How Emerging Technology Can Aid Displaced Businesses

03

Mobile and digital services

03

Mobile and digital services

The growth of digital and mobile payments has already helped improve access to finance for entrepreneurs and MSMEs. Princeton University studied the causal effect of in-person cashless payments flow on credit provisions in China.

31
The authors found that the adoption of cashless payments increased credit access by 56.3% and a 1% rise in payment flow increased credit line by 0.41% because of the useful credit evaluation information provided by the payment flow data.
32
In addition, companies adopting new payment technologies can improve their sales. According to a study looking at mobile money using data from firms in 643 districts in India, sales for companies adopting mobile money increased by about 26% compared to those that did not.
33, 34

EMDEs were the first to see widespread use of mobile applications in financial services, which has helped them leapfrog some of the physical infrastructure restrictions seen in some more developed countries. One of the first services was M-Pesa, launched in Kenya in 2007.

35
M-Pesa is a mobile phone-based money transfer service that was launched by Vodafone and Safaricom, the largest mobile network operators in Kenya.
36
Advantages include 24/7 access to payments which are quick, secure, and do not require a bank account. Customers can also transfer funds between their bank and M-Pesa accounts, usually through ATMs. M-Pesa allows customers to make personal transfers, ATM withdrawals, pay bills, point-of-sale purchases (e.g. grocery shopping), on-line payments and top-ups to mobile phone accounts.
37

56.3%

increase in credit access due to the adoption of cashless payments

1%

rise in payment flow

0.41%

increase in credit line because of the useful credit evaluation information provided by the payment flow data

In India, the instant mobile payment system - Unified Payments Interface (UPI) - allows users to transfer money between bank accounts securely using their phones.

38
Developed by the National Payments Corporation of India (NPCI) and regulated by the Reserve Bank of India (RBI), UPI eliminates the need to enter bank details or other sensitive information each time a customer initiates a transaction, instead working through unique UPI IDs or Virtual Payment Addresses (VPAs).
39
Within five years of its launch, more than 260 million Indians have made a UPI enabled transaction and UPI supports more than 350 partner banks and third-party payment apps such as PhonePe, Google Pay and Paytm.
40
UPI has increased financial inclusion and access to banking for Indians across the country.
41
Many other countries are looking to adopt a UPI model; countries such as Singapore, UAE, Bhutan, France, Nepal and Malaysia have moved toward integrating local payment interfaces with a UPI.
42
However, UPI can only be used for cross-border transactions when there is an approved international payment gateway to link UPI accounts and act as a bridge between domestic and international payments. Cross-border payments are not possible where there has not been an agreed partnership between UPI and other payment gateways.

26%

increase in sales for companies adopting mobile money in India

In Brazil, the central bank launched a fast payment service called Pix in November 2020.

43
Pix brings together over 700 banks and non-banks, offering clients real-time transfers through mobile phone interface relying on a QR code. Pix has lowered the cost of payments for both users and merchants. For example, for merchants, PIX payments have an average cost of just 0.01% compared with fees of 2.2% for credit cards and 1.1% for debit cards in Brazil.
44
Since its launch, it is estimated that 50 million Brazilians have made their first digital payment.
45
This has helped lower the cost of payments and facilitated more transactions, which benefits merchants and the local economy.

These three examples are government-driven initiatives. However, in each case, private-sector players have been able to build new applications and functionality on these platforms that individuals and MSMEs can use to access a range of other financial products, such as bank accounts or credit facilities. For example, India’s UPI can be linked to credit cards, bank accounts, and digital wallets, such as Google Pay, PhonePe or Paytm. Each example above highlights a role for governments in providing core digital infrastructure, but also the potential for the private sector to innovate and deliver new products and services tailored to changing consumer preferences.

0.01%

average cost through PIX payments in Brazil

compared with fees of :

2.2%

for credit cards

1.1%

for debit cards

50M

Brazilians have made their first digital payment since the launch of PIX

Figure 2 shows how core digital financial services can play an important role in helping to connect both MSMEs and consumers to the banking system and alternative channels. By virtue of their nature, digital financial services are cheaper and easier to access – for example through mobile devices – once the appropriate core enablers, such as the regulatory framework, are set up and users have developed the skills to use them.

Progress to date has partly been driven by increased technological connectivity. There has been a continued uptick in mobile internet connectivity globally, from 35% in 2015 to 57% in 2022,

46
which has helped make financial services more immediately accessible to customers as more people are reachable through digital channels; though this still varies globally, with African countries often behind. Of the 1.75 billion mobile money accounts currently registered, 800m were opened between 2013-17; the next 800 million accounts were opened between 2017-2022.
47
A 2019 report by EY, which interviewed more than 27,000 consumers in 27 markets, found that 75% of consumers were using a money transfer and payments fintech service, and that 56% of the MSMEs were using a combination of banking, payments and fintech services.
48

Tap-to-pay capability has allowed merchants to use their phone as a Point-of-Sale (POS) terminal. This allows customers to pay for goods and services by tapping their mobile phone on the back of the merchant’s phone, where the NFC (Near Field Communication) chip is located, to make digital payments anywhere. NFC is a technology enabling devices to communicate with each other.

49
Users can pay via cards, mobile apps, or digital wallets acting as a virtual card, and biometric payments that use fingerprints or facial recognition as means of transaction authentication. This allows businesses to quickly and easily set up payment acceptance capabilities without the need to obtain standalone hardware devices that require separate internet connectivity. This is especially valuable in a resource-constrained environment, but also enables faster resumption of business for entrepreneurs that are displaced by conflict.

75%

of consumers were using a money transfer and payments fintech service

56%

of the MSMEs were using a combination of banking, payments and fintech services

The growth of digital and mobile payments has already helped improve access to finance for entrepreneurs and MSMEs. Princeton University studied the causal effect of in-person cashless payments flow on credit provisions in China.

31
The authors found that the adoption of cashless payments increased credit access by 56.3% and a 1% rise in payment flow increased credit line by 0.41% because of the useful credit evaluation information provided by the payment flow data.
32
In addition, companies adopting new payment technologies can improve their sales. According to a study looking at mobile money using data from firms in 643 districts in India, sales for companies adopting mobile money increased by about 26% compared to those that did not.
33, 34

EMDEs were the first to see widespread use of mobile applications in financial services, which has helped them leapfrog some of the physical infrastructure restrictions seen in some more developed countries. One of the first services was M-Pesa, launched in Kenya in 2007.

35
M-Pesa is a mobile phone-based money transfer service that was launched by Vodafone and Safaricom, the largest mobile network operators in Kenya.
36
Advantages include 24/7 access to payments which are quick, secure, and do not require a bank account. Customers can also transfer funds between their bank and M-Pesa accounts, usually through ATMs. M-Pesa allows customers to make personal transfers, ATM withdrawals, pay bills, point-of-sale purchases (e.g. grocery shopping), on-line payments and top-ups to mobile phone accounts.
37

56.3%

increase in credit access due to the adoption of cashless payments

1%

rise in payment flow

0.41%

increase in credit line because of the useful credit evaluation information provided by the payment flow data

In India, the instant mobile payment system - Unified Payments Interface (UPI) - allows users to transfer money between bank accounts securely using their phones.

38
Developed by the National Payments Corporation of India (NPCI) and regulated by the Reserve Bank of India (RBI), UPI eliminates the need to enter bank details or other sensitive information each time a customer initiates a transaction, instead working through unique UPI IDs or Virtual Payment Addresses (VPAs).
39
Within five years of its launch, more than 260 million Indians have made a UPI enabled transaction and UPI supports more than 350 partner banks and third-party payment apps such as PhonePe, Google Pay and Paytm.
40
UPI has increased financial inclusion and access to banking for Indians across the country.
41
Many other countries are looking to adopt a UPI model; countries such as Singapore, UAE, Bhutan, France, Nepal and Malaysia have moved toward integrating local payment interfaces with a UPI.
42
However, UPI can only be used for cross-border transactions when there is an approved international payment gateway to link UPI accounts and act as a bridge between domestic and international payments. Cross-border payments are not possible where there has not been an agreed partnership between UPI and other payment gateways.

26%

increase in sales for companies adopting mobile money in India

In Brazil, the central bank launched a fast payment service called Pix in November 2020.

43
Pix brings together over 700 banks and non-banks, offering clients real-time transfers through mobile phone interface relying on a QR code. Pix has lowered the cost of payments for both users and merchants. For example, for merchants, PIX payments have an average cost of just 0.01% compared with fees of 2.2% for credit cards and 1.1% for debit cards in Brazil.
44
Since its launch, it is estimated that 50 million Brazilians have made their first digital payment.
45
This has helped lower the cost of payments and facilitated more transactions, which benefits merchants and the local economy.

These three examples are government-driven initiatives. However, in each case, private-sector players have been able to build new applications and functionality on these platforms that individuals and MSMEs can use to access a range of other financial products, such as bank accounts or credit facilities. For example, India’s UPI can be linked to credit cards, bank accounts, and digital wallets, such as Google Pay, PhonePe or Paytm. Each example above highlights a role for governments in providing core digital infrastructure, but also the potential for the private sector to innovate and deliver new products and services tailored to changing consumer preferences.

0.01%

average cost through PIX payments in Brazil

compared with fees of :

2.2%

for credit cards

1.1%

for debit cards

50M

Brazilians have made their first digital payment since the launch of PIX

Figure 2 shows how core digital financial services can play an important role in helping to connect both MSMEs and consumers to the banking system and alternative channels. By virtue of their nature, digital financial services are cheaper and easier to access – for example through mobile devices – once the appropriate core enablers, such as the regulatory framework, are set up and users have developed the skills to use them.

Progress to date has partly been driven by increased technological connectivity. There has been a continued uptick in mobile internet connectivity globally, from 35% in 2015 to 57% in 2022,

46
which has helped make financial services more immediately accessible to customers as more people are reachable through digital channels; though this still varies globally, with African countries often behind. Of the 1.75 billion mobile money accounts currently registered, 800m were opened between 2013-17; the next 800 million accounts were opened between 2017-2022.
47
A 2019 report by EY, which interviewed more than 27,000 consumers in 27 markets, found that 75% of consumers were using a money transfer and payments fintech service, and that 56% of the MSMEs were using a combination of banking, payments and fintech services.
48

Tap-to-pay capability has allowed merchants to use their phone as a Point-of-Sale (POS) terminal. This allows customers to pay for goods and services by tapping their mobile phone on the back of the merchant’s phone, where the NFC (Near Field Communication) chip is located, to make digital payments anywhere. NFC is a technology enabling devices to communicate with each other.

49
Users can pay via cards, mobile apps, or digital wallets acting as a virtual card, and biometric payments that use fingerprints or facial recognition as means of transaction authentication. This allows businesses to quickly and easily set up payment acceptance capabilities without the need to obtain standalone hardware devices that require separate internet connectivity. This is especially valuable in a resource-constrained environment, but also enables faster resumption of business for entrepreneurs that are displaced by conflict.

75%

of consumers were using a money transfer and payments fintech service

56%

of the MSMEs were using a combination of banking, payments and fintech services

CASE STUDY

Square
mobile contactless payments

Square, a member of the Block, Inc. group, is a payments processing platform that seamlessly integrates in-person and online payment solutions. It offers businesses a comprehensive suite of tools for mobile, retail, and online sales, along with robust business management capabilities.

CASE STUDY

Square
mobile contactless payments

Square, a member of the Block, Inc. group, is a payments processing platform that seamlessly integrates in-person and online payment solutions. It offers businesses a comprehensive suite of tools for mobile, retail, and online sales, along with robust business management capabilities.