3.2 Drive towards Digital Integration and DFS Interoperability

DRIVE TOWARDS DIGITAL INTEGRATION AND DFS INTEROPERABILITY 3.2

Ensuring digital interoperability between traditional and new FSPs can open avenues for innovation and market development.

Interoperability is one of the major tools to drive account activity, thereby spurring the underbanked population’s access to and usage of a wider range of financial services.57 In the recovery phase, the trend towards digital interoperability and integration between FSPs, including FinTechs, is expected to accelerate as regulators seek to enhance efficiencies, increase customer convenience and boost scale.

Policymakers and regulators will be seeking ways to proactively foster their digital finance and FinTech ecosystems to better support financial inclusion and sustainable development. These encouraging developments, however, also come with challenges that extend to financial stability, market fragmentation, consumer protection and the risk of financial exclusion. Regulators and supervisors would need to enhance their understanding and capacities on identifying and mitigating the ever-changing risks that arise from integration of FinTech into the financial system.

BRINGING SMART POLICIES TO LIFE

FRAMEWORK FOR DIGITAL FINANCIAL SERVICES INTEROPERABILITY IN AFRICA

AFI REGIONAL POLICY FRAMEWORK Read the full Framework for

Digital Financial Services

Interoperability in Africa report here.

> > View here

57 AFI. 2018. Framework for Digital Financial Services Interoperability in

Africa. Available at: https://www.afi-global.org/wp-content/uploads/ publications/2018-10/AFI_Interoperability_PM_AW2_digital.pdf 58 More guidance to supplement the steps below is available in the AFI

Framework for Digital Financial Services Interoperability and the AFI

Innovative Regulatory Approaches Toolkit.

In this regard, POLICYMAKERS MAY CONSIDER the following steps.58

1

Establish a regulatory framework or guidelines

on FinTech: develop a comprehensive and coherent framework to regulate innovation in the financial technology space.

Ensure that the framework adequately balances market growth and innovation, with the need to protect integrity, safety and stability of the financial system.

2

Set up ‘innovation facilities’, such as regulatory sandboxes:

allow FSPs to test new solutions and services under the regulator’s supervision within a controlled environment.

Sandboxes or innovation hubs also provide a channel for regulators to gain insights and track market innovation and assess the appropriateness of existing regulations.

3

Build institutional capacity:

to increase knowledge and understanding of the latest technological innovations and solutions in order to develop enabling regulatory frameworks.

This would allow regulators to understand and anticipate developments in the markets and emerging risks, and to make proactive adjustments of regulatory approaches and supervisory capacity.