Page 8 - ITU-T Focus Group Digital Financial Services – Executive Summary

ITU-T Focus Group Digital Financial Services
Executive summary

Preface

Why a Focus Group on Digital Financial Services (DFS)?

Access to safe, high-quality financial services is very important, especially for poor and unbanked consumers
around the world. Research has demonstrated that poor people value convenient, cost-effective financial
services that enable them to manage irregular income streams to smooth consumption, save small lump sums
to cover larger periodic expenses (e.g., education, health, housing, life events), address income shocks (such
as the loss of a job or death of a breadwinner), and borrow for consumption or business purposes. 1
DFS offer great potential to meet the financial needs of poor and unbanked consumers. Using agents and
digital channels for financial transactions can lower costs by as much as 90 per cent compared to similar
transactions conducted in physical branches of financial service providers (SPs). As a result, DFS providers
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(both banks and nonbanks) can offer financial services profitably in areas where bank branches and automated
teller machines (ATMs) are not viable to consumers who have historically been unprofitable to serve.

As technology continues to develop, so do the opportunities to harness innovation for financial inclusion.
Today, DFS providers are employing data analytics to develop alternative credit profiles using records of clients’
electronic transaction behavior. Meanwhile, financial technology (FinTech) firms are digitizing paper-based
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transaction data to identify potential demand for financial services such as credit, savings, and insurance. 4
Financial authorities are seeking to leverage DFS for financial inclusion. In some markets, the adoption of
DFS has resulted in a dramatic increase in financial inclusion. For example, eMoney pioneer Kenya saw the
percentage of the population using formal financial services increase from 27.4 per cent in 2006 (when M-PESA
was first launched) to 75.3 per cent by 2015. Today, many financial authorities are increasingly viewing digital
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finance as a cornerstone of financial inclusion strategies. 6
At the same time, authorities are grappling with how to effectively regulate and supervise DFS. DFS
regulation is complex. In many cases, service development and delivery is being driven by non-traditional
providers of financial services, such as mobile network operators (MNOs), FinTech firms, and other non-bank
payment service providers (PSPs). New business models also raise new issues to address and consider, such as
how to regulate the use of agents, ensure that customer funds are protected from loss, and protect consumers’
data privacy, particularly when services are being delivered by agents and non-traditional financial SPs. These
changes have led to an urgent need for financial authorities to effectively consult and collaborate with other
public-sector stakeholders (particularly telecommunication authorities but also others such as competition,
consumer protection, and data protection authorities) and private-sector stakeholders to develop a safe and
enabling ecosystem for the development of digital financial services.

ITU Focus Group on Digital Financial Services (FG DFS) for Financial Inclusion

The ITU FG DFS was established to facilitate effective consultation and collaboration on key DFS issues. For
the first time at the global level, the ITU FG DFS assembled financial and telecommunication authorities, DFS

1 See, e.g., Collins et al. (2009), Portfolios of the Poor: How the World’s Poor Live on $2 a Day http:// www. portfoliosofthepoor. com/
book. asp
2 Bill & Melinda Gates Foundation (2013), Fighting Poverty, Profitably: Transforming the Economics of Payments to build Sustain-
able, Inclusive Financial Systems, https:// docs. gatesfoundation. org/ Documents/ Fighting%20 Poverty%20 Profitably%20 Full%20
Report. pdf
3 E.g., Costa et al. (2016), Big Data, Small Credit: The Digital Revolution and Its Impact on Emerging Market Consumers, https://
docs. gatesfoundation. org/ Documents/ Fighting%20 Poverty%20 Profitably%20 Full%20 Report. pdf; Cook & McKay (2015), How
M-Shwari Works: The Story So Far https:// www. cgap. org/ sites/ default/ files/ Forum- How- M- Shwari- Works- Apr- 2015. pdf.
4 See, e.g., http:// www. fibrproject. org/
5 FSD Kenya (2016), FinAccess National Survey 2016, http:// fsdkenya. org/ publication/ finaccess2016/
6 See, e.g., Tanzania National Council for Financial Inclusion (2013), National Financial Inclusion Framework: A Public-Private
Stakeholders’ Initiative (2014-2016), http:// www. afi- global. org/ sites/ default/ files/ publications/ tanzania- national- financial-
inclusion- framework- 2014- 2016. pdf

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