Measures to Improve Financial Inclusion in Latin America

Improving financial inclusion in our countries is key to driving economic development of the population. Thus, work is needed on different fronts, such as economic and financial literacy, increased information on the financial capacities of the population, price and rate schemes for financial products, development of a public financial inclusion strategy, supporting an adequate institutional structure and an efficient functioning of the financial infrastructure or Low Value Payments System (LVPS).

The latter is of vital importance and is paramount to the financial inclusion strategy, because, without adequate functioning for low-value financial transactions, it is not possible to achieve the expected access to and use of financial products and services by the population and MSMEs.

Typically, a country’s payment system consists of three parts, i.e. the high-value payments system, the LVPS, and the universal clearing system, which is traditionally the central bank of that country. Through the LVPS, operations are carried out between people (P2P) and between people and businesses (P2B), in such a way that, in order to ensure development of the financial ecosystem, the financial infrastructure or payments system must operate efficiently. This also applies to the FinTechsystem.

In recent years, therefore, CAF has supported the development of different aspects of the LVPS in several countries in the region, e.g. in Uruguay with the law on “Access of the Population to Financial Services and Promotion of the Use of Electronic Means of Payment,” for the creation of e-money, the dematerialization of various payments in the economy and fostering the interoperability of different payment channels. Or the case of Peru, supporting for the enactment of the Electronic Money Act and strengthening its interoperability. More recently in Trinidad and Tobago, we conducted the evaluation of the elements that make up an LVPS and issued recommendations for their strengthening.

In general, the low-value payments system (LVPS) consists of check clearing houses, electronic check clearing systems, electronic payment instrument clearing systems—including e-money platforms—automated electronic payment clearing houses, as well as ATM networks, and credit and debit card networks. Transactions made through the LVPS are cleared at the central bank. If the LVPS is not working properly, low-value financial transactions are severely limited or cannot be carried out.

In order for the LVPS to provide an efficient service, it must be specifically regulated, with a defined formal and institutional structure, with ownership structures that do not affect competition, with both public and private managers, and with regulated and transparent relationships. In addition, it is necessary to promote merchant acquisition, i.e. the acceptance of electronic payments in merchants, and to adequately regulate payment gateways, their technology and their risks.

Furthermore, it is also necessary to strengthen the corporate governance inherent to the low-value financial infrastructure and its operating rules, and to establish the operating mechanisms, participants and their responsibilities, and to ensure transparency of the rate and/or collection scheme that it applies in the LVPS. In addition, it is important to regulate how information is reported to the central bank and other regulatory entities, the frequency, and, in general, to ensure transparency of information.

Lastly, in order to promote the use of the LVPS, agencies must facilitate the means and standards of access, and how the interoperability of the different channels of the system is to be achieved, while developing the mechanisms that ensure security of operations and the way in which system monitoring and surveillance is carried out.

Consequently, strengthening the elements involved in the operation of the LVPS in the countries of the region is part of CAF’s strategy to improve efficiency of the payments system, enhance financial inclusion and develop the financial systems of our countries.