Page 311 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

Digital liquidity:

B2B payments could also give businesses a powerful incentive to keep value inside of digital money systems. If
businesses are paid digitally by their business and consumer customers and have suppliers that accept digital
payment, the utility of digital payments is dramatically higher. Right now, digital money is not replacing cash,
but rather making cash more efficient. Eighty-five percent of transactions globally are still in cash. Even in
Kenya, one of the most active digital money markets in the world, MasterCard Advisors estimated that 98 per
cent of transactions were still made in cash.

One factor that holds back widespread adoption of digital money for financial inclusion is the cash in cash out
(CICO) network. According to Ignacio Mas, “…cash in/cash out (CICO) points are like tollgates at the edge of
the digital payments cloud.” It costs poor people money to take money out of digital money systems, which
creates a strong barrier to usage.

If buyers were able to use digital money to pay suppliers using B2B payments, those companies may be more
inclined to accept digital payments from consumers. At that point, consumers would have more places to use
their digital money, which would make them more inclined to leave value inside of digital money, instead of
cashing out. This could create a virtuous cycle, where digital money systems retain more value and are made
more efficient.
Lower costs:

Digital B2B payment tools could lower the cost of doing business. Buyers and sellers who adopt digital B2B
payments would no longer need to pay someone to transport cash and provide security. If transactions are
done by check, buyers and sellers no longer need to stand in line at the bank to cash the check.

These lower transaction costs could translate to lower costs to buyers, sellers, and consumers. Suppliers would
not need to charge buyers as much, if their costs were lower. If buyers are purchasing goods and services at
lower costs, those savings could be passed on to the consumer.

Economic growth:

MSMEs are a huge factor in any economy, especially in developing countries, where MSMEs generally represent
more than 90 per cent of all firms. In Brazil, an estimated 99.9 per cent of all firms are MSMEs. In terms of
employment, MSMEs provide 71 to 73 per cent of jobs in Chile and Colombia. Lowering transaction costs
through the widespread use of digital B2B payments could make MSMEs more efficient, and could encourage
more economic growth generally. Also, as previously discussed, the security provided by digital payments could
also allow more MSMEs to hire on more employees, which would boost employment.
Path to formalization:

Many digital B2B payment tools and services require accounts at financial institutions, which require a degree
of formalization among businesses. If the benefits of these tools and services were large enough for businesses,
they could actually be a factor in motivating businesses to seek out bank accounts, business licenses, and
other methods of formalization.
Second-order benefits example, Nigeria:

In 2014, the Central Bank of Nigeria approved new guidelines designed to promote digital payments. The
bank stipulated that all businesses with more than 50 employees were required to use approved end-to-end
e-payment platforms for all salaries, pensions, taxes, and supplier payments. The central bank doesn’t currently
have jurisdiction over non-financial entities, so the regulations are still considered non-binding. However, the
moves by the central bank, along with other e-payment efforts, have helped companies stop thinking about
“whether or not” to shift to digital payments and begin thinking about “how.”

Now that companies have begun shifting to digital payments, the second-order benefits are becoming clear.
The Nigerian Bottling Company (NBC) has found that digital B2B payments have helped the business in a
number of ways. NBC drivers were often robbed when they carried cash, and the company began paying high

283