Page 185 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

Part II: Driving Acceptance by Merchants and Other Payments Acceptors

6 Introduction

eMoney has significantly impacted payment system development around the globe, bringing financial services
to populations that were previously excluded. There is widespread recognition of the tremendous potential of
eMoney deployments to continue evolving and providing previously excluded populations with economically
viable access to a range of financial services. To date the success of eMoney deployments has been driven
by Mobile Phone top ups and Person to Person (P2P) payment services. These services have been supported
through the establishment by eMoney Operators (MMOs) of extensive Cash-in Cash-out (CICO) networks,
the most expensive element in eMoney deployments. Yet, it is merchant payments – which will facilitate
commerce – that holds the potential to drive explosive growth and provide additional benefits in eMoney
deployments. Some estimates conservatively put the potential at 16 merchant payment transactions for each
P2P transaction. Yet, merchant acceptance as formal Person to Merchant (P2M) payments through eMoney
1
is still very nascent, non-existent in many deployments, or is transacted informally as P2P payments. Growth
in P2M payments is critical because of the tremendous impact it can provide to the continued development
enabled by the creation of digital liquidity – the maintenance by households and firms of electronic stores
of value. While the importance of financial deepening through greater access to financial services has long
been recognized in economic growth theory, recent studies have shown and estimated the positive impact of
2
electronic payments on Total Factor Productivity and economic growth, reinforcing the value of these efforts.
3
6.1 Overview

This report seeks to provide a better understanding nascent merchant acceptance in eMoney deployments.
Digital Merchant acceptance is critical to its development, most importantly because of the tremendous
size of potential acceptance volumes and the Digital Liquidity that acceptance would generate. We advance
understanding by providing a structured approach and identifying different models that have emerged to
support merchant acceptance and models that could potentially emerge. In examining these models, their
characteristics are highlighted, especially those aspects presenting barriers to growth or supporting the scaling
of these services. By focusing on nascent acceptance we can better understand the emerging lessons, and
glean early insights into opportunities to catalyze additional merchant acceptance. Finally, relevant lessons
for the growth of merchant acceptance will be highlighted.

6.2 Disruption in Financial Services
To provide additional context, we need to step back to understand why eMoney has emerged in the first place
and how it has evolved. Before the first eMoney scheme was launched by Vodafone, the UK’s Department of
International Development (DFID) staff observed that Kenyans were circulating airtime through their mobile
phones to remit something that could be converted into money back to their families and friends, leading
to the development of a mobile system that allows the remittance of actual money. There are a number
of factors that have enabled the emergence of eMoney deployments. First, there continues to be unmet
demand for financial services in many countries. Second, the costs of providing these services has limited the
ability to meet demand. Furthermore, recent technological developments have reduced the cost of delivering
financial services. In addition, regulations have been put in place that enabled the emergence of eMoney. And

1 Lyons, B and Schiff, A (2014), “eMoney Merchant Payments-What does the Future Hold?, Helix Series on Digital Finance in the
Field, June 2014.
2 McKinnon, R.I. (1973), Money and Capital in Economic Development. Washington, D.C.: The Brookings Institute. ; Gurley, J.G. and
E.S. Shaw (1967). "Financial structure and economic development". Economic Development and Cultural Change, 15(31): 257-
268.
3 Beck, T., Pamuk, H., Pamarattan, R., and Uras, B. (2015) “eMoney, Trade Credit and Economic Development", CEPR Discussion
Paper No. DP 10848, Sept. 2015.

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