IADI Observes Trends in DSPs, Deposit Insurance, and Financial Inclusion

The International Association of Deposit Insurance (IADI) published a draft research paper entitled, Deposit Insurance and Financial Inclusion: Current Trends in Insuring Digital Stored-Value Products, to “document the challenges emerging for jurisdictions which have decided on a deposit insurance treatment of DSPs”, as well as review the approach taken by deposit insurers to provide coverage for DSPs. Digital stored-value products (DSPs), which are financial products that allow consumers to store value in a digital format (i.e. digital instrument that carries a credit balance such as digital gift cards), are becoming increasingly available and have served as a means of financial inclusion. According to the paper, however, “Survey data show that deposit insurers are not actively involved in national arrangements to promote financial inclusion, and the decision to participate in these arrangements does not rely on them.”

The survey further reveals that deposit insurers are aware that member institutions are offering DSPs as products, but they are not considered deposits in more than three-quarters of 51 jurisdictions. A summary of DSP product observations include the following: Little over half of surveyed jurisdictions have at least one approach to DSPs (“In 2016, the Consultative Group to Assist the Poor (CGAP) published the document Deposit Insurance and Financial Inclusion, which identifies three approaches for covering DSPs that have emerged regarding digital financial inclusion and deposit insurance.”); 10 jurisdictions have opted out of DSP coverage; 12 jurisdictions cover DSPs; DSP institutions do not have a liquidation process in place in most jurisdictions; although not required, the none of the jurisdictions have created a separate fund to cover DSPs; and only six of the jurisdictions surveyed had specific requirements regarding “public awareness activities” related to insured or non-insured DSPs.

The paper concluded that as observed in 2013, the majority of jurisdictions do not have a formal acknowledgement of the role that deposit insurance plays in promoting financial inclusion, and while deposit insurers put in place rules that protect small depositors, they “do not incorporate specific obligations in terms of fostering financial inclusion”.