Page 312 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

insurance premiums to protect themselves. Digital payments have made the deliveries more secure and less
of a target for robbers. Now, NBC has begun helping its domestic suppliers formalize their businesses with
bank accounts in order to use digital payments. Some companies have reported lower costs, too, though that
is not the primary motivation in going cash-less.

It is still not clear whether businesses are formalizing because of the benefits of digital payments, or whether
digital payments are simply an added benefit of formalization. However, the benefits of formalization and
electronic payments are strongly correlated.

Second-order benefits example, Peru:
The Association of Banks of Peru (ASBANC) and Pagos Digitales Peruanos (PDP) recently implemented an
interoperable mobile payment system called Billetera Móvil (BiM). This system works between banks and
mobile operators in the country to extend mobile financial services to the poor. To achieve this goal, however,
the system needs to attract “digital liquidity” into the system.

One source of digital liquidity could be B2B payments. BiM is currently running a pilot with three large B2B
distributors, including two multinational fast-moving consumer goods companies. PDP, the firm running BiM,
is currently exploring three different methods to incentivize merchants to participate in the B2B pilot: training,
compromise, and discounts. The organization is sending out trainers to help merchants understand how to
use BiM. They’re also relying on compromise, the idea that everyone (suppliers and buyers) will be better off
using the B2B system. PDP is also organizing discounts offered by the distributors to merchants who pay using
BiM. PDP will then track the pilot activity to determine which tactics are most effective to encourage more
payments in the system.

One major barrier to the growth of BiM for B2B payments is the cash-in-cash-out network. There are not
enough agents enabling BiM, especially in rural areas of Peru. If merchants cannot conveniently put cash into
the digital payment system and, in turn, take cash out of it, they will be unlikely to use the system. This is one
reason why pilots, like the one that BiM is running, are so important. If the large distributors benefit from the
B2B pilot, the programs will raise the demand for cash-in-cash-out services. At that point, more agents are
likely to begin offering services. Companies would then be more inclined to use digital B2B payments, creating
a virtual cycle that could benefit the entire BiM system.

Under this system, the distributors will pay to receive payments, and the merchant will not pay to pay. This
means that small merchants will be able to access the benefits of digital B2B tools and services without being
charged directly. At the same time, with more transactions in the system, BiM will have more revenue. The
system can then use that revenue to extend its services more widely, or it can lower the cost of financial services
for lower income segments of the population. This could benefit the economy as a whole.

8 Barriers to B2B adoption

B2B payments are notoriously resistant to digitization. In 2011, 75 per cent of B2B payments in the United
States (by count) were still made by check. In many parts of the world, cash is the only method of B2B payment
available.
An overarching barrier to widespread B2B adoption is how to appeal to the “long tail” of suppliers. Even in
developed markets, most businesses tend to concentrate on only their largest suppliers for efficient B2B
payments. This means that most suppliers are left with manual, and often inefficient, methods of payments.
This problem is more pronounced in poor countries, where many businesses are small and informal.

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