Page 164 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

Part I: Merchants and Payments Acceptors in the Digital Financial Services
Ecosystem

1 Introduction

The Merchant and Payments Acceptor workstream within the ITU DFS Ecosystem Working Group is charged
with describing the merchant services value chain, developing a segmentation scheme for different types of
payments acceptors, and identifying the payments-related attributes of each segment. The workstream also
identified critical success factors for DFS adoption, and has developed some ideas for policy makers to consider
on ways to accelerate the adoption of electronic payments acceptance.

A note on terminology: the term "merchant" is used occasionally throughout this paper to refer to
"payments acceptors" in general: any enterprise, large or small, which receives payments for goods or
services. The term includes billers, schools, governments, transit, farmers, etc. – not just retail stores.
Payments acceptors may sell in-person, remotely, or, very commonly, both in-person and remotely.

1.1 Goals of Digital Payments Acceptance

Enabling merchant acceptance of digital payments is increasingly seen as a key element of the overall
development of the DFS ecosystem. Broad merchant acceptance will help achieve digital liquidity by enabling
poor consumers to spend a meaningful amount of the money they receive or deposit into digital wallets,
eliminating or reducing the need to incur cash-out costs.

Other goals include:
• Helping overall commerce in developing countries grow; helping small and/or poor merchants find new
customers (locally and beyond their current geographies) and generate more through participation in
new payments-enabled commerce platforms; helping these merchants increase the number of sales
from existing customers
• Increasing long term tax collections

• Reducing the risks of merchants carrying and holding cash
The importance of reaching a critical mass of merchants/payment acceptors in the ecosystem cannot be
overestimated. Without meaningful places to use/spend monies contained in their digital wallets, consumers
(and to some extent any business) will be forced to utilize time consuming and costly cash-out mechanisms,
which in turn creates disincentives to receive electronic payments in the first place. In fact, it is generally
accepted that the merchant/payment acceptance "leg of the stool" has been an inhibitor to the growth and
success of many failed and/or struggling payment system.

Said differently, "digital liquidity" and the associated "network effect" is critical to ensure that the overall goals
and growth of any electronic payment system are realized. Keeping electronic money "in the system" – i.e.,
creating velocity is critical to keeping transaction costs low, not just the economy of scale driven processing
costs of the system itself, but also the "all in" costs when factoring in CICO/agent fees. Digital liquidity will
reduce the demand for expensive CICO services.

For the poor, merchant acceptance is particularly important since the poor don’t have bank accounts to transfer
and hold electronic funds received, while at the same time, can least afford CICO / agent fees. And even if a
government or other entity was successful in getting consumers to open accounts via bulk payments, without

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