS%BLOG%(Oct.16,%2014),%http://multiG
imsi.blogspot.in/2015/03/theGprosGandGconsGofGthinGsimGtechnology.html.%
58
%Leesa%Shrader,%China&&The&Future&Leader&in&Branchless&Banking&for&the&Poor?,%CGAP%BLOG%(Aug.%15,%2013),%
http://www.cgap.org/blog/chinaG%E2%80%93GfutureGleaderGbranchlessGbankingGpoor.%%

15%
but%the%complaint%was%rejected%by%the%regulator.59%%Equity%Bank%also%set%the%fee%structure%for%its%
Equitel%mobile%money%service%radically%lower%than%MGPesas,%triggering%a%sharp%reduction%in%MG
Pesa% fees. 60 %% In% addition,% Equity% Bank% immediately% released% an% application% programming%
interface%(API)%for%its%Equitel%platform%to%permit%software%developers%to%create%applications%
that%work%with%the%service,%before%Safaricom%had%released%its%own%API%nearly%a%decade%after%its%
product%launch.61%%
While% the% success% of% Safaricoms% MGPesa% has% brought% it% accolades% from% around% the%
world,% other% countries% have% sought% to% avoid% allowing% a% single% service% provider% to% gain% a%
monopoly%over%digital%financial%services.%%Kenya%and%Tanzania%provide%an%interesting%comparison%
on%this%point,%due%both%to%the%differences%between%the%success%of%MGPesa%in%each%market,%and%
differences%in%the%degree%of%regulatory%concern%with%competition.%%In%2014,%Kenyas%population%
was%about%46%million%with%a%per%capita%income%of%around%$3,100%while%Tanzanias%was%about%51%
million%with%a%per%capita%income%of%around%$2,700,62%but%in%the%late%2000s%when%Safaricom%first%
entered% the% Tanzania% market,% per% capita% income% in% Kenya% was% almost% twice% as% high% as%
Tanzanias.%Kenyans%had%more%mobile%phones,%were%more%familiar%with%formal%financial%services%
such% as% ATM% machines,% and% were% remitting% more% money% home% than% Tanzanians.63%% Vodafone%
brought%its%MGPesa%service%to%its%Vodacom%subsidiary%in%Tanzania%a%year%after%its%launch%in%Kenya%
in%2008.%%Fourteen%months%after%its%launch%in%Kenya,%MGPesa%had%2.7%million%users%and%almost%
3,000% agents,% but% fourteen% months% after% its% launch% in% Tanzania,% Vodacom% only% had% 280,000%
users%and%1,000%agents.%%By%2014,%however,%the%situation%was%quite%different:%%overall%utilization%
rates% for% mobile% money% in% Tanzania% were% quite% similar% to% those% in% Kenya.% % The% value% of% all%
mobile% money% transfers% in% Kenya% was% US$21.9% billion,% 95%% of% which% was% sent% using% MGPesa,%
while%in%Tanzania%it%was%US$17.7%billion,%sent%by%four%different%service%providers.64%%Tanzanias%
mobile% money% sector% included% several% major% competing% service% providers,% in% part% because%
Tanzania% did% not% permit% exclusivity% for% cashGin,% cashGout% agents.% In% the% absence% of% a% single%
dominant% mobile% network% operator% in% Tanzania,% the% takeoff% of% mobile% payment% services% was%
slower,% but% once% an% open,% interoperable% system% had% been% established,% utilization% increased%
rapidly.65%%

59
%ICT%Africa,%supra%note%52.%
60
%Id.;%Rafe%Mazer%&%Philip%Rowan,%Price&Sensitivity&and&the&New&M2Pesa&Tariffs,%CGAP%BLOG%(Aug.%29,%2014),%
http://www.cgap.org/blog/priceGsensitivityGandGnewGmGpesaGtariffs.%
61
%Equity&Banks&EQUITEL&to&Challenge&Mpesa,%,%supra%note%53.%%
62
%The&World&Factbook:&Kenya,%CENT.%INTELLIGENCE%AGENCY,%https://www.cia.gov/library/publications/theGworldG
factbook/geos/ke.html;%The&World&Factbook:&Tanzania,%CENT.%INTELLIGENCE%AGENCY,%
https://www.cia.gov/library/publications/theGworldGfactbook/geos/tz.html.%%
63
%CAMNER%ET%AL.,%supra%note%10.%
64
%Simone%di%Castri%and%Lara%Gidvani,%GSMA%Mobile%Money%for%the%Unbanked:%Enabling%mobile%money%policies%in%
Tanzania:%A%test%and%learn%approach%to%enabling%marketGled%digital%financial%services,%3%(2014)%available&at%
http://www.gsma.com/mobilefordevelopment/newGcaseGstudyGenablingGmobileGmoneyGpoliciesGinGtanzania.%
65
%Peter%Zetterli,%Tanzania:&Africas&Other&Mobile&Money&Juggernaut,%CGAP%BLOG%(Mar.17,%2015),%
http://www.cgap.org/blog/tanzaniaGafrica%E2%80%99sGotherGmobileGmoneyGjuggernaut.%

16%
IV.'The'Banking'Correspondent'Success'Story'in'Brazil'
% Although% Brazils% digital% financial% inclusion% strategy% has% not% been% at% the% center% of% a%
firestorm%of%media%attention%the%way%Kenyas%MGPesa%service%has%been,%it%has%achieved%similar%
levels%of%success.%%Unlike%MGPesa,%its%success%is%not%a%function%of%a%single%disruptive%innovation%in%
a%lowGincome%developing%country.%%Its%success%was%based%on%incremental%progress%over%decades%
in%connecting%banks%with%businesses%authorized%to%act%as%their%correspondents%through%an%ICT%
network.% % This% in% turn% lowered% the% cost% of% enrolling% the% recipients% of% its% Bolsa& Famlia% social%
welfare%program%in%the%formal%financial%system%to%receive%their%benefits.%%In%2000,%an%estimated%
80%% of% Brazilians% did% not% have% bank% accounts.66%% By% 2014,% the% population% of% adults% with% bank%
accounts%had%risen%to%68%,%but%for%the%third%of%the%population%living%in%poverty%and%served%by%
the% Bolsa& Famlia& program% the% level% of% access% to% some% form% of% formal% financial% services% had%
risen%to%99%.67%%While%private%institutions%such%as%Safaricom%and%Equity%Bank%have%driven%much%
of% the% improvement% in% financial% inclusion% in% Kenya,% much% of% the% improvement% in% financial%
inclusion%in%Brazil%was%achieved%through%the%expansion%of%services%by%Caixa%Econmica%Federal,%
a%public%sector%social%purpose%bank.68%
The% concept% of% using% business% correspondents% to% offer% banking% services% through% a%
network% of% agents% was% not% invented% by% Brazil:% % since% the% nineteenth% century,% many% countries%
around%the%world%have%had%post%office%savings%banks%that%are,%in%effect,%a%network%of%business%
correspondents% for% the% banking% system.69%% Brazils% network% of% business% correspondents% was%
officially%launched%when%the%Central%Bank%of%Brazil%issued%Circular%220%in%1973%and%Resolution%
2.166% in% 1995% authorizing% banks% to% deliver% services% through% correspondents.70%% However,%
Brazilian% banks% only% began% to% establish% correspondent% relationships% with% businesses% in% large%
numbers%starting%in%2003,%after%Resolutions%3.110%and%3.156%clarified%and%expanded%the%scope%
of%activities%a%bank%could%delegate%to%a%business%correspondent.71%%%
Following% the% election% of% Workers% Party% candidate% Luz% Incio% da% Silva% as% president% in%
2003,%Brazil%launched%its%Bolsa&Famlia%program%in%2004%by%combining%several%established%social%
benefit%programs%into%one%conditional%cash%transfer%program.%The%conditions%for%payment%are%
that% children% in% families% receiving% Bolsa& Famlia% payments% must% maintain% 85%% school%
attendance,%children%up%to%the%age%of%six%must%have%their%immunizations%kept%up%to%date,%and%
pregnant% women% must% receive% regular% health% care.72%% In% 2004,% Brazil% also% issued% regulations%
governing%the%creation%of%a%simplified%deposit%account%associated%with%a%basic%package%of%bank%
services,%offered%free%of%charge%up%to%certain%transaction%limits,%and%with%all%withdrawals%made%

66
%Kurt%Mettenheim%et%al.,%New&Perspectives&on&Banking&and&Agendas&for&Financial&Inclusion&12%(Fin.%Inclusion%Res.%
Conf.,%Draft%Paper,%2013),%available&at%http://www.swiftinstitute.org/wpGcontent/uploads/2013/02/KurtG
MettenheimGNewGPerspectivesGonGBankingGandGAgendasGforGFinancialGInclusionGPaper.pdf.%
67
%DemirgucGKunt%et%al.,%supra%note%13,%at%39.%
68
%Mettenheim%et%al.,%supra&note%62,%at%11.%
69
%Anjali%Kumar%et%al.,%Expanding&Bank&Outreach&Through&Retail&Partnerships:&&Correspondent&Banking&in&Brazil%2%
(The%World%Bank,%Working%Paper%No.%85,%2006),%available&at%
http://siteresources.worldbank.org/INTTOPCONF3/Resources/363980Retail0p101OFFICIAL0USE0ONLY1.pdf.%
70
%Id.%at%46.%
71
%Mettenheim%et%al.,%supra%note%62,%at%30%n.9.%%
72
%FBIO%VERAS%SOARES%ET%AL.,%INTERNATIONAL%POVERTY%CENTRE,%EVALUATING%THE%IMPACT%OF%BRAZILS%BOLSA%FAMLIA:%%CASH%
TRANSFER%PROGRAMMES%IN%COMPARATIVE%PERSPECTIVE%1%(2007).%

17%
by%card%only.%%The%maximum%amount%that%can%be%held%in%a%simplified%account%is%low,%and%identity%
documents%are%required%to%open%the%account%but%not%proof%of%income.73%%Caixa%and%its%network%
of% banking% correspondents% operating% under% the% brand% Caixa& Aqui% served% as% the% primary%
distribution%mechanism%for%Bolsa&Famlia%payments.%%%
By% 2013,% Brazil% had% more% than% 400,000% banking% correspondents% operating% across% the%
country.74%%A%study%of%the%impact%on%financial%inclusion%of%this%network%of%bank%agents%indicated%
that% although% utilization% of% banking% correspondents% was% not% high% among% the% Brazilian%
population%generally,%those%most%likely%to%use%them%tended%to%be%women,%poor,%less%educated,%
and%living%in%rural%areas,%which%is%the%core%population%targeted%by%financial%inclusion%programs.75%
Banks% in% Brazil% had% economic% incentives% to% expand% their% networks% of% business%
correspondents% that% were% not% related% to% financial% inclusion% social% objectives.% % Business%
correspondents%are%not%subject%to%the%same%requirements%as%bank%branches%with%regard%to%their%
physical% security% (including% cameras,% strong% rooms,% and% revolving% doors)% or% the% terms% and%
conditions%of%staff%employment.%%Bank%employees%in%Brazil%are%unionized%and%must%be%employed%
full%time,%and%branches%must%be%open%for%a%full%business%day%without%regard%to%the%volume%of%
customer% traffic% in% the% branch.76%% In% effect,% regulators% in% Brazil% removed% barriers% to% financial%
inclusion%initially%by%allowing%banks%to%use%lower%cost,%less%regulated%banking%correspondents%to%
spearhead%their%outreach%efforts.%
% In%addition%to%aiding%in%the%distribution%of%governmentGtoGcitizen%direct%benefit%transfers,%
Brazils%network%of%bank%agents%also%collects%bill%payments.%%In%the%1960s,%banks%in%Brazil%were%
made% responsible% for% processing% all% recurring% bill% payments% such% as% those% to% utilities% and%
government%agencies,%and%in%the%1980s,%the%Federation%of%Brazilian%Banks%developed%standards%
for%the%payment%of%all%types%of%commercial%transactions%through%a%single%instrument%known%as%
boleto. 77 %% Brazilian% banks% accomplished% an% enormous% feat% of% reengineering% back% office%
operations% when% they% created% a% national% interbank% billing% system% that% permitted% any% bill%
payment% received% by% any% bank% to% be% remitted% to% the% bank% of% the% payee.% % However,% this%
interbank% clearing% and% settlement% system% only% reached% as% far% as% the% banks% themselves% had%
branches.% % Until% the% banks% developed% banking% correspondent% networks% capable% of% serving%
Brazils% more% remote% regions,% government% workers% were% obliged% to% fly% to% isolated% rural% areas%
with%bags%of%cash%to%disburse%public%funds%to%social%benefit%recipients.78%
% Through%the%network%of%banking%correspondents,%benefit%transfers%and%bill%payments%are%
handled%in%a%wide%variety%of%retail%outlets%in%Brazil,%including%lottery%houses,%construction%goods%

73
%Natl%Monetary%Council,%Res.%3,211%(June%30,%2004)%(Braz.).%%
74
%Caitlin%Sanford,%Do&Agents&Improve&Financial&Inclusion?&Evidence&from&Brazil,%CGAP%BLOG%(Apr.%3,%2014),%
http://www.cgap.org/blog/doGagentsGimproveGfinancialGinclusionGevidenceGbrazil.%
75
%Caitlin%Sanford,%Do&Banking&Correspondents&Improve&Financial&Inclusion?&Evidence&from&a&National&Survey&in&
Brazil%(Bankable%Frontier%Assoc.,%Focus%Note,%2013),%available&at%http://bankablefrontier.com/wpG
content/uploads/documents/BFAGFocusGNoteGDoGagentsGimproveGfinancialGinclusionGBrazil.pdf.%
76
%Kumar%et%al.,%supra%note%65,%at%33.%
77
%Martin%Jayo%et%al.,%Groups&of&Services&Delivered&by&Brazilian&Branchless&Banking&and&Respective&Network&
Integration&Models,%11%ELECTRONIC%COM.%RES.%&%APPLICATIONS%504,%506%(2012).%
78
%Eduardo%Diniz%et%al.,%Triggers&and&Barriers&to&Financial&Inclusion:&The&Use&of&ICT2Based&Branchless&Banking&in&an&
Amazon&County,%11%ELECTRONIC%COM.%RES.%&%APPLICATIONS%484,%489%(2012).%

18%
stores,% supermarkets,% bakeries,% butcher% shops,% pharmacies,% post% offices,% gas% stations,% and%
department%stores.%%Lottery%houses%(Casas&Lotricas)%are%distinctive%institutions%in%Brazil:%%Caixa%
holds% a% monopoly% on% lottery% houses% and% auctions% off% licenses% to% them. 79 %% In% addition% to%
distributing%direct%benefit%transfers,%half%of%all%public%utility%payments%for%water,%electricity,%and%
telephone% service% are% paid% through% lottery% houses. 80 %% Other% retailers% enter% into% business%
correspondent%relationships%with%banks%in%order%to%increase%traffic%in%their%stores%and%increase%
customer% loyalty.% % Without% these% collateral% benefits,% serving% as% a% banking% correspondent% can%
easily% become% a% moneyGlosing% proposition,% as% the% revenue% generated% by% correspondent%
transactions% may% be% too% low% to% cover% dedicated% staff% or% significant% investment% in%
infrastructure.81%
Information%technology%innovations%have%played%a%pivotal%role%in%the%success%of%Brazils%
bank%agent%network,%although%there%has%been%no%single,%decisive%innovation%equivalent%to%MG
Pesa%in%Kenya.82%%In%addition%to%a%simplified%account%framework%and%a%network%of%retail%outlets%
easily% accessible% by% the% target% population,% a% national% electronic% payment% infrastructure% is%
another% essential% element% of% a% successful% branchless% banking% system.83%% When% banks% in% Brazil%
started% building% their% business% correspondent% networks% in% earnest% more% than% a% decade% ago,%
they% were% starting% from% a% relatively% high% level% of% technological% sophistication.% % Brazils% banks%
have% made% significant% investments% in% information% technology% as% a% result% of% the% difficulty% of%
tracking% rapidly% increasing% financial% values% held% in% the% banking% system% during% Brazils% periodic%
bouts%of%hyperinflation%without%computerization.%%Brazils%bank%correspondents%have%increased%
their%efficiency%by%using%a%combination%of%different%ICT%products%and%services%including%pointGofG
sale%terminals,%payment%cards,%ATM%machines,%computers,%Internet%access,%and%telephones%to%
connect%to%banks.%%%
To%date,%mobile%payment%systems%have%not%played%a%significant%role%in%Brazils%financial%
inclusion%efforts,%which%may%paradoxically%be%one%of%the%factors%contributing%to%its%success.%%A%
recent% study% of% government% to% person% (G2P)% payments% in% Haiti,% Kenya,% Philippines,% and%
Uganda%found%that%the%infrastructure%for%mobile%services%as%well%as%electronic%banking%services%
was%likely%to%be%underdeveloped%in%developing%countries,%so%developing%a%direct%benefit%transfer%
program%based%on%mobile%payments%could%face%major%obstacles:%
All% programs% attempted% to% use% mobile% payments% platforms% to% some% degree% and% with%
varying% degrees% of% success,% though% mostly% wrought% with% challenges% and% frustrations.%
While%the%appeal%of%mobile%solutions,%and%the%will%to%employ%them,%is%strong,%programs%

79
%Kurt%Eberhart%von%Mettenheim%&%Maria%Fernanda%Freire%de%Lima,&Monetary&Channels&of&Social&Inclusion:&A&Case&
Study&of&Basic&Income&and&the&Caixa&Econmica&Federal&in&Brazil,%48%REVISTA%DE%ADMINISTRAO%PBLICA%1451,%1465%
(2014).%
80
%Kumar%et%al.,%supra&note%65,%at%14.%
81
%Sarah%Rotman%Parker,%Branchless&Banking&in&Brazil:&Making&It&Work&for&Small&Merchants,%CGAP%BLOG%(Feb.%5,%
2010),%http://www.cgap.org/blog/branchlessGbankingGbrazilGmakingGitGworkGsmallGmerchants.%%
82
%Mettenheim%et%al.,%supra%note%62,%at%16.%
83
%Ignacio%Mas,%The&Economics&of&&Branchless&Banking,%INNOVATIONS:%TECH.,%GOVERNANCE,%GLOBALIZATION,%Spring%2009,%
at%57.%

19%
 should% carefully% consider% what% needs% to% be% in% place% before% executing% a% mobileGled%
scheme.84%
While%mobile%payment%systems%have%not%yet%played%a%major%role%in%Brazils%financial%inclusion%
efforts,% there% is% reason% to% believe% that% their% role% will% increase% in% the% future.% % In% 2013,% Brazil%
enacted% sweeping% new% legislation% governing% payment% institutions,% including% mobile% payment%
services,%credit%card%acquirers,%and%mobile%wallet%services.85%
As%a%middleGincome%country,%Brazil%was%able%to%build%its%agent%network%on%a%foundation%
of% decades% of% incremental% improvements% in% the% technology% of% financial% services% designed% to%
serve% various% market% segments,% including% both% conventional% financial% services% for% the% well% off%
and% inclusive% financial% services% for% the% poor.% % Brazilian% President% Lula% da% SilvasWorkers% Party%
government% had% strong% political% incentives% to% make% the% success% of% its% financial% inclusion%
program% both% tangible% and% sustainable.% % The% creation% of% the% bank% agent% network% offered%
concrete% value% propositions% to% the% banks,% business% correspondents,% bill% pay% customers,% and%
beneficiaries% of% social% benefit% programs% who% participate% in% it.% % While% Brazil% today% has% nothing%
that% can% compare% with% Kenyas% MGPesa% system,% it% is% well% positioned% to% integrate% mobile%
payment%systems%into%its%financial%services%markets%in%the%future.%

V.'Inclusive'Innovation'as'a'Public'Good'in'India'
India%was%one%of%the%worlds%first%financial%inclusion%success%stories%starting%in%the%1970s%
before%the%term%financial%inclusion%had%even%been%coined%or%mobile%money%had%been%invented,%
by% providing% incentives% to% banks% to% extend% their% branch% networks% into% rural% areas.% % Later%
confronted% with% new% models% for% inclusive% financial% services% developed% in% other% countries,%
however,% Indian% regulators% responded% cautiously,% slowing% Indias% progress% in% increasing%
financial%inclusion%in%recent%years.%%Initial%efforts%to%transplant%the%Kenyan%mobile%money%model%
and%the%Brazilian%banking%correspondent%model%languished%for%many%years%as%a%result%of%various%
hurdles%erected%by%regulators.%
At% the% same% time,% however,% India% was% making% great% strides% in% other% areas% related% to%
digital% financial% inclusion.% % Regulators% and% industry% collaborated% on% the% development% of% an%
integrated,% national% clearing% and% settlement% system% designed% to% modernize% and% rationalize%
many% different% electronic% payment% systems% in% India.% % The% new% RuPay% card% network% was%
launched% in% 2012% to% compete% with% Visa% and% MasterCard% in% the% domestic% retail% market% and% to%
assist%in%a%broad%shift%in%the%design%of%Indian%welfare%programs%away%from%direct%government%
distribution% of% goods% and% services% to% electronic% direct% benefit% transfers.86%% Even% taking% into%
account%the%early%missteps%in%mobile%payment%and%business%correspondent%regulatory%regimes,%

84
%Jamie%M.%Zimmerman%et%al.,%Electronic&G2P&Payments:&Evidence&from&Four&Lower2Income&Countries%(CGAP,%Focus%
Note%No.%93,%2014),%available&at%http://www.cgap.org/sites/default/files/FocusGNoteGElectronicGG2PGPaymentsG
AprilG2014.pdf.%
85
%Elizabeth%McQuerry,%Brazils&New&Payments&Law:&Boldly&Going&Where&Few&Have&Dared&to&Go&Before?,&
PAYMENTSVIEWS%(Sept.%22,%2013),%http://paymentsviews.com/2013/09/22/brazilsGnewGpaymentsGlawGboldlyGgoingG
whereGfewGhaveGdaredGtoGgoGbefore.%
86
%Jane%K.%Winn,%Innovation&Governance&Competition:&Payment&Modernization&Strategies&in&India&and&China%(Univ.%
of%%Wash.%Sch.%of%Law,%Research%Paper%No.%2015G01,%2015),%http://ssrn.com/abstract=2548684.%

20%
India% has% been% making% slow% but% steady% progress% toward% digital% financial% inclusion,% making%
simplistic%assessments%like%Kenya%Good,%India%Bad%unwarranted.87%
Since% independence% in% 1947,% the% Government% of% India% has% consistently% manifested%
ambivalence% toward% marketGbased% economic% development% strategies. 88 %% With% regard% to%
financial% services,% this% ambivalence% was% demonstrated% in% 1969% with% the% nationalization% of% its%
commercial%banks%and%the%adoption%of%a%social%banking%policy.%Under%the%social%banking%policy,%
Indian% banks% are% required% to% juggle% both% their% business% obligations% to% shareholders% and% their%
social% obligation% to% promote% equitable% development% in% India% in% much% the% same% way% that%
companies% that% have% assumed% corporate% social% responsibilities% do.% % From% 1975% to% 1990,% India%
conditioned% permission% on% opening% new% bank% branches% in% urban% areas% on% opening% an% even%
greater% number% of% branches% in% the% most% populous% underserved% rural% areas.% % The% rural% bank%
branch% expansion% program% was% very% successful% in% increasing% the% rate% of% financial% inclusion%
during%the%1970s%and%1980s,%but%it%was%ultimately%curtailed%because%it%also%led%to%unsustainably%
high% levels% of% nonGperforming% loans. 89 %% Following% a% balance% of% payments% crisis% and% an%
International% Monetary% Fund% bailout% in% 1991,% the% turn% to% marketGbased% principles% in% Indias%
financial% and% economic% policies% accelerated,% but% Indias% commitment% to% social% banking%
principles%remains%strong.%
In% recent% decades,% the% Government% of% India% has% pursued% many% different% financial%
inclusion% programs,% including:% % the% Kisan% (Hindi% for% farmer)% credit% card% scheme% launched% in%
1998,% the% no% frills% account% program% introduced% in% 2005,% a% banking% correspondent% program%
started%in%2006,%a%mobile%banking%program%begun%in%2008,%the%Aadhaar&(Hindi%for%Foundation)%
national%digital%identity%system%established%in%2009,%the%RuPay%card%initiated%in%2012,%and%the%
Jan& Dhan& Yojana% (Hindi% for% Peoples% Wealth% Scheme)% scheme% to% guarantee% access% to% basic%
financial% services% launched% in% 2014.% % The% Government% of% India% also% recognized% very% early% the%
importance%of%technological%innovation%and%standards%as%tools%for%promoting%the%development%
of%Indias%financial%institutions.%%In%1996,%Indias%central%bank,%the%Reserve%Bank%of%India%(RBI),%
established% the% Institute% for% Development% and% Research% in% Banking% Technology% (IDRBT)% in%
Hyderabad% to% provide% technical% support% for% modernizing% the% ICT% infrastructure% of% the% Indian%
banking%and%payment%systems.%It%launched%its%first%national%electronic%funds%transfer%system%in%
the%1990s,%and%in%2005%substantially%improved%it%with%the%launch%of%the%National%Electronic%Fund%
Transfer%(NEFT)%system.%In%2005,%the%RBI%spun%off%governance%of%payment%services%in%India%to%
the%National%Payments%Corporation%of%India%(NPCI),%a%publicGprivate%partnership%designed%to%
promote% responsible% industry% selfGregulation% under% the% watchful% eye% of% the% RBI.% % The% NPCI%
launched%the%Interbank%Mobile%Payment%Service%(IMPS),%later%renamed%Immediate%Payment%
Service% when% the% functionality% expanded% beyond% mobile% phones% in% 2010.% % In% 2015,% NPCI%

87
%Peter%Vanham,%Mobile&Money:&Kenya&Good,&India&Bad,%BEYONDBRICS%BLOG%(May%28,%2012),%
http://blogs.ft.com/beyondGbrics/2012/05/28/mobileGmoneyGkenyaGgoodGindiaGbad/.%
88
%See&generally%ARVIND%PANAGARIYA,%INDIA:%THE%EMERGING%GIANT%(2008).%%
89
%Robin%Burgess%&%Rohini%Pande,%Do&Rural&Banks&Matter?&Evidence&from&the&Indian&Social&Banking&Experiment,%95%
AM.%ECON.%REV.%780%(2005).%

21%
established% a% Unified% Payment% Interface% for% mobile% payments% supported% by% an% application%
programming%interface%to%improve%consistency%across%mobile%payment%services.90%
When% RBI% issued% the% first% regulations% authorizing% banking% correspondents% and% mobile%
banking% services,% those% regulations% tilted% too% far% toward% social% banking% and% prudential%
regulation% objectives.% % In% 2006,% RBI% issued% guidelines% that% permitted% banks% to% use% banking%
correspondents% to% deliver% inclusive% financial% services.91%% Unlike% Brazil,% however,% India% did% not%
allow% retail% merchants% to% serve% as% banking% correspondents.% % Without% the% indirect% subsidy%
possible%in%Brazil%from%increased%retail%sales,%the%banking%correspondent%model%in%India%was%not%
a%viable%business%model,%and%so%did%not%achieve%a%significant%increase%in%financial%inclusion.%%In%
2008,%the%RBI%issued%guidelines%for%the%creation%of%bankGled%mobile%money%services%in%India.92%%
Unlike%Kenya,%however,%India%did%not%allow%mobile%network%operator%agents%or%retailers%to%act%
as%cashGin,%cashGout%points%for%mobile%banking.%%Because%only%banks%were%allowed%to%act%as%cashG
in,%cashGout%points,%the%mobile%banking%model%in%India%was%not%a%viable%business%model%and%did%
not%help%to%expand%the%coverage%of%formal%financial%services%into%underserved%areas.%%%
In%2013,%the%RBI%formed%a%technical%committee%to%investigate%the%causes%of%low%mobile%
money%adoption%rates.93%%In%the%context%of%that%policy%review,%the%Mobile%Money%Association%of%
India%(MMIA),%together%with%GSMA,%the%global%trade%association%of%mobile%network%operators%
based%in%London,%submitted%a%detailed%analysis%of%the%regulatory%and%technical%barriers%to%the%
success% of% mobile% payment% services% in% India.% % MMIA% and% GSMA% requested% that% the% RBI% allow%
mobile% money% services% to% use% marketGbased% pricing% and% address% many% other% regulatory% and%
technical% barriers. 94 %% % In% 2015,% a% study% commissioned% by% the% Business% Correspondents%
Federation%of%India%revealed%that%the%costs%of%providing%the%business%correspondent%service%still%
exceed% the% revenues,% making% it% difficult% or% impossible% for% most% business% correspondents% to%
operate%profitably.95%%%
While% many% countries% including% Brazil% rely% on% direct% benefit% transfers% to% implement%
social%welfare%policies,%India%has%relied%instead%on%public%distribution%systems%and%subsidies%as%
poverty% alleviation% strategies.% % As% a% result,% the% Government% of% India% currently% distributes% or%

90
%Satish%Padhi%&%Vaibhav%Parikh,%India&Readies&Unified&Payment&Interface&for&Mobile&Payments,%EGFINANCE%&%
PAYMENTS%L.%&%POLY,%Apr.%2015,%at%13.%%
91
%Financial%Inclusion%by%Extension%of%Banking%Services:%Use%of%Business%Facilitators%and%Correspondents,%Circular%
from%the%Reserve%Bank%of%India%[RBI]%2005G06/288%(Jan.%25,%2006),%available&at%
https://rbidocs.rbi.org.in/rdocs/Notification/PDFs/68417.pdf.%%
92
%Mobile%Banking%Transactions%in%India:%Operative%Guidelines%for%Banks,%Circular%from%the%Reserve%Bank%of%India%
[RBI]%2008G09/208%(Oct.%8,%2008),%available&at%https://rbidocs.rbi.org.in/rdocs/Notification/PDFs/87664.pdf.%
93
%RESERVE%BANK%OF%INDIA,%MOBILE%BANKING:%REPORT%OF%THE%TECHNICAL%COMMITTEE%(2014),%available&at%
https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/TMB070214BF.pdf.%
94
%Reforms%recommended%to%overcome%these%regulatory%barriers%included%more%liberal%rules%governing%cashGout%
transactions%with%nonGbank%agents;%harmonizing%KYC%requirements%for%RBI%and%the%Telecom%Regulatory%Authority%
of%India;%improve%AadhaarGbased%KYC%procedures;%and%removing%the%requirement%that%banking%correspondents%
need%to%be%within%a%30%km%radius%of%a%bank%branch.%%Mobile%Money%Assn%of%India%&%GSMA,%Mobile&Money:&The&
Opportunity&for&India%(2013),%available&at%http://www.gsma.com/mobilefordevelopment/wpG
content/uploads/2013/12/MMAIGGSMAGonGMobileGMoneyGinGIndiaGforGRBIGFinancialGInclusionG
Committee_Dec13.pdf.%
95
%Balani%et%al.,&supra%note%38.%

22%
subsidizes%rice,%wheat,%pulses,%sugar,%kerosene,%LPG,%naphtha,%water,%electricity,%diesel,%fertilizer,%
iron% ore,% and% railway% travel.96%% The% Government% of% India% is% now% shifting% its% public% assistance%
programs% from% the% public% distribution% of% goods% and% services% to% electronic% direct% benefit%
transfers.% % This% is% being% driven% by% the% recognition% that% subsidies% for% consumer% goods% and%
services%in%India%disproportionately%benefit%the%middle%class%and%wealthy%rather%than%the%poor%
because%their%consumption%is%higher,%and%government%distribution%and%subsidy%systems%are%rife%
with%corruption.97%%In%2015,%official%estimates%of%losses%from%the%public%distribution%system%due%
to% leakage% (i.e.,% corruption)% were% as% high% as% 100%% for% some% products% in% some% regions% of%
India.98%% While% financial% inclusion% has% been% a% strategic% priority% of% Indian% governments% since%
Independence,% the% governments% need% for% a% payment% system% capable% of% reaching% even% the%
most%isolated%and%impoverished%citizens%has%made%it%an%even%higher%priority.%
In%the%2000s,%the%Government%of%India%initially%committed%to%creating%a%national%identity%
system%in%response%to%rising%concerns%about%border%security,%but%soon%expanded%the%policy%to%
embrace% financial% inclusion% goals% as% well.% % A% major% barrier% to% increasing% the% rate% of% financial%
inclusion%in%India%has%been%the%very%large%numbers%of%Indians%born%in%rural%poverty%whose%births%
were% not% registered,% a% practice% that% condemns% many% of% them% to% working% at% margins% of% the%
formal%economy.99%%The%former%CEO%of%the%Indian%global%technology%corporation%Infosys%Nandan%
Nilakeni%was%recruited%to%create%a%new%digital%identity%system%from%scratch%based%on%stateGofG
theGart% technology.% % In% 2009,% the% Government% of% India% launched% the% Unique% Identification%
Authority%of%India%to%issue%new%twelveGdigit%Aadhaar%numbers%to%all%Indian%citizens.%By%2015,%
nearly% one% billion% Indian% citizens% had% been% enrolled% in% the% Aadhaar% system.100%% By% integrating%
the%issuance%of%Aadhaar%numbers%with%opening%bank%accounts%and%issuing%RuPay%card%system%
for%delivering%direct%benefit%transfers,%India%is%now%building%the%market%infrastructure%for%digital%
financial%inclusion.%
In% 2013,% the% Government% of% India% convened% a% committee% of% distinguished% banking%
experts% to% make% recommendations% for% accelerating% Indias% progress% toward% digital% financial%
inclusion.% % When% the% Mor% Committee% Report% was% issued% in% 2014,% it% recommended% setting%
January%2016%as%the%ambitious%target%date%for%all%Indian%citizens%to%have%a%Universal%Electronic%

96
%GOVT%OF%INDIA,%MINISTRY%OF%FINANCE,%ECONOMIC%SURVEY%2014G15,%at%52%(2015),%available&at%
http://indiabudget.nic.in/es2014G15/echapterGvol1.pdf.%
97
%Id.%at%22.%
98
%Region&Leads&in&PDS&Distribution&Leakage,%TIMES%OF%INDIA%(Feb.%28,%2015,%5:00%AM),%
http://timesofindia.indiatimes.com/city/guwahati/RegionGleadsGinGPDSGdistributionG
leakage/articleshow/46401051.cms;%Ashok%Gulati%&%Shweta%Saini,%Leakages%from%Public%Distribution%System%(PDS)%
and%the%Way%Forward%(Indian%Council%for%Research%on%Intl%Econ.%Relations,%Working%Paper%No.%294,%Jan.%2015),%
available&at%http://icrier.org/pdf/Working_Paper_294.pdf.%
99
%Notwithstanding%national%legislation%requiring%births%to%be%registered,%fewer%than%half%the%births%in%rural%areas%in%
poor%states%in%India%are%registered.%Rameez%Abbas%&%Divya%Varma,%Internal&Labor&Migration&in&India&Raises&
Integration&Challenges&for&Migrants,%MIGRATION%POLICY%INST.%(Mar.%3,%2014),&
http://www.migrationpolicy.org/print/5237#.VeHn3PlViko.%
100
%Harichandan%Arakali,%One%Billion%Indians%To%Have%UID%Numbers%By%YearGEnd%As%India%Seeks%To%Boost%Social%
Security,%International%Business%Times,%February%2,%2015,%http://www.ibtimes.com/oneGbillionGindiansGhaveGuidG
numbersGyearGendGindiaGseeksGboostGsocialGsecurityG1802126.%

23%
Bank% Account% linked% to% the% Aadhaar% system.101%% It% also% recommended% the% creation% of% a% new%
category% of% limited% purpose% payment% banks% that% could% be% formed% by% mobile% network%
operators,%banking%correspondents,%or%nonGbank%financial%service%providers.%%This%new%category%
of% payment% bank% was% created% to% meet% the% minimum% prudential% requirements% of% bank%
regulators,% while% also% responding% to% the% demands% of% mobile% payment% and% business%
correspondent%service%providers%to%reduce%the%regulatory%and%technological%barriers%making%the%
provision%of%inclusive%financial%services%unprofitable%in%India.%%The%Indian%Post%Office%and%bankG
mobile% network% operator% partnerships% in% which% all% the% major% mobile% carriers% in% India% were%
represented% were% among% the% eleven% successful% applicants% issued% the% first% payment% bank%
licenses% in% 2015.102%% After% the% Bharatiya% Janata% Party% swept% to% power% later% in% 2014,% Prime%
Minister%Narendra%Modi%signaled%his%governments%commitment%to%harnessing%the%market%as%a%
tool%for%poverty%alleviation,%affirming%his%commitment%to%the%Aadhaar%program%and%to%paying%
banks%a%3%%service%fee%for%direct%benefit%transfers%sent%over%the%RuPay%card%network.103%%
While%Kenya%enjoyed%rapid%success%with%its%digital%financial%inclusion%program%by%relying%
on% a% simple% communications% protocol% developed% with% foreign% technical% assistance% and%
implemented% within% a% single% enterprise,% this% strategy% allowed% a% single% service% provider% to%
monopolize%the%market%for%mobile%payments.%%In%India,%by%contrast,%the%RBI,%working%with%the%
IDRBT% and% the% NPCI,% has% created% a% public% network% of% integrated% clearing% and% settlement%
systems%based%on%Indian%technology%and%open%standards%that%can%serve%the%payment%processing%
needs% of% all% banks,% nonGbank% financial% services,% and% mobile% network% operators% in% India.% % This%
new%framework%of%national%clearing%and%settlement%systems%operates%as%a%type%of%public%good%
with% an% inclusive,% transparent% governance% structure% and% a% costGrecovery% fee% structure.% % In%
addition%to%removing%barriers%to%digital%financial%inclusion,%Indian%regulators%are%pursuing%their%
market%architecture%as%public%goods%policy%to%make%sure%that%they%never%find%themselves%in%
the% position% of% regulators% in% Kenya,% the% United% States,% or% Europe% who% are% fighting% an% uphill%
battle%to%retain%control%over%the%market%infrastructure%of%their%domestic%financial%markets.%
In% 2015,% Indias% sweeping% plans% to% create% a% new% public% information% technology%
architecture% for% inclusive% financial% services% were% largely% complete.% % The% process% of% registering%
Indias%poor%in%the%new%Aadhaar%national%identity%system,%opening%bank%accounts%for%them,%and%
issuing%them%RuPay%cards%is%nearing%completion.%%The%regulatory%and%technological%barriers%to%
the% expansion% of% business% correspondent% and% mobile% payment% services% had% largely% been%
eliminated%by%creating%a%new,%limited%scope%payment%bank%license,%and%partnerships%of%major%
Indian% banks% and% corporations% were% investing% heavily% in% creating% new% payment% banks.% % While%

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%See&generally%REPORT%OF%THE%COMMITTEE%ON%COMPREHENSIVE%FINANCIAL%SERVICES%FOR%SMALL%BUSINESSES%AND%LOW%INCOME%
HOUSEHOLDS%(2013),%available&at%http://www.corporatelawreporter.com/wpGcontent/uploads/2014/01/ReportGofG
theGCommitteeGonGComprehensiveGFinancialGServicesGforGSmallGBusinessGandGLowGIncomeGHouseholds.pdf.%
102
%Press%Release,%Reserve%Bank%of%India,%RBI%Grants%InGPrinciple%Approval%to%11%Applicants%for%Payments%Banks%
(Aug.%19,%2015),%available&at%
https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR4373D581F56D7B64BD08F4162D299E33EDF.PDF.%%Among%
the%successful%applicants%were%Bharti%Airtel%and%Vodafone,%the%archGrivals%in%the%Kenyan%mobile%money%market%
whose%Indian%mobile%money%offerings%have%languished%up%to%now.%
103
%Sangita%Mehta,%Narendra&Modi&Government&to&Pay&Banks&Fee&for&Pursuing&Financial&Inclusion&Plan,%ECONOMIC%
TIMES%(Aug.15,%2014,%9:43%PM),%http://articles.economictimes.indiatimes.com/2014G08G
15/news/52845858_1_financialGinclusionGplanGgovernmentGownedGbanksG5Gbanks.%

24%
the% volume% of% direct% benefit% transfers% and% electronic% payments% has% not% yet% taken% off,%
developments% in% recent% years% suggest% that% India% might% finally% have% found% a% way% to% foster%
marketGcreating%innovation%without%surrendering%its%commitment%to%social%banking%policies.%

VI.'Conclusion'
%%Because%the%biggest%international%success%story%of%mobile%payments%is%found%in%the%area%
of% financial% inclusion,% this% essay% about% international% perspectives% on% the% regulation% of% mobile%
payments% has% provided% a% brief% overview% of% the% role% of% mobile% payments% in% creating% new%
markets%for%inclusive%financial%services%in%Kenya,%Brazil,%and%India.%%Placing%the%runaway%success%
of% Kenyas% MGPesa% mobile% payment% service% within% the% broader% context% of% financial% inclusion%
programs% in% other% developing% countries% reveals% why% its% success% has% turned% out% to% be% more%
difficult%than%expected%to%reproduce%elsewhere.%%%
Americans%working%in%industries%that%rely%heavily%on%technology%to%remain%competitive%
are% fond% of% saying,% Technology% is% an% enabler,% not% a% driver.104%% This% in% turn% is% an% updated%
paraphrase%of%Peter%Druckers%famous%insight:%
It%is%the%customer%who%determines%what%a%business%is%.%.%.%.%What%the%business%thinks%it%
produces%is%not%of%first%importance%.%.%.%what%the%customer%buys%and%considers%value%is%
never%a%product.%%It%is%always%utility,%that%is%what%a%product%or%service%does%for%him.%And%
what%is%value%for%the%customer%is%anything%but%obvious.105%
Analyzing%the%most%successful%mobile%payment%system%in%the%world%reveals%that%the%use%of%the%
mobile%platform%was%clearly%an%important%enabler%of%its%rapid%success.%%However,%replicating%
the% success% of% MGPesa% as% an% engine% of% financial% inclusion% will% require% more% than% just% an%
understanding%of%the%technology%used%to%create%the%delivery%channel.%
At%one%level,%the%comparison%between%the%relatively%quick%success%of%financial%inclusion%
programs%in%Kenya%and%Brazil%and%the%much%slower%progress%in%India%highlights%the%importance%
of%effective%execution%of%shortGterm%strategies%designed%to%provide%both%end%users%and%service%
providers% with% an% obvious,% powerful% value% proposition.% % At% another% level,% the% slower% progress%
being%made%in%India%reflects%Indias%much%broader%focus%on%holding%operators%of%ICT%networks%
accountable% to% the% public.% % India% is% making% a% longGterm% gamble% on% using% innovation% to% create%
new% markets% for% inclusive% financial% services% where% competition% can% flourish% and% transparent%
governance% can% be% maintained:% If% one% wants% to% harvest% quickly,% one% must% plant% carrots% and%
salads;% if% one% has% the% ambition% to% plant% oaks,% one% must% have% the% sense% to% tell% oneself:% my%
grandchildren% will% owe% me% this% shade.106%This% approach% initially% placed% barriers% in% the% way% of%
greater% use% of% mobile% payments% and% business% correspondents% but% it% ultimately% may% generate%
enough%benefits%in%the%future%to%justify%the%slow%pace%of%its%progress.%
% Given%the%magnitude%of%financial%exclusion%in%many%developing%countries,%the%innovation%
required%to%achieve%significant%increases%in%financial%inclusion%cannot%be%anything%other%than%a%

104
%See,&e.g.,%Kevin%G.%Coleman,%et%al.,%Reengineering%MIS:%Aligning%Information%Technology%and%Business%Operations%
4%(1996).%
105
%PETER%F.%DRUCKER,%MANAGEMENT:%TASKS,%RESPONSIBILITIES,%PRACTICES%61%(1974).%
106
%JOSEPH%A.%SCHUMPETER,%HISTORY%OF%ECONOMIC%ANALYSIS%829%(1954)%(quoting%economist%Leon%Walras).%

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marketGcreating% innovation.% By% contrast,% the% depth% and% breadth% of% financial% services% already%
available%in%advanced%market%economies%have%made%it%difficult%or%impossible%to%launch%marketG
creating%innovation%strategies%for%mobile%payments,%while%performanceGimproving%or%efficiencyG
innovation%strategies%for%mobile%payments%have%not%yet%offered%all%the%relevant%stakeholders%a%
strong%enough%value%proposition%to%take%off.%%%
% Thus,% an% international% approach% to% the% regulation% of% mobile% payment% systems% reveals%
that% where% the% goal% is% financial% inclusion,% mobile% payments% should% be% treated% as% a% promising%
channel% for% the% delivery% of% new% financial% services.% % By% contrast,% modest% revisions% of% existing%
antitrust%and%competition%laws,%consumer%protection%laws,%and%financial%services%laws%should%be%
adequate%to%accommodate%the%integration%of%mobile%payments%into%existing%financial%services%in%
advanced%market%economies,%whenever%that%should%finally%occur.%%

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