Page 328 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

Overall:

The general use of a centralized, interoperable switch across all three markets points to a preference toward
shared services in bulk payments. All three of these countries allow financial service providers to share the
infrastructure of the centralized switch. This has the potential to create a more efficient system, where networks
don’t need to create new bilateral connections to connect to different financial service providers. It could also
allow for more competition in the system, if all financial service providers were to connect.

The three countries are pursuing different approaches to encouraging financial service providers to connect
to the system. In Peru, the fact that the switch was created by the ASBANC encourages banks to connect.
In Nigeria, the central bank simply mandated the connection. And in India, the immense magnitude of the
Aadhaar project will encourage financial service providers to connect.

Finally, the fact that the Nigeria system does not currently allow payments to mobile wallets points to a
roadblock on the way to an efficient system. Mobile wallets are expected to become important financial service
providers for poor people around the world in the coming years. However, the difficulty in identifying mobile
wallet users has prevented the NIBSS from sending money to these beneficiaries so far. That said, the country
expects to roll out that functionality soon.

9 Considerations for financial policy makers

• A functioning national ID system appears to be the building block for any bulk payments ecosystem.
Incorporating biometrics into the national ID system may be important for avoiding ghost beneficiaries
and creating a more efficient bulk payment system. A financial industry ID system, such as in Nigeria, is
a good alternative (or complement) to this.
• Governments should consider the value of creating a centralized directory to map national ID numbers
to payment system account numbers. This system could incorporate all digital financial service providers,
including banks and digital money systems run by mobile network operators. The directory could then
update if the beneficiary were to change their preferred financial service provider. This would allow
payers to more efficiently direct payments to beneficiaries.
• The “cash-out” problem of digital liquidity will likely remain a logistical issue for bulk payment programs.
In the short-term, policymakers may consider ways to encourage the expansion of agent networks
throughout markets. The best long-term solution for digital liquidity is that merchants need to accept
digital money. Policymakers may want to consider means to encourage merchant acceptance of digital
money by subsidizing credit through digital money or giving tax breaks to merchants that accept digital
money.
• While the “cash-out” problem remains, governments and other paying agencies should be judicious in
choosing the targets for bulk payment programs. Choosing to make supplemental payments, rather than
critical-use payments, is a good entry point. Targeting beneficiary populations who live in urban areas,
or areas where there are sufficient agent locations and/or ATMs, may also be useful.
Finally, it should be noted that the potential for digital bulk payments is actually much greater than the current
volume of bulk payments being made. Many government and other paying agencies today provide benefits in
kind (gas canisters, price supplements at merchants, etc.) rather than making cash payments, with all of their
costs and complexities. As the digital financial ecosystem evolves to support fully electronic bulk payments,
we expect to see some of these programs convert from in-kind benefits to payments.

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