Page 174 - ITU-T Focus Group Digital Financial Services – Technology, innovation and competition

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

A OVERVIEW

1 Background to the study

As the digital financial services (DFS) ecosystem grows and becomes more competitive, a range of competitive
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issues relating to and affecting existing and potential market participants have emerged.
The trusted internet connections (TIC) Working Group identified a number of these competition-related issues
in DFS ecosystems worthy of additional study. These may include those relating to: market access and licensing;
technical access to telecommunications and payment infrastructure; differential rules on the use of agents;
ability to interoperate; capital requirements and safeguarding of funds; service pricing; cross-subsidization of
services; quality of service (QOS); taxation; and access to big data.

These issues form the basis for this study and are approached from the respective perspectives of market
participants in, and regulators of, the DFS ecosystem, all of whom may have their own sets of competition-
related concerns. These market participants include: Independent banks; mobile network operator (MNO)-
affiliated banks ; MNO-affiliated payment service providers (PSPs) ; independent PSPs; PSP-affiliated banks ;
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MNOs ; technical service providers (TSPs) and aggregators; payment switches; agent networks; and mobile
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virtual network operators (MVNOs).
While discussions of competition issues can often amount to a dystopic characterization of an ecosystem, this
may not necessarily be the norm in DFS ecosystems. There are, of course, a number of examples where market
forces in the ecosystem have sufficed to provide an equilibrium of service provision and access between market
participants, and which then have obviated the need for regulator or competition authority intervention in
relation to access to technology, services, and pricing thereof.

But, as revealed in the country examples below, the issues in areas such as market access; access to technology;
data and services; and use of agents are manifest and may be of concern to a number of regulator, competition
authorities, market participants, and consumers in a number of countries.

While there are significant market participants in the DFS ecosystem whose actions affect the market, it is
trite to say that much of the competition-related focus in DFS has revolved around the activity of regulators
with respect to MNOs and the access they provide to critical and scarce bearer infrastructure such as
unstructured supplementary service data (USSD) and SIM toolkit (STK). Indeed, just through sheer weight of
public examples, and their prominent role in the DFS ecosystem, there is often a large focus on MNOs when
looking at competition issues in DFS-focused literature.
Therefore, the question may be asked as to why there is such an outsized competition-related focus on MNOs
in many jurisdictions and less so on others. From one perspective, it may reflect the MNO’s critical role in DFS
infrastructure provision and their noted foundational ‘first mover’ role in building DFS ecosystems in some
markets which, not only allowed them to build significant market presences, but also to potentially be in a
position to restrict access to critical and scarce mobile infrastructure from direct DFS competitors. On the other
hand, others argue that the focus on bearer access and pricing has come from a relatively small number of
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5 Digital financial services include methods to electronically store and transfer funds; to make and receive payments; to borrow,
save, insure and invest; and to manage a person's or enterprise's finances. ITU DFS Focus Group (2016) Glossary, available at
http:// www. itu. int/ en/ ITU- T/ focusgroups/ dfs/ Pages/ default. aspx
6 For example, payment banks in India such as those promoted by Airtel and Vodafone. These are regulated under a new bank-
based regulatory regime.
7 In some DFS markets, MNO subsidiaries are licensed as PSPs or e-money issuers, and are operationally distinct from the parent
MNO. They may be regulated as financial service providers.
8 For example, payment banks in India such as those promoted by PSPs like PayTM and Fino PayTech
9 See Exhibit 1.
10 MNO comments to the TIC WG.

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