Fast Payments and Financial Inclusion with The World Bank’s Harish Natarajan

Episode Overview

Harish Natarajan serves as the Practice Manager for Financial Inclusion and Infrastructure within the Finance, Competitiveness, and Innovation Global Practice at the World Bank. In this capacity, he leads a global team dedicated to advancing financial inclusion, enhancing payment systems, and developing credit infrastructures. Harish represents the World Bank in various international forums, contributing to the development of policies and frameworks that promote digital finance and inclusive financial systems. Notably, he was a lead contributor to the IMF-World Bank Bali Fintech Agenda and co-chaired the CPMI-World Bank task force on Payment Aspects of Financial Inclusion.

Before joining the World Bank in 2009, Harish amassed significant experience in the private sector, particularly in the payments industry. He held senior positions at Visa Inc. in the South Asia region, focusing on business development, operations, and risk management. His career also includes roles at Citigroup and Infosys, where he specialized in payment systems and retail banking. This extensive background in both the private and public sectors has equipped Harish with a comprehensive understanding of the financial ecosystem, enabling him to effectively bridge the gap between technological innovation and regulatory frameworks.

Harish’s academic credentials further bolster his expertise in the financial sector. He holds an undergraduate degree in Electrical and Electronics Engineering from the Indian Institute of Technology Madras and a Post Graduate Diploma in Management from the Indian Institute of Management Calcutta, specializing in Finance and IT systems. This strong technical and managerial foundation has been instrumental in his work on initiatives such as Universal Financial Access 2020, ID for Development, and various fintech-related projects. Through his leadership, Harish continues to drive efforts that aim to create efficient, inclusive, and resilient financial systems worldwide.​

Episode Transcript

Harish Natarajan: The role of fast payments,  really comes in from,  it as a platform which brings together the different providers of payment services in the country. And this brings in interoperability. So it gives a person who has access to a digital financial service.

Kevin Rosenquist: Hey there. Welcome to Paypod. Where we bring you conversations with the trailblazers shaping the future of payments and fintech. My name is Kevin Rosenquist. Thanks for listening.Harish Natarajan is the practice manager of financial inclusion and infrastructure at the World Bank. Harish has been instrumental in developing initiatives that tackle key issues like financial inclusion, digital payments and cross-border remittances, especially in emerging markets. In this episode, we chat about financial inclusion, fast payments, gender inclusion and what the future may hold. So please welcomeHarish Natarajan. So what is the action of the world Bank in digital Financial Services? And how does the institution implement programs relating to payment systems and financial inclusion?

Harish Natarajan: Thank you.  The World Bank is a multilateral development bank.  and we have a range of instruments through which we can support our member countries.  These include, of course, the financing instrument.  and that’s why the name bank is there in the World Bank’s name.  and there we also provide technical assistance to two countries.  and then there’s also knowledge work, which the bank does to collect information, synthesize it, analyze it, identify good practices and share it.  with countries so broadly. And then you could also say convening um of the bank. So these are the typical four instruments the bank uses across a range of topics which the bank works on across the full development spectrum. Now, specifically in the case of  digital financial services, of course, the same tools apply. But in terms of the specific areas we are working on,  I would stylistically categorize them into capacity building of regulators and policymakers to navigate all the different changes which are coming in because of digital financial services or more broadly, digitalization of finance.  and this means helping them think through what this means, what are the benefits, what are the risks, and how could they approach it? So that is one big part of the work we do.

Harish Natarajan: And the second part is supporting them in,  modernizing the laws, regulations, policy frameworks.  and in some cases also maybe supporting them in creating some new mechanisms like say, innovation hubs, accelerators, regulatory sandboxes and things like that. And then the third one is about supporting countries in implementing modernizing the financial infrastructure.  financial infrastructure.  by that, it’s not a very commonly used term.  but but I think it is intuitive kind of what we mean here is infrastructure, which is necessary for the financial service industry services industry to use and build build services on top of that. So some of the most common ones are payment systems, of course, credit reporting systems. But there are also others like registry of um collaterals and then E-invoicing and things like that, which could also be called financial infrastructure. And these have an impact on the capacity of the financial services industry to provide,  to digitize better,  and also be more efficient. It also fosters competition and so on. So the support in the implementation, modernization,  of the financial infrastructure is also a big part.  kind of in the digital financial services space. But of course, there are other infrastructure like the hard infrastructure of roads and so on, and then also broadband, which are covered by other interventions of the bank,  related to broader economic development.

Harish Natarajan:  And then,  the fourth area is about,  what can the government by itself do,  to,  to foster or to catalyze the adoption of digital financial services. So things like the social benefit transfers, which the government makes to vulnerable sections of the society or any other targeted programs of the government. How can they incorporate digital within that? And there are in some cases there are   governments that have some ownership in some of the financial institutions. So how can they use that to support better digitization? Digitalization,  in those respective institutions. And then also the difference. Government to citizen business intervention interactions. So that’s the fourth area. And then the last is um digital financial services by their nature are cross-border.  and there are cross-border implications in particular on some of the new,   Kind of new shifts towards,  kind of different types of,  digital money and so on. And there’s. International collaboration is required, and we support those processes. And,  and we also support um. Exchange and dissemination of some of the best practices which emerged from that and to foster collaboration. So that’s the way I would characterize it.

Kevin Rosenquist: Okay. You mentioned modernizing financial systems for some countries. Far behind in their infrastructure?

Harish Natarajan: No, I think there are different stages. Yeah.   kind of, of course.  It also depends on what is needed at that stage of development for the country. So, for example,  when you take fast payment systems,  there are about 70 developing countries which currently have fast payment systems.  many of them were implemented in the last few years. And out of that, if you look at the sophistication of the fast payment systems in terms of the different features and capabilities, etc., I would say only about 20 of them have a wider range of capabilities. So there’s a long road ahead in terms of modernization. And to some extent, it is also that,  at this stage of the digital financial services development in the country,  it becomes a binding constraint of not having a fast payment system in the country. So,  a lot of countries,  in a lot of developing countries,  open the markets to non-bank providers of payment services. That really drove,   penetration of digital financial services in the countries. But after a given point,  they will have to get integrated into the broader financial sector. There has to be interoperability amongst them,  for the next wave of development to happen. And that’s where the fast payment systems come in. So in that sense, you could say that now is the right time for them to invest.  and, and, and there is progress and there’s a journey which has to be had there.

Kevin Rosenquist: How does fintech innovation and technology changes, you know, impact unserved and underserved populations? And how do you balance the risks with regulation?

Harish Natarajan:  Yes. No, I think,   I typically, you know, look at some kind of,  root causes analysis, right. So if you do a root cause analysis of why is there, Underdevelopment of the financial sector, or why is there a financial exclusion? I think if we look at it, you can broadly categorize it into maybe three factors, right. And and for each one of them, there are a variety of reasons for that. So I think the first one is,  high cost to serve certain segments of certain customer segments. And this is more the supply side.  and within that, I think,  to some extent it is because of the compliance requirements.  In some cases it is because of the infrastructure gaps, which raises the costs to serve.  So there are a variety of reasons. And then in some cases it is simply,  there is lack of innovation and the lack of innovation because they have a steady cash flow and they don’t, they’re not really forced to innovate and expand their market.  So they don’t need to do it.

Kevin Rosenquist: They’re less motivated to do it. Yeah, exactly.

Harish Natarajan: So the high cost to serve is one area. The second, I think, is high cost to use. I think the users of the financial services might encounter high costs in using the digital financial services. And this could again be a combination of some of the things I mentioned earlier. But it could also be due to lack of infrastructure. It is not there’s no financial service point closer to my home or my place of work and so on.  and there are no digital channels for me to access so that those could also lend itself to more cost. And then the third one I think is often underappreciated is,  is kind of there’s no motivation for me to as, as an individual or a business to use,  financial services because I don’t see the benefit or I have. I don’t trust it.  or there are issues related to informality and issues like that. Right. So I think it is a common that these are the three reasons, broadly speaking.  and there are multiple factors behind it, and fintech will have to address all of them for it to have an impact.  and we believe that fintech does address all of these, all these three in a very system, very material way and and in a very structural, structural way.

Harish Natarajan:  I think,  digital by its nature, if harnessed well, can lower the cost to provide services. It can also lower the cost to use services.  and it can create different ways of providing the service, the innovations in the business model, innovation, innovations in the process model, operational model. So which can actually lower the cost to both serve and use. And in terms of motivation, lack of trust and not lack of understanding of the benefit.  and I think here, the tailoring of the services to, to be able to customize and personalize the services to the context of the end user. I think that is the benefit advantage of digital, and that could motivate people to to start using it. They will see more advantages and more benefits from that. So that’s the way I see it. So it addresses the high cost to serve addresses, the high cost to use. And it also creates the pull factor for people and businesses to want to use. And this coming together I think drives progress towards financial inclusion.

Kevin Rosenquist: You mentioned fast payments earlier and we were talking and can you kind of walk us through a few successful examples and explain how these systems fit into the bigger picture, beyond the sector of payments?

Harish Natarajan: Yes. No. I think the role of fast payments really comes from it, as a platform which brings together the different providers of payment services in the country. And this brings in Interoperability, so a person who has access to additional financial service is now able to transact across the network, across the full  financial sector in the country.  You know, you’re not restricted to individuals who,  who bank or who avail services from the same institution.  It also enhances competition,  because now other providers are able to come in,  they’re able to offer the same capabilities as others in terms of reach.  and they can compete on the user experience and they can bring more,  they can attract customers. And that way it creates a competition. And that competition itself can drive prices down. It can improve the quality and it raise the game for everybody.  and then there are structural advantages,  which Fast Games brings, which can actually lower the cost of  payment services and create alternatives at the point of sale, which currently. The only avenue generally is about using card payments for in-person merchant payments if you want to do it digitally.

Harish Natarajan: Of course, in some countries, including the United States, you can pay using a check. But in general, the only option is either cash or you have to go with cards. Mhm.  and uh POS enables you to pay directly from your account. And that is a new alternative which has been created.  and there are different modes through which you can initiate and receive the payment. So through QR codes and then also the whole process of request to pay which reverses the order of payment initiation also in a way also gives some more trust to the individuals. So this lowers cost. And then and this makes it easy to penetrate merchant segments which could not have been penetrated before.  Like street vendors, small informal establishments and temporary merchants and so on. Also e-commerce bill payments. So all of that which were difficult to penetrate earlier can now be penetrated. And then the other is  because it is based on new technologies, new approaches,  kind of more open interfaces, more standardization.  These could also become the platforms on which you can build open finance.

Harish Natarajan:  You can build better integration with other   digital infrastructures like ID systems and other e-commerce players and so on. And based on which you can provide other financial services. So it can become a platform for innovation, not just in payments but also other financial services. So I think it is because of these reasons that fast payments are important. If you notice, I did not say fast,  that speed is a factor. It is important, but a lot of people emphasize the speed.  but I think the other factors are perhaps more important. And speed is important in particular in context contexts where it matters for individuals to be able to manage their cash flow. Sure. It also matters in terms of disaster relief. It also matters in times of,  when you’re late for a bill payment and you want to make it at the last minute. It matters then.  so speed does matter.  and there’s a cost associated with,  with,  with float,  for the, for the person receiving the payment.  so that matters. But I think there are also other reasons beyond speed,  which also have a role.

Kevin Rosenquist: What was the intersection of fintech and gender inclusion? And how does the World Bank incorporate the topic of gender in its operations?

Harish Natarajan: A gender is,  is a very central,  kind of objective for us. In particular, during the recent annual meetings, there was an announcement of,   the gender,   kind of strategy of the bank,  in particular, also some targets related to the use of capital by women,  businesses and women. So gender is an integral part of our work. Now of course, there are macro interventions which benefit society equally.  and so there are those interventions which, of course,  should always be done.  and then there are   aspects of when you are, when you’re creating interventions, you need to be sensitive and aware of the context of women in particular in some parts of the world.  I think,  better, a better awareness of that, I think will help in better designing products and services and, and creating the mechanisms for them.  so, for example,   ownership of ID,  digital ID is not,  there’s a gender gap there.  There is also a gender gap in ownership of mobile phones.  so you need to take that into account,  as you, as you design services so that there are alternatives available. Of course, you try to address the gap, but in the meanwhile, you need to create avenues for them to use the services without, despite these constraints.

Harish Natarajan:  And then,  there are also better data collection required.  on the,  on the gender aspect of usage of financial services and access to financial services,  which will drive policy change. And that is called sex disaggregated data.  In the financial sector,  that is a big area of focus for the institution.  And then also, I think,  better targeting women, in the financing programs, like kind of the support towards small businesses, support to women entrepreneurs,  more capacity building in terms of business skills and so on. So other ancillary services which are required, I think they have to be interventions in all of them. So I think a full range of interventions are required to address the gender gap in finance, which continues to be high. In fact, it is at around 6% in developing countries. Now fintech,  because of what I was mentioning earlier, because of the digital and business model, ability to tailor products and customize,  does have an intuitive appeal in terms of that. It could address the gender gap. And there is some evidence to,   to, to that effect.

Harish Natarajan: But based on the recent work done by,  an institution which is part of the world Bank Group,  the International Finance Corporation,  they had done a survey of a number of fintech companies and as per their survey,   listen, 25 kind of,  for many fintech companies, less than 25% of the customers are women. And also,  kind of,  59% collect the sex disaggregated data I was talking about, but very few use them. And less than a third actually tailor their products and services towards women. So basically, I think while fintech can help, there is evidence, but it has not been fully exploited or leveraged. And there’s more to be done in that regard. And the same report,  I can, I can, I can put the link so that you can use it.  yeah, that’d be great to share it with your readers and share with your listeners.  The same report also notes that institutions which did prioritize women actually had good outcomes in terms of,  more lifetime value, better repayment rates for loans and so on. So there is upside, there is potential, but it has been,  under utilized or under leveraged or under exploited.

Kevin Rosenquist: Do you think AI, things like AI and blockchain, will have a big impact on financial inclusion on AI?

Harish Natarajan:  Yes. On blockchain, I think the jury is a little out on that. I think it still is though. It has been there for a long time. I think the jury is out on that. And the experience so far is not that compelling. But in the case of I, I think,  it does have an opportunity.  it does offer the opportunity to lower the cost of provision of financial services. So that has,  as I was mentioning earlier, a cascading impact on positive cascading impact on financial inclusion,  through things like,   using AI as chatbots, well designed ones, properly trained with adequate safeguards, can lower the cost of serving. Right.  then better insights into data, which you’re collecting,  using well trained AI models, of course, accounting for bias and so on. I think addressing them can,   can be very, very helpful. And also AI’s role in,  in better detecting fraud and, and risk management. I think also needs to be looked at, and similarly, better application of AI on the regulatory side would also improve the ability of supervisors to,  to detect issues, to tailor their regulatory intensity and more generally, adopt a better risk based approach to supervision. So I think that’s the way,  the way I look at it.  Now, you had asked earlier about the risks of digital financial services, and since you talked about AI, of course, I mentioned a few risks. But more generally, I think there are a range of risks which come with a greater use of digital in the in, in digital financial services.

Harish Natarajan:  In general, I think these are related to, of course, cybersecurity,  a greater use of digital and digital financial services. And the way that they are,  the way they are kind of,  put together,  does increase the attack perimeter as they, as they say. No, it is kind of more of an exposure to cyber risk. So I think that is one. The second is more data becomes available and more data gets exchanged. And that poses all sorts of data protection and privacy concerns. I did talk about digital leading to more competition, but it could also lead to a winner taking all situations very, very quickly. So it might increase competition in the short run or in the medium term. But in the long run it might simply be a rearranging of the cost. But the competition returns, right? So I think there is that concern. There are also consumer protection concerns related to fraud and then also the data protection privacy. And there’s also the risk of some people getting left behind because of the lack of digital skills, digital tools and so on. And that was the point I was making earlier. So the regulations and regulators, and through their supervisory and regulatory process will need to,  address all of them. And these can be addressed. And there are ways this can be addressed in a, in a way that you harness the benefits and you mitigate the risks.

Kevin Rosenquist: Yeah. That’s interesting. I didn’t think about that aspect that it’ll be you’re going to have the big guys and then you’re going to have everybody else kind of get pushed out because of lack of engineering talent, lack of money, lack of, you know, whatever. Like, yeah, you’re going to end up being like with a top heavy, top heavy playing field. It seems like. Yeah, yeah. Good point. So, what does the future hold? Let’s put on our Nostradamus cap. What are the key topics you think that are worth monitoring over the next, I don’t know, three, five, ten years? Yeah. You didn’t go that far. I mean, I know it’s his monthly, so I’m not even sure if you can go that far, but.

Harish Natarajan: Correct. I know.

Harish Natarajan: I know, I think,  I will not make a I don’t think it is.  anybody can make a prediction.  but there are certain trends, I think, which are certainly worth watching.  I think as the sophistication of the fast payments,  in the developing countries,  increases and the penetration increases.  I think that does open up avenues for a lot of different things, including for cross-border payments,  and including for the way business to business transactions are conducted in the country.  and more generally, it would kick start the fintech revolution in many countries. So I think,   the increasing sophistication of fast payments,  I think,  is something to watch. And I think it’s something I think we should be supported by, by the private sector, by regulators and by society at large. Another point I think is about open finance.  There has been a lot of discussion on this. This is not a new topic, but I think it is gaining momentum now. Yeah I agree.  and it’s also gaining and also a lot of the building blocks related to that are falling in place and the combination of fast payments with open finance. I think can have dramatic,  positive impacts.  so I think that’s the second. To watch and how that progresses. And then the move from open finance to maybe open data. I think that that journey is worth watching.

Harish Natarajan: And the third point I think, is there are new forms of money being,  being invented or conceptualized in some cases being re-reintroduced. And I think some of them are already there. And the society decided against them and they are being brought back.  so I’m talking about tokenized money,  and central bank digital currencies and of course the crypto assets. How all of that combines at some point. What is the steady state on that? And then what are the implications for developments like fast payments? And what does it mean kind of will those forms of money also be transacted through the fast payments? What are the implications for that, for the structure of the banking industry, the financial sector in general. Competition, and so on.  I think those will also have to be seen. And then also the ability of the countries to, to be able to control and ensure that they are able to implement their monetary policy and maintain sovereignty over their kind of over their,  financial,  over their financial sector. I think all of that will have to be watched. So basically the increasing sophistication of fast payments, open finance, the intersection of that with fast payments and then also the different forms of money,  which are being conceptualized and, and being or and being attempted to be introduced into the economy.

Kevin Rosenquist: I mean, yeah, yeah, I, the digital currencies, all that stuff. It’s just really super fascinating. It’s going to be really wild to see where this goes, especially in the financial world with AI and blockchain work and all that.

Harish Natarajan: Correct.

Harish Natarajan: And of course, I did not mention AI. Of course.  the AI is going to be,  a bigger part of the discussions going forward? Sure.  with also the availability of tools and our making it easier for institutions to adapt and adopt. I think that could actually kick start the a whole set of innovations. So I think I also I think something to watch closely.

Kevin Rosenquist: No doubt. No doubt. Well it’s going to be interesting for sure. Well Harish, thanks so much for being here. I really appreciate your time.

Harish Natarajan: Thank you. Thank you Kevin. And  I will send you the links I was mentioning. I think it’ll be useful background to your listeners.

Kevin Rosenquist: Yeah, absolutely. We’ll put those in the show notes. I would appreciate that. Well, thanks again for being here Harish. Really appreciate it.

Harish Natarajan: Thank you. Thank you for the opportunity. By Kevin.