Page 14 - ITU-T Focus Group Digital Financial Services – Interoperability

ITU-T Focus Group Digital Financial Services
Interoperability

1 Introduction and Background

The purpose of this document is to analyze the role and usefulness of cooperation frameworks in the
development of a national payments system (NPS), with a particular focus on the implementation of retail
payments reforms aimed at advancing financial inclusion and improving overall efficiency, and to discuss the
design of the structure/conformation of these cooperation frameworks.

This document builds on the collective experience of the members of the Interoperability Working Group and
the broader Focus Group on Digital Financial Services, convened by the International Telecommunication
Union (ITU).

The document is organized as follows: the first section discusses the main barriers to the development of digital
financial services (DFS), highlighting the need for concerted actions to address those barriers; the second
section discusses the issuance of a vision statement for the NPS, including financial inclusion objectives and the
development of DFS; the third section highlights the roles of public and private sector actors in achieving the
aforementioned vision; the fourth and fifth section discuss in detail the main types of cooperation frameworks/
fora, such as a national payments council and other structures led by the public or the private sector. The
document ends with a brief section stating the key conclusions.

2 Assessment of barriers to the development of digital financial services

For successful adoption of digital financial services (DFS) in any country environment, it is important that the
DFS ecosystem provides safety, security, reliability, and convenience to build trust and drive usage amongst
the various stakeholders in the ecosystem’s value chain.
There are a number barriers that can impede the adoption of DFS by a broad of range of players, including
payment service providers (PSPs), payment infrastructure providers (PIPs), and users such as consumers and
businesses/merchants.

For PSPs and PIPs, the main barriers include:

• Macroeconomic instability: The stability of key macroeconomic variables is key to PSPs and PIPs
development, especially for long-term planning. For example, high and/or volatile inflation or interest
rates can create an uncertain outlook for investment and overall market development, and can also lead
consumers to distrust the financial system.
• Lack of scalability: in a two-sided market for DFS, a payments platform requires a critical mass of users
(consumers and merchants) to get to the point where it has so many mutually attractive users that more
of each type want to join. There are at least two critical success factors to achieve scalability:

1) The DFS platform should be easy for most merchants/businesses to adopt and should provide more
value to them than other existing mechanisms (e.g. create incremental sales). Adoption by merchants/
businesses is critical since mainstream consumers will not adopt a new DFS product unless they can
use it in many places;
2) The DFS has to be a product that most consumers can adopt relatively easily and be useful and
convenient to them. That means that it has to work for multiple payment needs, including being
interoperable with other payment mechanisms. In turn, merchants will not go to the trouble of
accepting a new DFS method unless a significant share of their consumers want to use it.

• An ineffective legal and regulatory framework for DFS: There are several aspects of the legal and regulatory
environment which, under some circumstances, may act as barriers to DFS ecosystem development.
These aspects are discussed in Table 1.

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