Page 29 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

2.2.6.3 Business Model

Different business models exist:

2.2.6.3.1 Direct to consumer

In this case a lender will approach customers directly, gather information and make a credit risk assessment to
lend or not. Distribution is often a problem in this model and the cost of processing and verifying information
is important. The provider is not incentivized to process small loan sizes. In addition as this is stand-alone there
is no integration to the eMoney account for collections translating to significantly higher risk, which typically
reduces the provider from being able to take scale risk.

2.2.6.3.2 Two-Way partnerships
In this model a lender partners with a DFS provider as a distribution partner to leverage the data and eMoney
eco-system. The DFS provider provides the user and the lender providers the credit scoring, administration,
needed regulatory approvals and importantly the capital. The network is looking for a value added service to
drive eMoney liquidity and transactions; the lender is looking for distribution at a low cost. Typically the lender
will share revenue, profit or fees with the eMoney service provider to remain aligned.

2.2.6.3.3 Three Way Partnerships or service providers

In this scenario a 3 party expert will approach an MNO and provide insights into their data using it to build a
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credit scorecard and intelligence. With this they would then approach a bank to provide the financial services
products. The financial service provider will then share profits or fees with both the eMoney service provider
and the 3 party provider. The challenge with this model is getting three parties to agree on a common
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objective and execution approach.

2.2.6.4 Best Practices

Best practices are still being established in this space, with many iterations outside of these examples being
tried and tested in South East Asia, Africa and Latin America. As with all examples, the most likely to succeed
and drive real value and scale will be those with collaboration between the MNO, the lender and the regulator.

2.2.6.5 Microfinance
Microfinance is a specialized form of lending with a long history (pre-dating eMoney accounts). Although an
important part of the ecosystem, it remains relatively distinct from the eMoney account and the emerging
services built from that. There is an important intersection in the use of digital wallets by microfinance providers
to disburse loans and/or collect payments from loans. Microfinance providers have traditionally had many
challenges in disbursement and more often collection of repayments of loans. eMoney accounts potentially
solve some of these pain points but to date have not garnered momentum outside of the key DFS markets.
Indications are that MFI’s have refined their collection models and only migrate to integrations with DFS once
there is a certain level of DFS ubiquity in a market. Criticism of microfinance suggested that it was used more
for consumption than investment and that it could cause moral hazard leading to oversupply of lending to
non-creditworthy clients and therefore to over indebtedness. The provision of microfinance through the DFS
ecosystem could potentially amplify this effect. Still, there are needs for financial services that are adequately
addressed through microfinance services, especially since they evolved from narrower microcredit services,
and this positive effect is also augmented by the DFS ecosystem. This debate underlines the importance of an
adequate regulatory and institutional framework for digital financial services .
3

3 Adapted from UNCTAD, 2014, Impact of access to financial services, including by highlighting remittances on development: eco-
nomic empowerment of women and youth and from UNCTAD, forthcoming, access to financial services and digital economy for
sustainable development.

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