Enhancing efficiency and financial Inclusion: Role of the Digital Financial Services

PAVEL SHOUSTRUSSIAN MICROFINANCE CENTER

State of Financial Inclusion in Russia

23% of respondents are not using financial services at all

50% of respondents are actively using remote

channelsNAFI&CGAP Report, 2014

State of Financial Inclusion in Russia

2,83 bank offices per 1 000 sq.km.

13,49 ATMs per 1 000 sq.km.Mobile phone users: 73%

Internet users: 52%

VS.

Retail Financial Services in Russia

E-Money Systems

(more than 40 mln. users)

Payment kiosks

250 000 kiosks(1 600 per

1 mln. people)

Payment cards

(1.5 cards per capita)

Prepaid mobile accounts

Approx. 20 mln. users

How Digital Financial Services can help?

Higher accessibility

Higher competition (i.e. quality)

Lower costs

Higher accessibility

Communication infrastructure

Payments use basic

infrastructure

Other financial services ‘ride on the payments’

back’

Payment Aspects in Financial Inclusion // Bank of International Settlements. September 2015.

Higher Competition

‘Remote’ means ‘accessible’ + ‘competitive’‘Competitive’ is more innovative and affordable

Decreasing Costs

Low operational costs

Usage of existing infrastructure

Low personnel costs

How market is affected by innovations?

Innovations contribute to financial inclusion but they also change the

market, refocus strategies and present certain challenges for both

private and public sectors

These changes directly affect the efficiency of the market

Traditional taxi service

Traditional taxi = dispatch + cars

Taxi ride and Dispatch are bundled services. Customers are limited in choice

New technologies on the taxi market

Such new services as GetTaxi are actually high-tech mobile-based dispatchesTaxi companies provide only car rides

One dispatch can work with multiple taxi companies, one taxi company can work with many dispatches

Many interfaces, real competition, lower prices, higher quality

Traditional Financial Services Model

LOANS

SAVINGS CARDS

E-BANK

These services are ‘packaged’, i.e. forming ‘vertically integrated monopoly’

Moving away from the traditional model

New technologies unbundle the sources of funding and

interfaces

‘Division of labour’ on the market

One interface for different sources of funding

E-wallets aggregate different sources of funding: payment cards, bank accounts, airtime, e-money

One source of funding for many interfaces

Prepaid cards, mobile phones, PCs, etc. are all instruments to access e-wallet

More competition in a vertically integrated market

Retail finance can be considered a vertically integrated industry

Generators (high reliability, low innovation)

Banks

Transport(monopoly with

low marginal cost)

VISA/Mastercard

Last Mile(high competition, Innovative market)

Payment providers

Better competition in a vertically integrated market

How to ensure competition?

New EU Payment Services Directive allows third-party developers of interfaces to get access to the customer’s account in any bank, without contract with this bank

(i.e. implements de-verticalisation of the industry)

Bottomline

Universal players (and solutions) are less popular

No more ‘universal’ products: focusing on best competences is a success strategy

Banks are likely to focus on risks, IT companies – on interfaces

Regulation susceptible to innovations

Gradual regulation: stricter regulation for higher risks

Lighter regulation for small-scale companies

FATF and other bodies encourage risk-based approach

Efficiency is a key

Efficient markets are more conducive to financial inclusion

New technologies help to increase efficiency

Financial inclusion-focused regulation is based on the efficiency-focused strategies

Pavel ShoustRussian Microfinance Center+7 (906) 271-0450paul.shoust@gmail.com

ENHANCING EFFICIENCY AND FINANCIAL INCLUSION: ROLE OF THE DIGITAL FINANCIAL SERVICES