Page 211 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

In Kenya, often lauded as one of the most successful markets for DFS, over 85 per cent of Kenyans have a
mobile payment account, yet only 2.3 per cent of the transaction value is conducted with merchants. In
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some parts of Kenya, over 90 per cent of retail transactions remain cash-based. It is not just in Africa that
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acceptance of digital payments suffers. In India, government and private organizations estimate only 4-6 per
cent of Indian merchants accept digital payments. Low merchant acceptance, especially amongst MSMEs, is
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common in all developing countries.
There are a variety of reasons for limited merchant acceptance, including transaction costs, cash-out costs, real
or perceived lack of customer demand, and even a desire to remain in the shadow economy in order to avoid
taxes. A significant percentage of MSMEs do not accept digital payments because the overall value proposition
is not sufficiently strong. Unfortunately, there is no silver bullet to solve these acceptance challenges. A mix
of approaches is necessary to push DFS acceptance forward to digital liquidity until there is a tipping point.

One approach to increasing merchant participation is to introduce propositions that bring additional value
beyond that of the traditional benefits of e-money acceptance alone. This paper focuses on one such value-
added proposition, specifically the notion that by accepting digital payments, the MSMEs could be providing
business-related data that could help in the process of securing small loans and/or other financial services.

2.1 Hypothesis

If MSMEs have a better chance of gaining access to affordable lending by accepting digital payments from
their customers and other businesses, as well as utilizing digital payment platforms themselves, that could
be a meaningful factor in overcoming many of the hurdles currently impeding adoption and digital liquidity.

Indeed, in a recent study, “credit for business investments and easy/lower cost access to working capital
credit” was cited by merchants in the developing world across all geographies, store type, and size as the most
attractive value-added proposition to accept digital payments. 20

2.2 Use of ACD

A number of programs in various markets were studied to determine commonality, feasibility, and potential
opportunity for alternative credit approaches as an inducement for micro and small businesses to accept DFS.
To this end, the research focused on the following questions:

• What is being done in emerging markets to use mobile devices, e-money, e-commerce marketplace,
social media data, and other “leaky” digital data to assess credit worthiness of MSMEs?
• How effective are these programs?

• Which data elements are the most useful?
• What opportunities – economic, standards and regulation, partnership and more – are in place, or could
be in place, to help these programs become effective and scalable, thereby encouraging more BoP
merchants to accept e-money payments?

17 “Mobile Payments in Emerging Markets”, Robeco, October 2015, http:// www. robeco. com/ images/ mobile- payments- in- emerging-
markets- october- 2015. pdf
18 “Sub-Saharan Africa: A major potential revenue opportunity for digital payments”, McKinsey & Co., February 2014, http:// www.
mckinsey. com/ industries/ financial- services/ our- insights/ sub- saharan- africa- a- major- potential- revenue- opportunity- for- digital-
payments
19 NPCI, 2014; RBI, 2014; and “Payments Systems in India: Vision 2012-2015”, Reserve Bank of India, October 2012, https:// rbi. org.
in/ Scripts/ PublicationVisionDocuments. aspx? Id= 678
20 Global Innovations Exchange Report, September 2015, http:// www. globalinnovationexchange. org/ beyond- cash

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