Executive summary

Competition has emerged as a significant concern for financial sector authorities across emerging markets. Although financial access has expanded, many markets remain highly concentrated and dominated by incumbent providers. New entrants face steep barriers, including difficulties in obtaining licences, inequitable access to payment infrastructure, and disproportionate supervisory burdens. Additionally, closed digital ecosystems and super-apps are entrenching market power by locking in users. Many financial authorities feel constrained by a lack of formal competition mandates or defer to competition authorities that may lack specialised knowledge of financial dynamics. This Focus Note provides six actionable policy considerations derived from eight country case studies: Brazil, Cambodia, India, Kenya, Mexico, Pakistan, South Africa, and the United Kingdom.

Section 1: Introduction

Financial sector authorities have significantly increased efforts to strengthen financial systems and advance inclusion through shared infrastructure and regulatory sandboxes. However, market concentration remains a global challenge as dominant incumbents maintain their position and digitalisation creates new types of providers that blur traditional boundaries. CGAP has established that competitive pressure is a powerful enabler of financial inclusion, leading to outcomes such as greater provider and product diversity, expanded access channels, more tailored services, increased innovation, and lower prices. Advancing competition does not necessarily require new mandates but rather a deliberate application of a competition lens and the coordinated use of existing regulatory tools.

Section 2: Policy considerations

The first consideration is to use existing mandates. Regulators can apply a competition lens to routine decisions regarding licensing and infrastructure access. For example, Brazil’s Banco Central do Brasil (BCB) dismantled card-acquiring exclusivity in 2010 using its efficiency and inclusion mandates. Secondly, effective coordination is essential because digital finance is inherently cross-sectoral, spanning financial, telecommunications, and data jurisdictions. In South Africa, the 2006 Banking Market Enquiry identified constraints that led to rule-based access criteria for payment systems. The United Kingdom demonstrates institutionalised coordination through concurrent competition powers shared between the Financial Conduct Authority (FCA) and the Competition and Markets Authority (CMA).

The third consideration involves managing trade-offs between competition and core objectives like stability and consumer protection. In Cambodia, a liberal licensing regime saw the number of institutions grow from 36 to 157 in 14 years, but this outpaced supervisory capacity, leading to acute debt distress and a microfinance loan portfolio reaching US$18 billion. In India, the Unified Payments Interface (UPI) has reached over 500 million unique users, but its zero-pricing model for merchants has created a funding gap estimated at US$1.2 billion annually. Fourthly, authorities should leverage financial infrastructure design. India’s Aadhaar reduced e-KYC costs by 99.5 percent, from US$12 to US$0.06 per transaction. In Brazil, the centrally governed Pix system reached 68 billion annual transfers by 2025.

Timing interventions carefully is the fifth consideration. Delaying action allows market structures to crystallise, as seen in Kenya, where Safaricom reached 95 percent of mobile money transaction volumes before regulators addressed agent exclusivity and USSD pricing. Finally, regulators must ensure that design and delivery are correct. Mexico’s 2018 Fintech Law struggled with implementation frictions and lengthy authorisation processes. In South Africa, PayShap launched in 2023 but initially faced high transaction fees of up to R 45 (US$2) set by incumbent banks. Conversely, the United Kingdom’s mandatory 2017 Open Banking Order ensured that the largest banks shared data, resulting in over 13.3 million individuals and businesses using these services by 2025.

Section 3: Conclusion

Evidence across various jurisdictions shows that competition outcomes in digital finance are shaped as much by regulatory conditions as by market forces. Financial authorities possess the necessary tools and mandates but must have the willingness to treat competition as a core part of their regulatory practice. As digital ecosystems grow more integrated and marked by platform dominance, the window to shape competitive outcomes is narrowing, requiring urgent action from regulators to ensure that financial markets remain contestable and inclusive.