Page 163 - ITU-T Focus Group Digital Financial Services – Technology, innovation and competition

ITU-T Focus Group Digital Financial Services
Technology, Innovation and Competition

R3’s Corda, described above ‒ could potentially authenticate transactions and undertake C&S considerably
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faster. 133

This may help to reduce counterparty credit risk, which in turn may reduce an institution’s capital requirements,
collateral, or insurance where required by regulation to prevent settlement default.

Permissioned, private blockchains achieve this savings by removing the need for trusted intermediaries and
granting the counterparties real-time visibility to their respective liquidity positions whilst undertaking netting.
Similarly, this real-time liquidity visibility allows DFS providers to use DLTs to remove the need for prefunding
in bilateral interoperability designs. 134

7.3 Remittances
Current business models for remittances are relatively centralized: Payments sent and received between entities
are costly, time consuming, error prone, and subject to widespread fraud and potential money laundering.

As a result, the time and cost efficiencies could support large amounts of small transactions or micro transactions,
which are essential for bringing underbanked and unbanked individuals into the formal economy. DLTs aim to
reduce the cost of a cross-border transfer by reducing the costs of C&S time and finding better exchange prices.

Two companies, Stellar, which operates as a decentralized protocol for fund transfers, and Oradian, a cloud-
based software provider for microfinance institutions, have partnered to bring instant money transfers to
Nigeria using DLTs. The National Bank of Abu Dhabi is introducing real-time cross-border payments using
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Ripple technology. 136
It is important to note that, despite the great potential for DLTs in the area of payments, there are significant
hurdles that remain for large-scale implementation, chief amongst them an uncertain and un-harmonized
legal regulatory environment relating to the sending and receiving jurisdictions.
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For example, Kenyan-based remittance provider Bitpesa – which transfers value internationally via Bitcoin
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‒ lost its court bid for an order that would have forced Kenyan mobile network operator (MNO) Safaricom
to provide Bitpesa access to Safaricom’s M-PESA DFS platform as a payment option for Kenyan Bitcoin
buyers. Safaricom had cited the uncertain regulatory environment in Kenya around Bitcoin as the reason for
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blocking Bitpesa from its platform.

7.4 Digital identities

Many unbanked individuals do not have access to traditional financial services because they lack verifiable ID
or any identification at all. By using DLTs, individuals can receive a digital identity verified with biometrics which
is securely stored and managed for transacting value nationally and internationally. Essentially, the identity
manifests as a cryptographic key that the user can provide, using a specified biometric marker to verify and
authenticate themselves when needed. 140

132 See Section 2.3 on R3.
133 However, transaction processing times, as noted above in Section 5.6, would need to improve.
134 DFS providers in Tanzania use this bilateral interoperability mechanism.
135 It indicates that it allows 300,000 Nigerians to cheaply transfer money between microfinance institutions over the Stellar net-
work. See TechCrunch (2016) Stellar Partners with Oradian to Bring Instant Money Transfer to Nigeria, available at https:// goo. gl/
mI0DLH. See also Abra, which uses a blockchain backend for cross-country remittances. It has operations in the Philippines and
the US. www. goabra. com.
136 Coindesk (2017) Blockchain as a Geopolitical Tool, available at http:// bit. ly/ 2lf8B1K.
137 See also Baruri, P (2016) Blockchain Powered Financial Inclusion, available at https:// goo. gl/ c2nIWr .
138 Bitpesa enables the exchange of bitcoin for Kenyan Shillings, and allows users in Kenya, Nigeria, Uganda and Tanzania to send fiat
funds to popular DFS wallets. It also has a corridor to China. See www. bitpesa. co
139 CoinDesk (2015) Kenyan Court Upholds Bid to Keep Bitcoin Startup off M-Pesa, available from https:// goo. gl/ 0tkjir .
140 As noted earlier, an issue is whether identities registered in one jurisdiction can be seamlessly used for authentication purposes
in another jurisdiction if dissimilar enrollment techniques are used.

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