Journal of Financial Market Infrastructures

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Retail payments and financial inclusion in Latin America and the Caribbean: identifying gaps and opportunities

Raúl Morales-Resendiz, Milton Vega, José Aurazo and Anahí Rodriguez

Financial inclusion as a public policy goal has become increasingly relevant for central banks, especially in emerging markets and developing economies, while the transformation of retail payment services has made them a digital gateway to the financial system. The payment aspects of financial inclusion (PAFI) framework, set up by the Committee on Payments and Market Infrastructures and the World Bank in 2016, recommends a set of actions to spur financial inclusion by means of improvements in the retail payment systems. We use this framework to assess the implementation of recent payments policies and actions by Latin American and Caribbean central banks to contribute to financial inclusion. Our unique data set contains qualitative information from nine central banks that self-assessed against the PAFI framework, identifying relevant country-specific aspects of implementation for this framework. We also present a probit model to determine the relevance of selected features related to the implementation of PAFI by these central banks. Our econometric results show short-term actions are more likely to be implemented. Our model also shows the regulatory and oversight roles of the central bank contribute positively toward implementing PAFI actions. Further, our model shows that technological challenges are less of a barrier to implementation than legal and market challenges. We propose alternative approaches to advance PAFI-related actions for central banks in emerging markets and developing economies. Finally, our work contributes to the literature on retail payments and financial inclusion by identifying relevant features for the implementation of payment actions toward financial inclusion using the PAFI framework.

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