Asia-Pacifi c Regional Forum on USO

Digital Finance Ecosystem: Regional, National and Household

Level Snapshots

26 March, 2015BKK, Thailand

Yoonee Jeong, Research Director, TRPC

Understanding risk profi le at different levels of the digital payment value chain

Understanding the players involved, incentives and trade-offs

Roles of international/regional players, government, and the private sector

Why flexible and holistic framework approach

* KEY TAKEAWAYS

1. HH LEVEL: INCOME PROFILE

42%

46%

9%

3%

# of Income Earners

One Two Three FourInheritance

Remittance (from abroad)

Rent collection/Interest

Agriculture/livestock

Others

Remittance (within Indonesia)

Part time employment

Selling of goods and services

Full time employment

0.1%

0.3%

0.6%

0.7%

2.7%

9.0%

21.2%

47.8%

63.9%

Sources of Income

1. HH LEVEL: EXPENDITURE PROFILE

Food

Durab

le

Housin

g

Toba

cco

Other

s

Remitt

ance

s

Educ

tatio

nFu

el

Tran

spor

t

Utiliti

es

Non-d

urab

le

Ente

rtainm

ent

Mob

ile

Cloth

ing

Land

line

Health

Car

eTa

x IDR -

IDR 100,000

IDR 200,000

IDR 300,000

IDR 400,000

IDR 500,000

IDR 600,000

IDR 700,000

IDR 800,000

IDR 900,000

Monthly Average Household Expenditure

1. HH LEVEL: FINANCIAL RESILIENCE

41%

58%

Had to borrow to pay for monthly expenditure?

Yes No

43%

14%

18%

0%

9%

5%4%

6%

1%

Who did you borrow from?

Family Bank Local Co-Op

Provident Fund Money Lenders Pawn broker

M-Money Debit Cards Credit Cards0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

WealthyRiskyWastefulConvenientModernFast (transactions)

1. HH LEVEL: PERCEPTIONS

Credit cards: higher associati on with negati ve images of indebtedness (“wasteful”)

Debit cards: generally positi ve images, but also associated with the wealthier income brackets (“wealthy”)

m-Money: associated with fast and modern transacti ons (i.e. not necessarily relevant to them)

1. HH LEVEL: BARRIERS TO ADOPTION

Can’t open an account due to lack of required ID

Do not trust banks or other financial institutions

Poor experience with banks

Previously had an account but the bank closed it

No experience with the bank

Bank facilities too far, hence inconvenient

Do not want to pay additional charges (hidden or otherwise)

Do not know how to open or manage an account

Prefer to have physical savings

Do not have enough money for min balance

0% 10% 20% 30% 40% 50% 60% 70% 80%

0%

1%

1%

2%

4%

5%

1%

1%

1%

1%

2%

4%

5%

12%

20%

1%

1%

1%

5%

3%

8%

4%

7%

15%

24%

41%

Reasons for not having a bank account

<IDR1M IDR1M-2M IDR 2M-3M IDR3M-5M IDR5M-7.5M >IDR7.5M

1. HH LEVEL: BARRIERS TO ADOPTION

66%

50%

21% 18%9% 7% 6% 4% 4% 2% 1%

64%61%

19% 13%

5%8%

4% 6% 4% 2% 3%

M-Payment/Wallet

M-Banking

Cash is sti ll King – a viable alternati ve has yet to emerge

Spending needs are liquid, frequent and informal

Use of mobiles is more central than ever – but no one has

made a compelling propositi on for m-money (e.g. ease of use -

61.9%, safety for money - 11.8%)

Earners and Spenders within HH are oft en diff erent – current

m-money off ering target both audiences simultaneously

Network eff ects show some promises (e.g. 54% willing to give

m-money a try if a family/friend uses it. Higher proporti ons of

females, urban households and aged 21-30 willing to try.

1. HH LEVEL - FINDINGS

2. NAT’L LEVEL - LANDSCAPE MAP (LK)

2. NAT’L LEVEL - LANDSCAPE MAP (LK)

PROVIDE

PARTICIPATE3

REGULATE

• -

FSI TELCO/MNOs

M-MONEY

Central Bank Telco Regulatory Commission 1

2M-Wallet/Payment

3RD Party Platform Providers

Banks M-Banking M-Wallet

Payment

MNOs

Insurance Companies

Utility Service Providers

Retailers

Spec Leasing Coms

Financial Coms

2. NAT’L LEVEL: INSTITUTIONAL CHECKLIST (MN)

Policy Goals? Additive or Transformational? Bank-centric or Telco-centric or Hybrid or Market-driven?

Risks? Regulatory Response? Regulatory – and Administrative – Responsibility? (e.g.

primary/2ndary) Temporary or Institutionalized?

Legislati on? What to legislate and what to leave to market forces? Whose rights are being protected and for what purpose?

2. NAT’L LEVEL: REGULATORY CHECKLIST (MN)

Payment Systems Prudential Risk Management AML/ CFT/ KYC Agent Networks e-Money Telecommunications Regulation Competition Consumer Protection e-Commerce & e-Security Foreign Exchange Taxation

2.NAT’L LEVEL: RESPONSIBILITY MATRIX

Payment Systems

Prudl Risk Management

AML/ KYC

Agent Networks

eMoney Telecom & IT Regs

Compete Consumer Protection

eCommerce Forex Taxes

1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3

MoF √ √ ~ ~ ~ ~ √ √ √ ~ √ ~ ~ ~ ~ ~ √ ~ √ √ √ √ ~ √

BoM √ √ √ √ √ √ √ √ √ √ √ ~ ~ √ ~ √ √ √ √ √ ~ ~ ~ ~ √ √ √

FRC √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ ~ ~ ~ √ √ √

NCP √ √ √ ~ ~ ~ ~ ~ ~ √ √ ~ √ √ √ ~ ~ ~ ~ √ ~ ~ ~ ~ ~ ~ ~ √ √ ~

NDIC ~ √ ~ ~ √ ~ ~ ~ ~ ~ √ ~ √ √ √ √ √ ~

MBA ~ √ ~ ~ √ ~ ~ √ ~ ~ √ ~ ~ √ ~ √ ~ √ ~ ~ ~ ~ ~ ~ ~ ~ √ ~ ~ ~ ~

ICPTA √ ~ ~ ~ ~ √ √ √ ~ √ ~ √ √ √ ~ √ ~ √ √ ~ √ √ √

CRC √ ~ ~ ~ ~ ~ √ √ √ √ √ √ √ √ √ √ √ √ √ ~ √ √ ~

UCRA ~ √ ~ ~ √ ~ √ √ ~ √ √ √ √ √ √ √ √ √ ~ ~ ~

Tax √ √ ~ ~ ~ √ ~ ~ √ √ ~ √ √ ~ √ √ √ √ √ √

1 = Key regulatory or policy role to play currently √ = active role Green = existing laws2 = Information role or requirement ~ = role not clear Yellow = some laws3 = Anticipated future regulatory role Primary responsibility highlighted by boxed squares Red = No existing law

Data localisati on requirement Local content requirements Labelling requirement Limitati ons in franchise and dealership Negati ve Investment List, limitati on in foreign

ownership, limitati ons to divestment Can lead to over-reach, over-regulation, and

counter-productive impact from an economic and trade perspective.

3. BEYOND-THE-BORDER ISSUES

COST OF COMPLIANCE

Privacy Law

Privacy Commissio

n

Implementation &

Enforcement

Compliance

Medical Records

Telco

m

Taxation

Banki

ng

Nation

al

Securit

y

Personal

finances

COST OF COMPLIANCE

Source: ECIPE, 2014, The Costs of Data Localisation: Friendly Fire on Economic Recovery

IMF projections

W across-the board localisation

CN 7.7% 6.6%

IN 4.4% 3.6%

ID 5.8% 5.1%

KR 2.8% 1.7%

VN 5.4% 3.5%

Protect ‘national interests’

• balance of payment and tax base

• local industry growth and ecosystem

• personal data privacy

Promote opportunities for low-income families and local companies to engage in mainstream and global value chain • e/m-commerce,• e/m-payment, • outsourcing• regional economic integration

WEIGHING THE COST VS OPPORTUNITIES

Understanding the transformati onal benefi ts of mobile money,

forumulate and state clear objecti ves POLICY CLARITY

Establishing a holisti c view encompassing all players

Clarifying gaps and overlaps in existi ng regulatory framework(s)

Institutional + Activity-based approach

Horizontal + Vertical perspectives

Coordinati on across agencies in developing a regulatory roadmap

Prioriti sing specifi c elements within policy and regulatory

roadmap – rather than trying to get everything right from the

outset

Adjust fl exibility and rigor according to risks

* FRAMEWORK APPROACH