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The primary role of a financial regulator is to maintain the safety and soundness of a financial system. However, financial regulators are now embracing financial inclusion as a new goal in recognition that healthy financial systems should serve the needs of the majority of the population. Promoting financial inclusion is a new and different role for financial regulators. It raises new challenges such as how to encourage banks to serve low-income clients who offer few obvious profitable opportunities, and how to regulate mobile network operators (MNOs) and other innovative providers offering financial services.

Traditionally, regulators would have focused on devising risk-based regulations for digital financial services (DFS), so as to ensure sound, supportive regulatory frameworks for the new products and services, with little thought to the uptake and use of services. However, a growing number of regulators see DFS as having great potential to support their financial inclusion goals, are keen to see it succeed, and are actively working to ensure end-users are provided with safe, affordable and practical payment options.

Low uptake and inactive users are the primary challenges facing DFS in most developing countries. In some cases they are due to restrictive regulations. However, they have mostly occurred because providers have focused on availability and accessibility (i.e., through developing large agent networks and mass sign-ups of end-users) without understanding the real needs and desires of end-users. The DFS offered are often not appropriate, affordable or well understood by consumers.

In this environment, experience tells us that market forces alone cannot be relied upon to deliver products suitable for end-users’ needs. As an example, saving for retirement is clearly important, but people may fail to do so without incentives. To create the incentive to use DFS, financial regulators must first work to understand and build consumer demand by seeking to minimise the gap between what market forces may provide and what end-users may need, understand, want and afford. Building consumer demand is critically important to the success and sustainability of DFS ecosystems.