Understanding the Digital Financial Ecosystem: Examples from Asia and the Pacific TRPC Pte Ltd Yoonee Jeong ITU REGIONAL ECONOMIC AND FINANCIAL FORUM OF TELECOMMUNICATIONS/ICTS FOR ASIA AND PACIFIC DIGITAL FINANCIAL INCLUSION: THE INTERACTION BETWEEN ICT AND FINANCIAL SERVICES STAKEHOLDERS Kuala Lumpur, Malaysia, 28 September 2015
1. Digital Financial Inclusion in Numbers 2. Stakeholder Mapping Examples 3. Monitoring Progress 4. Proposed Framework of Stakeholder Management Photo credit: CGAP Portraits of Financial Inclusion 2014 June 26, 2015
2 Billion # of adults still unbanked 255 # of mobile services across 89 countries Page 3 300 Million Number of mobile money accounts 700 Million # of adults who gained access to formal finance since 2011 260 Million # of adults in ASEAN unbanked Source: World Bank, GSMA, Bank Negara Malaysia 45 SMEs In ASEAN can t access financing Photo credit: CGAP Portraits of Financial Inclusion 2014
Digital finance landscape is complex. Payments value chain (US frame) Payee device/ gateway Transaction acquirer Acquirer processor Network Issuer processor Payment instrument issuer Payer device DDA/check ACH Credit card Debit card/ ATM Prepaid card Money transfer Emerging POS ECR POS / ECR systems systems providers providers ATM ATM manufacturers manufacturers / / servicers servicers Payments Payments gateways and gateways and software software companies companies Wireless Wireless device device manufacturers manufacturers Collecting Fed, Collecting Clearing Paying bank Paying bank or clearing- bank houses processor bank processor houses Originating depository financial institution Fed, EPN Receiving depository financial institution American Global Express card associations / Discover / GECC Merchant Merchant Card Issuer acquirer processor associations Visa, MC, processor Issuer EFT networks EFT Prepaid acquirer networks Issuer processor Issuer Agent Money transfer operator Money transfer operator (e.g., Western Union, MoneyGram) Agent Specialist payments providers Specialist payments providers (e.g., PayPal, DebitMan, Bill Me Later) Federal Central Reserve Bank U.S. National Mint Mint Check Check printers printers Plastics providers Electronic banking/ bill payment services Treasury workstations Payments software providers Source: McKinsey Global Payments practice & Bill and Melinda Gates Foundation (2014) Page 4 June 26, 2015
And developing a holistic view can be complicated (even from a financial inclusion standpoint) Financial Digital Finance ICT 1 REGULATE Central Bank Ministry of ICT/Telco Regulator 2 PROVIDE Nonbanking Financial Institutions Banks M-Banking M-Wallet Payment - MNOs 3 PARTICIPATE Public Transportation 3 RD Party Platform Providers Insurance Retailers/ Companies e-commerce Utility Service Providers 4 SUPPORT Development Partners Source: TRPC 2015 5 Academia
Institutional (vertical) Mapping, Example of Sri-Lanka 6
Activity-based (horizontal) Mapping, Example of Mongolia Payment Systems Prudl Risk Management AML/ KYC Agent Networks emoney Telecom & IT Regs Compete Consumer Protection ecommerce Forex Taxes 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 MoF ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ BoM ~ ~ ~ ~ ~ ~ ~ FRC ~ ~ ~ NCP ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ NDIC ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ MBA ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ICPTA ~ ~ ~ ~ ~ ~ ~ ~ ~ CRC ~ ~ ~ ~ ~ ~ ~ UCRA ~ ~ ~ ~ ~ ~ ~ ~ Tax ~ ~ ~ ~ ~ ~ ~ 1 = Key regulatory or policy role to play currently = active role Green = existing laws 2 = Information role or requirement ~ = role not clear Yellow = some laws 3 = Anticipated future regulatory role Primary responsibility highlighted by boxed squares Red = No existing law 7
But it is imperative that financial and ICT stakeholder collaborate to make digital finance work for the poor. Customer onboarding process including Know-Your- Customer (KYC) policies and Identification system Interoperability Mobile money account to Bank account transfer On-net and Off-net pricing Agent recruitment, training and accreditation Product development including Remittances Mobile saving Mobile credit (from mass-market short-term loans to collateralised assets with mobile locks) 8
Example of an Ecosystem Framework : APEC E-payment Index Ease of doing business Effectiveness of legal system Government's promotion of ICT/digital (8 indicators) Regulatory and Policy Infrastructure Internet (broadband) connectivity Mobile and smartphone penetration Cybersecurity Payments network (8 indicators) E-payment Ecosystem Level of cashless transaction on internet and using mobile Propensity to spend online Use of social media Credit/debit card ownership (15 indicators) Demand Products and Services Capacity to innovate Presence of innovative payments products such as cryptocurrency Presence of foreign competitors (8 indicators) Source: TRPC and APEC Study Centre, 2015 Page 9
INDEX SCORES Results of the APEC E-Payment Index 80 70 60 50 40 30 20 10 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 APEC E-PAYMENTS INDEX RANKING ADVANCE IN TRANSITION NASCENT TO EMERGING United States of America Republic of Korea Chile Philippines Singapore Japan China Mexico New Zealand Taiwan Russian Federation Peru Australia Malaysia Thailand Vietnam Canada Brunei Darussalam Indonesia Papua New Guinea Hong Kong SAR Source: TRPC and APEC Study Centre, 2015 Page 10
Source: TRPC and APEC Study Centre, 2015 11
Key Findings of the APEC E-Payment Index Policy and Regulations - Ease of doing business / investment climate matters - Government s vision and its deliberate strategy to shift to e/m-payments important for emerging economies Infrastructure Demand Innovation - Income gap most stark in infrastructure area - Focus on availability and affordability of basic financial services is key in driving e-payments. - Demand to date is more prominent in advance economies - Future growth will come disproportionately from emerging economies using affordable smartphones and other mobile devices - Lack of trust and viable products/services as barriers - Innovations in mobile and virtual currencies are helping overcome infrastructure challenges - Number of non-bank players in the e-payment system is increasing across all income levels Source: TRPC and APEC Study Centre, 2015
Key findings of the APEC e-payment Study 1% change in online retail sales is associated with at least a 0.1 % growth in GDP per capita in 5 APEC economies. No single APEC economy trumps in all pillars of the Index. each economy has a unique combination of focus areas. No matter what stage of advancement, facilitating an attractive market climate, and investments into innovative e-money solutions is important. Government efforts to digitise its own finances matter. Source: TRPC and APEC Study Centre, 2015 13
INDEX SCORES Policy objectives may be dictated by the level of ecosystem advancement. 80 70 60 50 40 30 20 10 0 APEC E-PAYMENTS INDEX RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 ADVANCE IN TRANSITION NASCENT TO EMERGING Establish and manage cross-sector discussions to bring other sectors into the conversation and development (e.g. fintech, cryptocurrency, cloud computing) Allow innovations to grow in areas that are not explicitly prohibited Deliberate shift from bulk payers can set off a virtuous cycle in behavioral change and infrastructure build-out (e.g. G2P) Avoid ex-ante, cannot regulate hypothetical problems Source: TRPC and APEC Study Centre, 2015
Final thoughts Both financial and ICT sectors are going through fundamental changes as underlying technologies converge and new business models create pressure. Digital finance industry in on the rise. It is also going through a creative stage. Stakeholder groups will evolve over time. Stekholder mapping helps identify gaps and overlaps in existing market and regulatory framework(s). An index approach helps monitor progress of an ecosystem. Page 15 June 26, 2015