The COVID-19 crisis has changed the way people conduct their day-to-day transactions. Yet in a dynamic system built on secure applications and services, experts strive to balance the security of electronic payments with the need to include all kinds of users, representing all socio-economic groups.
In many developing countries, large segments of society have so far remained largely excluded from the benefits of bank accounts and other financial services. Electronic payments – and the exciting opportunities to use them – are a key part of the puzzle when it comes to including small merchants and consumers in the formal financial system.
Electronic payment intermediaries – such as payment facilitators, bill aggregators, and payment gateways – process payments across a wider range of channels than ever before. Think of mobile phones and e-commerce websites as the primary payment channel for small businesses or customers today.
Adoption by merchants is paving the way for an increasing number of consumers to make payments electronically. According to a 2020 World Bank report, payments made by individuals to micro, small and medium-sized retailers are estimated at $ 18.8 trillion globally, but only 37% are made electronically. For most countries, this represents an untapped opportunity.
In Mexico, the acceptance of electronic payments has dramatically improved the lives and livelihoods of micro and small business owners, according to a study commissioned by Visa. Out of 750 homeowners surveyed during the COVID-19 pandemic, about three-quarters reported increased monthly income and spending from customers, said Amina Tirana, Visa’s head of social impact, policy and measurement. , during the Financial Inclusion Global Initiative (FIGI) symposium. “Among the companies that have seen growth, average monthly revenues have increased 22% since accepting digital payments.”
For these companies, payment facilitator intermediaries provided solutions tailored to their needs and, for three quarters of them, it was the very first time that they accepted electronic payments. As secure payment platforms become more abundant and easier to use, businesses are increasingly likely to recommend electronic payments to their peers, Tirana added. More than a third of the companies surveyed saw electronic payments as imperative for their resilience and recovery from COVID-19.
Access to cheap cell phones has pushed more merchants into electronic payments, even attracting small, unbanked sellers.
With over 1.2 billion registered accounts and 300 million monthly active accounts globally, mobile money providers have made a significant contribution to the COVID-19 response in many markets, according to the report. State of the Industry on Mobile Money 2021, from the GSM Association, an industry association. representing the interests of mobile network operators. The value of merchant payments versus mobile money grew 43% last year, up from 28% the year before.
“The payment-as-a-platform business model for mobile money providers has resulted in a new acceptance ecosystem in the mobile space, leveraging a range of intermediaries to ensure frictionless processing on multiple platforms, ”said Ashley Olson Onyango, chief financial officer. Inclusion and AgriTech within the Mobile for Development team of the GSM Association.
The industry must continually assess the risks posed by electronic payments. These tend to be operational, such as “technology failures or delays, which can lead to settlement delays and transaction delays,” Onyango noted.
Cyber security and fraud prevention are key to building widespread trust. Additional due diligence is required to comply with regulations designed to combat money laundering and terrorist financing. But at the same time, ease of access for customers and merchants is very important, as is the assurance of secure transaction accounts and a right of recourse in the event of a problem.
“Merchants want immediate access to their funds, and consumers want immediate refunds in the event of a dispute,” said Syed Sohail Javaad, director of the payment systems department at the State Bank of Pakistan.
Pakistan’s future electronic payment system, Raast, offers person-to-merchant transactions. With the system due to be rolled out next year, the central bank is considering how to authorize and register electronic payment intermediaries. “Timing is very important,” Javaad said. “Do we start registering them or authorizing them at the initial stage, or do we wait and let their business grow and reach a certain threshold?” “
Regulators work with the payments industry to strike an appropriate balance between regulatory controls and opportunities for electronic payment intermediaries to enter the market and innovate. A sustainable approach would encourage investment and innovation, while enabling continual redesigns to meet the changing needs of traders and customers, Tirana said.
User convenience also calls for interoperability between intermediaries – “but with only the amount of information needed,” she added with reference to the importance of security and privacy.
Ahmed Faragallah, Senior Financial Sector Specialist at the World Bank Group, described the three main approaches taken by central banks to regulate intermediaries. First, regulations can be issued directly to intermediaries. Second, when payment systems license intermediaries that meet certain requirements, regulators can assess the adequacy of those requirements and request changes, if necessary.
“The third approach is where the regulator applies the regulation to the acquirer and then deals with intermediaries as an outsourced service of the acquirer,” he said.
Outsourcing institutions are responsible for the actions of outsourced service providers, Faragallah noted. Thus, in the third scenario, the acquirer – both banks and non-bank players – performs in-depth due diligence on intermediaries. Javaad suggested the possibility of a hybrid approach, which could incorporate different regulatory components depending on the needs of each country.
Read the report on incentives for accepting electronic payments developed by the FIGI working group on the subject led by the World Bank.