Established under the auspices of the International Telecommunication Union, a specialized agency of the United Nations, the focus group is one of ITU’s most significant initiatives on Digital Financial Services (DFS) and financial inclusion.
Launched officially in June 2014 it is the first time that experts from the telco and financial services sectors have come together to collaborate on making digital and mobile technology accessible and affordable for everyone. The group works particularly for populations in developing countries where the largest group of unbanked remains.
Chaired by Mr Sacha Polverini of the Bill & Melinda Gates Foundation’s Financial Services for the Poor Programme, the group receives the support of over 60 organizations from 30 countries from around the world, across both the public and private sectors.
The Role of Digital Financial Services
Millions of people lifted themselves out of extreme poverty over the last two decades by adopting new farming technologies, gaining access to education, and finding new jobs and business opportunities. But in many cases, the same people fell back into poverty due to shocks they were unable to weather because of lack of resources or adequate financial tools.
What these families need is a foothold so they can make it out of poverty – and equally important – stay out. One way to achieve this objective is by increasing access to effective and affordable financial services. Having the right financial tools at critical times can determine whether a poor household is able to take advantage of opportunities to move out of poverty, or withstand a shock without being pushed deeper into it. Access to finance can, more generally, boost job creation, accelerate consumption, and increase investments in human capital.
For the 14.5 per cent of the world’s population (7.3 billion) living on less than USD 1.25[1] per day, saving money is difficult. Credit and insurance are available only at very high rates, if at all. For companies in the formal financial services sectors, it is costly to serve poor people because they conduct most of their transactions in cash. Storing, transporting, and processing cash is expensive for banks, insurance companies, utility companies, and other institutions, which usually pass on those costs to customers who can ill afford them.
In recent years, information and communication technologies (ICT) have been increasingly instrumental to developing new and more affordable digital financial products that better respond to the needs of the unbanked and their specific circumstances. This is particularly true for poor people in rural and remote areas. Mobile money for example can be a critical driver of financial access. It reduces the costs associated with basic, low-value payment transactions and enables providers to deliver right-sized financial services that are affordable and near where poor people live and work. Furthermore, agent networks can serve as ubiquitous distribution channels for other financial services beyond payments, such as savings and credit. Scaling mobile money could be the springboard to the proliferation of vital digital financial services that benefit the lives of the poor.
Not surprisingly, developing countries and emerging markets are actively embracing new technologies to transition to a more digitized financial economy, as this can increase transparency, enhance welfare, improve financial access, and promote government efficiency.[1]
However, despite the benefits brought by digital financial services and the efforts made to increasingly digitize cash transactions, there are still significant challenges to quickly and effectively leveraging ICT to meaningfully impact the poor. Uncertain business models, cultural resistance, unclear user cases, inconsistent and over-prescriptive rules and regulations, and a lack of trust in the system are just a few examples of issues that both public and private stakeholders continue to face.
Why was the focus group established?
The development of a DFS ecosystem strongly depends on the underlying regulatory framework and its ability to foster innovation and promote competition among providers. Regulation is a key factor. However, the DFS ecosystem, which in recent years has expanded considerably to include a variety of new, non-traditional players, has found it challenging to launch and scale services for the unbanked because many policy and regulatory environments are not genuinely enabling.
In addition, it has been observed by the focus group that at national level the conversation around DFS has not always been structured and consistent, particularly among the same government’s departments.
The focus group aims to bridge the gap between the Telecommunications and Financial Services Regulators, and between the private and public sectors. It is the first time key stakeholders from the payment/DFS value chain have been brought together to discuss the issue of DFS for Financial Inclusion, and assess solutions that can fast track policy reform on a set of key issues.
What are its objectives?
The objectives of the group are twofold:
- To create a framework for a more structured and regular dialogue and collaboration between Telco and FS regulators who need to develop consistent policy and regulatory approaches to DFS
- To discuss some of the main policy and regulatory issues currently preventing the DFS from developing organically and reaching the poor
The focus group aims to build a vision for how digital financial systems can work best to serve everyone, regardless where you are.
The group will therefore develop a series of toolkits, principles and guidelines to help national policymakers and regulatory authorities to fast track policy reform and stimulate the offering and adoption of DFS. The group is expected to complete its work by the end of 2016. Its findings will help develop international recommendations in specific areas of DFS.
How is it structured?
The focus group has created four thematic working groups covering the following areas:
- The DFS ecosystem
- Technology, Innovation and Competition
- Interoperability
- Consumer Experience & Protection
Each working group is composed of a diverse group of stakeholders consisting of regulatory authorities, mobile network operators, payment service providers, platform providers and consumer protection organizations to ensure balance.
The focus group will meet this year in Kuala Lumpur, 30 September – 2 October 2015 and in Geneva, 15-17 December 2015.
The meetings are open to any interested party and who is willing to actively contribute to the work and are expected to bring together experts from both private and public sectors and from across the world, both developing and developed countries.
