Enhancing efficiency and financial Inclusion: Role of the Digital Financial Services PAVEL SHOUST RUSSIAN MICROFINANCE CENTER.

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    08-Jan-2018

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State of Financial Inclusion in Russia 2,83 bank offices per sq.km. 13,49 ATMs per sq.km. Mobile phone users: 73% Internet users: 52% VS.

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Enhancing efficiency and financial Inclusion: Role of the Digital Financial Services PAVEL SHOUST RUSSIAN 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 channels NAFI&CGAP Report, 2014 State of Financial Inclusion in Russia 2,83 bank offices per sq.km. 13,49 ATMs per 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 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 accessibilityHigher 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 costsUsage of existing infrastructureLow 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 dispatches Taxi 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 SAVINGSCARDS 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 customers 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 Shoust Russian Microfinance Center +7 (906) ENHANCING EFFICIENCY AND FINANCIAL INCLUSION: ROLE OF THE DIGITAL FINANCIAL SERVICES

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