Page 20 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

1.5 Issues and Challenges in the Ecosystem

Not surprisingly, regulators, providers, and the wide range of parties working to implement and enable the
digital financial services ecosystem are dealing with complex issues. Many of these issues are the subject of
separate reports from this ITU Focus Group.

• Who should be permitted to be a provider of digital financial services, and how should this be regulated?
Although this is often thought of as a question of banks versus telecommunications companies, in fact
many other types of entities are either currently or potentially supply digital financial services – including,
as one example, social networks. Should regulation be done on a functional basis or by type of provider?
What is the regulatory capacity within a country to support additional provider categories?

• What are the business models for digital financial services among providers? Are the business models used
in pilot and early launch sufficient to support a scale implementation of the ecosystem? Are transactional
costs well understood? What types of systemic controls used in legacy service models (for example,
interchange in bank payments systems, or retail price regulation in telecommunications services) are
appropriate for new services? Are business models dependent on elements of the ecosystem that may
disappear over time – such as “cash-out” fees? What is the role of government as a provider of digital
financial services? As a user of the same services? Are the necessary infrastructure investments being
made?
• How should national (or industry specific) identity systems be used by the digital financial services
ecosystem? Will emerging biometric-based identity systems be sufficient to change the current costs of
“KYC” (know your customer) processes for providers?
• How will consumers be protected from abuse by providers and/or other end users? How should this be
regulated? How can consumer protection be accomplished without adding costs to the ecosystem that
make services too expensive for consumers to use?
• How will the ecosystem balance the need to protect consumer (and merchant) data privacy needs against
the value the data may have in helping to support the costs of the ecosystem?
• How should digital financial services providers – and their support services providers – manage the risks
in the ecosystem? How should “best practices” be communicated and assimilated? How should this be
regulated?
• What standards of quality of service should providers be held to? How should this be defined and
regulated?
• Rapidly changing technology presents risks and opportunities within the ecosystem. This includes changes
in mobile handset capability, vendor platform capabilities, and changes in the underlying communications
networks. How can providers, support services providers, and regulators understand the impact of these
changing technologies?
• How aligned to regional or global standards should digital financial services providers be?

• Should digital financial services providers be required to use regional or global standards for payments
messaging? Is this necessary in order to conduct cross-border financial services in an efficient and safe
manner? How should this be regulated?
• How should the digital financial ecosystem work to improve financial literacy among consumers and small
businesses? To what extent is this a government function or a commercial function?
An important over-arching issue in the development of the DFS ecosystem is the need invest in and manage
two sides of the eco-system at once. Practically, this means both supporting initiatives to load electronic
money into consumer transaction accounts – principally through bulk, or G2P payments and initiatives to
enable consumers to spend this money in electronic form, rather than cashing out – principally through the
enablement of merchant electronic payment acceptance. Neither initiative can be successful without the
other: consumers who accept electronic money will simply “cash-out” if they can’t spend it electronically, thus
perpetuating the costly cash management problem of agents. Merchants, on the other hand, won’t accept

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