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Overview of Digital Financial Services Landscape

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This presentation reviews the digital financial service landscape and is a primer for regulators and policy makers wishing to better understand current market developments.

Veröffentlicht in: Technologie
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Overview of Digital Financial Services Landscape

  1. 1. OVERVIEW OF DIGITAL FINANCIAL SERVICES JOHN V OWENS
  2. 2. DIGITAL FINANCIAL SERVICES (DFS) Digital financial services (DFS) include a broad range of financial products and services including payments, credit, savings, remittances and insurance via digital channels.
  3. 3. WHAT ARE THE MAIN FORMS OF DIGITAL FINANCIAL SERVICES IN YOUR MARKET?
  4. 4. DIGITAL FINANCIAL SERVICES ENABLING FINANCIAL INCLUSION PDA Enabled Microfinance Loan Officers Mobile E-Money Smart Cards Banking Agents Social Media Interfaces with Clients Investment in MIS and Online/Mobile Applications Credit Scoring Alternative data & big data analytics
  5. 5. BASIC TERMINOLOGIES FOR DFS  General terminologies  Business Model terminologies  E-money terminologies  Agent terminologies  AML/CFT terminologies  Payment terminologies  DFS transactional terminologies
  6. 6. GENERAL DFS TERMINOLOGIES  Branchless Banking  Digital Financial Inclusion  Digital Financial Services (DFS)  Electronic Banking (E-Banking)  Fintech  Mobile Banking (M-Banking)  Mobile Financial Services (MFS)  Mobile Money (M-Money)  Mobile Network Operator (MNO)  Non-bank Financial Institution
  7. 7. KEY GENERAL TERMINOLOGIES FOR DFS Electronic banking (e-banking): The provision of banking products and services, including electronic payments, through electronic channels. Electronic money (e-money): A type of monetary value electronically stored and generally understood to have the following attributes: (i) issued upon receipt of funds in an amount no lesser in value than the value of the E-Money issued and in the same currency, (ii) stored on an electronic device, whether or not it is SIM enabled (e.g. a chip, pre-paid card, mobile phone, tablet, phablet or any other computer system), (iii) accepted as a means of payment by parties other than the issuer and (iv) convertible into cash. Mobile e-money, often referred to as mobile money, is a subset of e-money is transferred electronically using mobile networks and SIM-enabled devices, primarily mobile phones.
  8. 8. KEY GENERAL TERMINOLOGIES FOR DFS Financial technology (Fintech): The use of technology and innovative business models in the provision of financial services. Mobile banking (m-banking): The use of a mobile phone to access banking services and execute financial transactions. This covers both transactional services, such as transferring funds, and non-transactional services, such as viewing financial information on a mobile phone.
  9. 9. BUSINESS MODEL TERMINOLOGIES  Bank-based Model  Bank-led Model  Non-bank-based Model  Non-bank-led Model  Payment Services Provider (PSP)  Third-Party Provider
  10. 10. E-MONEY TERMINOLOGIES  Electronic Money (E-Money)  E-Float  E-Money Account  E-Money Issuer  Fund Isolation  Fund Safeguarding
  11. 11. AGENT TERMINOLOGIES  Agent: Any third party acting on behalf of a bank, a financial institution or a non-bank institution (including an E-Money issuer or other payment services provider) to deal directly with customers, under contractual agreement. The term “agent” is commonly used even if a principal agent relationship does not exist under the regulatory framework in place.  Cash Agent  DFS Cash Point
  12. 12. AML/CFT TERMINOLOGIES  Agent Due Diligence (Know Your Agent)  Balance and Transaction Limits  Biometric Identification System  Customer Due Diligence (CDD)  Know Your Customer (KYC)  Risk-based Approach
  13. 13. PAYMENT TERMINOLOGIES  Cash-in  Cash-out  Electronic Funds Transfer (EFT)  Electronic Payment (e-payment)  Interconnectivity  Interoperability  Mobile Payment  National Retail Payment System  Switch
  14. 14. KEY PAYMENT TERMINOLOGIES FOR DFS Interconnectivity: The technical capability to enable a connection between two or more schemes or business models, such as a payment services provider connecting to another payment services provider’s digital financial services model. Interoperability: Enabling payment instruments belonging to a particular scheme or business model to be used or interoperated between other schemes or business models. Interoperability requires technical compatibility between systems, and can only take effect once commercial interconnectivity agreements have been concluded.
  15. 15. DFS TRANSACTIONAL TERMINOLOGIES  B2B  B2G  B2P  G2B  G2P  P2B  P2G  P2P
  16. 16. THE RISE OF FINTECHS • “Financial technology (fintech) is one of the fastest growing sectors in the industry, with global fintech investment rising from $US100 million in 2008 to over $US19 billion in 2015. • Fintech developments are affecting all sectors of the financial services industry, such as banking, capital markets, payments, insurance, wealth management and real estate, as well as industry platforms, systems and infrastructure. “ KPMG Australia
  17. 17. WHY THE RISE IN FINTECH? Changing consumer behavior and preferences
  18. 18. WHY THE RISE IN FINTECH? Increasing access to digital and mobile devices
  19. 19. WHY THE RISE IN FINTECH? The accelerating pace of change and access to data
  20. 20. WHY THE RISE IN FINTECH? Declining levels of trust with banks and the rise of the new “trust economy”
  21. 21. WHY THE RISE IN FINTECH? Barriers to entry for digital disruptors are falling
  22. 22. WHY THE RISE IN FINTECH? Attractive profit pools which are accessible
  23. 23. WHY THE RISE IN FINTECH? Enabling policy and regulatory environments
  24. 24. WHAT ARE THE KEY ELEMENTS OF DFS?
  25. 25. KEY ELEMENTS OF DFS • Digital device: such as a mobile phone, computer, phablet, wearable device, stored value or debit card plus a POS device that transmits and receives transaction data; • Digitally enabled access point: such as kiosks, ATMs, and/or agents where customers can put cash in (that is convert cash into digitally stored-value or make a digital payment or transfer) and/or take cash out (withdraw from a digital stored- value account or receive a digital remittance or other transfer of payment); • Digital transactional platform: which (i) enables payments, transfers, and value storage through the use of the digital device and/or (ii) connects to an account with a bank or non-bank stored electronic value provider. Source: GPFI (2016) Global Standard-Setting Bodies and Financial Inclusion The Evolving Landscape
  26. 26. DFS Categories The DFS landscape includes the three broad innovation categories that are often interrelated: 1. Products and Services 2. Distribution Models 3. Back-office Solutions
  27. 27. WHAT ARE SOME EXAMPLES OF DFS PRODUCTS AND SERVICES IN YOUR MARKET?
  28. 28. Products and Services • Leveraging mobile payments infrastructure and machine-to-machine connectivity • Mobile on-demand micro-credit • Mobile & index-based micro-insurance • Big data enabling new credit products • Financial products offered by financial players riding on top of the mobile e- money platforms • Building on informal savings via technology platforms • Offering new products and services: micro-investments & micro-money market facilities
  29. 29. WHAT ARE SOME OF THE DFS DISTRIBUTION MODELS IN YOUR MARKET?
  30. 30. DISTRIBUTION MODELS • Online platforms • Apps and tools to digitize and speed up the account opening processes • Biometrics as additional options for customer authentication • Tokenization • Optimizing distribution – field-force management tools to track field staff, agents, and/or merchants • Agent networks • Emergence of third-party agent aggregators offering provider-agnostic agent services • Use of electronic, payment kiosks or multipurpose ATMs
  31. 31. WHAT ARE SOME OF THE BACK-OFFICE INNOVATIONS IN YOUR MARKET?
  32. 32. BACK-OFFICE INNOVATIONS • Financial institutions integrating with e-money • Technology companies enabling merchant acceptance of digital payments in-store • Payment aggregators enabling online payments andcommerce • Leveraging alternative data sources for credit decisions • Data analytics • Open API integration between FIs and Fintechs
  33. 33. BANKS VS NON-BANK FINANCIAL INSTITUTIONS Advantage: Banks • Captive, large customer base/ positive selection in applicant mix • Brand • Distribution coverage • Valuable, “free” internal data (but underutilized) • Low cost, stable source of funds • Regulatory certainty (mostly) Advantage: Non-Bank Fintechs • Customer service oriented • Simple and often friction-free applications • More credit data sources • Enhanced risk models • Underwriting costs • Pricing for risk • Less regulation in many markets (but the future is uncertain)
  34. 34. NEW NON-BANK DFS PROVIDERS Peer-to-Peer SME lenders Online balnce sheet lenders Online loan aggregators Third-party analytic, data, and lending platform providers Tech and ecommerce giants Invoice financing, supply chain and trade credit providers Mobile-based lending models
  35. 35. NEW, EMERGING & MATURE DFS MARKETS New Emerging Mature Infrastructure Limited ICT infrastructure Competitive and accessible ICT infrastructure Extensive, reliable ICT infrastructure with access to multiple channels Mobile Adoption Low levels of mobile phone adoption mostly feature phones Moderate to high levels of mobile phone penetration and increasing access to smartphones High levels of mobile phone ownership and usage with higher levels of smartphone penetration DFS Access Points Limited or low levels of DFS access points outside of main cities Extensive coverage in cities and increasing penetration of DFS access points in rural areas Extensive DFS access points in all urban markets and moderate to high coverage in rural areas DFS regulatory framework Limited or recently issued DFS regulations permitting agent and/or e-money services Clear regulations and guidelines that allow for a diverse set of DFS providers Well regulated DFS markets with regulations and supervision of DFS providers along with adequate consumer protection issues DFS Availability Fragmented payment system Limited agent or e-money issuers Low debit/stored value card/ transactional account providers Multiple providers initiating and offering DFS transactional accounts. Widespread agent networks with sufficient liquidity. Extensive access to transactional accounts often available via a wide range of mobile and card-based systems. Interoperable electronic payment systems. Fully developed agent networks. DFS Adoption <5% of the adult population using DFS services Transactions limited to P2P, bill pay and OTC services 5-35% of the adult population using DFS Transactions include P2P, B2B, C2P, G2P, P2G, remittances. Client usage increasing and new products being added. >35% of the adult population using DFS. Extensive product base as well as greater access to DFS-related credit, savings, insurance and other products and services.
  36. 36. GROUP EXERCISE List the various DFS players in your market Using the table above, would you rate your market as new, emerging or mature DFS? List the various indicators and why you think you are at this level.
  37. 37. Thanks johnvowens@me.com Twitter: @jvowens

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