Page 15 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

1 Introduction

The ITU DFS Focus Group is charged with describing the overall ecosystem of digital financial services, identifying
the players and within that ecosystem, and identifying the key elements necessary to make the ecosystem
develop in such a manner that it encourages and enables financial inclusion policies.

1.1 What is the DFS Ecosystem?

The Digital Financial Services ecosystem consists of users (consumers, businesses, government agencies and
non-profit groups) who have needs for digital and interoperable financial products and services; the providers
(banks, other licensed financial institutions, and non-banks) who supply those products and services through
digital means; the financial, technical, and other infrastructures that make them possible; and the governmental
policies, laws and regulations which enable them to be delivered in an accessible, affordable, and safe manner.
The DFS ecosystem aims to support all people and enterprises within a country, and should support national
goals including financial inclusion, economic health, and the stability and integrity of the financial systems.

1.2 The Goal of Digital Financial Services

The goal of financial services made available via digital means is to contribute to the reduction in poverty and
deliver on the recognized benefits of financial inclusion in developing countries.

Financial inclusion means the sustainable provision of affordable financial services that bring the poor into
the formal economy. An inclusive system includes a range of financial services that provide opportunities for
accessing and moving funds, growing capital, and reducing risk. Such services may be provided by banks and
other traditional financial services organizations, or by non-bank providers.
Many people have pointed out that financial inclusion is a means rather than an end. Financial inclusion
contributes to the development goals of poverty reduction, economic growth and jobs, greater food security
and agricultural production, women’s economic empowerment and health protection.
The financial inclusion benefits of a digital financial services ecosystem include:

• Safety and security: poor people are able to store and manage value without needing to protect cash
as a physical asset.
• Speed and Transparency: given the liquidity and transactional anonymity of cash, cash payments are
subject to delay, “leakage” (payments that do not reach the recipient in full), and “ghost” (fake) recipients.
This is particularly true in the context of government payments. By moving to digital payments, the
traceability of the payment process is improved through more stringent identification procedures, direct
transfers that skip current intermediate hands, digital record-keeping, and more immediate funds transfer.

• Increased Flexibility: many poor people, particularly those in rural areas, receive part of their annual
income through domestic and international remittances. They may also reach out to their social networks
in times of need to obtain additional funds. At times, these monies do not arrive at all or do not arrive
in time. The transfer can be costly and it is not clear to the payers that their funds will be directed to
the proper purpose. Digital financial services can reduce costs and increase the coverage of remittances
transfers, making remittances of small amounts viable. Moreover, digital financial systems can enable
remitters to direct funds directly to savings, health, education fees, or other types of targeted accounts
that ensures funds are being spent as intended. The increased flexibility of digital systems also allows
the poor to pay for goods and services on lay-away, pay-as-you-go, or through other payment options
that more closely match their ability to pay.
• Savings Incentives: digital technology facilitates access and interfaces to saving products. Furthermore,
digital payments create the opportunity to embed poor people in a system of automatic deposits,
scheduled text reminders, and positive default options that help people overcome psychological barriers

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