Page 302 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

formats. Counter intuitively, this may be less efficient and more work for the accounting staff (or business
owner herself) than manually tracking payments. Handling payment exceptions can also significantly
increase administrative efforts and even interfere with efforts to streamline back office tasks.
• Reasonable costs: Businesses large and small are willing to pay for reliable, low-risk, efficient digital
payments. But the direct (transaction fees) and indirect cost (processing, exception handling, converting
digital value into cash) should be reasonable given the associated benefits.
Some requirements may be more important for some businesses than others. A previous article for the ITU DFS
Focus Group separated merchants and payment acceptors into nine categories. The smallest, M0, are small
consumers transferring money to each other in a P2P fashion. The largest, M8, is the government. Each of
these user categories has access to different technologies, different appetite for risk, and economic sensitivity.
2
The size of a business has a large effect on digital B2B payment needs. Smaller businesses (those in the M1-M3
categories) tend to use “just pay” solutions with immediate payment and only informal credit. More complex
features, including invoicing, VAT payments, and aggregated payments (for multiple invoice obligations at a
time) may not be necessary. On the other hand, larger businesses – those in the M2, M3, M4, or M6 categories
– may need solutions that cover VAT payments, invoicing, and aggregated payments. Larger companies also
have a stronger propensity to invest in optimizing back office procedures and paying for payment solutions
than informal companies.

In developing countries, the divide between formal and informal merchants will also have a large effect on
the appropriate digital B2B payment tools and services. In both developed and developing countries, most
businesses are small. Ninety-six percent of businesses in the United States have fewer than 10 employees.
3
Similarly, the vast majority of firms in developing countries are considered micro-, small-, and medium-sized
enterprises. In developing markets, an estimated 77 per cent of small and medium enterprises (SMEs) lack
4
formal documentation. 5

Figure 1 – Formal and informal enterprises

Informal businesses have different system requirements than formal merchants. Informal needs may align
closely with those of M1 businesses. If structured correctly, however, digital B2B payment services could give
informal owners an incentive to gain the necessary licenses to formalize their businesses.

B2B payment tools and services should align to the specific needs of companies at various stages of maturity
– regardless of their location – as businesses grow and their back office procedures mature. Entrepreneurs

2 Enabling Merchant Payments Acceptance in the Digital Financial Ecosystems. ITU. February, 2016.
3 US Census, 2012 data.
4 Transforming Business Relationships: Inclusive Business in Latin America. Inter-American Development Bank. 2015.
5 Peer Stein, Oya Pinar Ardic, and Martin Hommes. Closing the Credit Gap for Formal and Informal Micro, Small, and Medium
Enterprises. International Finance Corporation. 2013.

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