Electronic Finance: A New Approach to Financial Sector Development?

Publication Date: Oct 2001
Published by: World Bank
Document Type: Paper

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Can E-banking improve financial service quality in developing countries?

This paper summarizes the development in electronic banking and analyses the implications for consumers, governments and financial service providers.

• E-finance has lowered costs and increased competition for financial services. This has enabled banks to lower fees and commissions because providing e-finance is much cheaper than providing traditional financial services.
• E-finance has allowed consumers to compare financial services such as mortgage loans and insurance policies before making a decision.
• Non-financial entities, including telecommunication and utility companies that offer payment and other services are entering the market. The growth of vertically integrated financial service companies has created synergies by combining brand names, distribution networks and financial service production.

• Innovations such as smart cards can be used for offering savings and payment services to low income customers who often do not have formal bank accounts.
• E-banking can be introduced quickly even where the basic financial infrastructure is weak.
• E-finance allows providing financial services from offshore, thus ensuring the benefits of international technology and oversight.

• Telecommunications framework should avoid protecting incumbent providers and allow private firms to enhance connectivity.
• Rules for contract enforcement within and across borders should be assured.
• Emphasis should be on a competition policy and clear market rules.