China’s Long March to a Cashless Future: Regulatory Responses to DFS Innovation and the Challenges of Rural Distribution

This papers documents China’s policy and regulatory trajectory towards building a more inclusive digital financial system and offers lessons for stakeholders in other markets striving to overcome the physical distribution challenges of cash while expanding financial inclusion. The paper is a supplement to the official and peer reviewed CGAP Technical Guide”Agent Networks at the Last Mile: A Guide for Digital Finance to Reach Rural Customers” (2019).

In the past decade, China pioneered the large-scale aggregation of financial services into digital platforms hosting a variety of services, marketplaces, and activities. This “platform model” had several years to develop and mature before regulators intervened by taking active measures to bring the platforms and other types of digital financial services (DFS) under a comprehensive regulatory framework. In parallel, the physical distribution or agent network for financial services expanded rapidly into underserved rural areas, thanks to policy initiatives combined with huge investments by the public and private sectors. The result has been a quantum leap in financial inclusion, characterized by high levels of account usage. A robust banking and digital infrastructure played a key role in this outreach effort. The expansion of agents serving as cash points proliferated and then reduced, making China one of the few countries in the world where the use of cash is decreasing.

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