GEF The State of E-finance and E-Payments in the World Charles Goldfinger UNCTAD Geneva, October 23,

GEF Geneva, October 23, Finance and Internet  Cyberfinance Financial services is the domain where Internet impact has been the strongest E-commerce market share (in % of total turnover)

GEF Geneva, October 23, Cyberfinance  Ubiqutuous reach Retail Banking Financial markets Insurance Asset management Financial Data Wholesale banking

GEF Geneva, October 23, Cyberfinance  New networks E-Banking E-markets B2B banking Financial Portals Asset management Risk management

GEF Geneva, October 23, Cyberfinance dynamics  Internet banking and Internet securities trading  The tale of the turtle and the hare  Internet securities trading  Fast start and hard landing Pure Internet play successful -E-Trade  Internet banking  Slow start and steady progress No salvation outside “click and mortar” model -Nordea -Bradesco

GEF Geneva, October 23, Cyberfinance  Global phenomenon E-finance penetration (end 1999) Source: World Bank, 2001

GEF Geneva, October 23, Cyberfinance  Global phenomenon  …with significant local differences  Success stories  Internet banking Korea Brazil India  Internet brokerage Korea Mexico

GEF Geneva, October 23, E-payments: conventional wisdom and reality  Conventional wisdom  “Electronic commerce will not take off without robust and secure payment infrastructure and systems”  “E-payment is a killer application”  Reality  Electronic commerce HAS taken off  There is NO robust and secure payment infrastructure  E-payment is NOT a killer application

GEF Geneva, October 23, E-payments: first wave  Road kills and hard slogs  Digicash  Kleline  CyberCash  SET  Cyber-comm  Principal lessons  Critical success factors  Consumer behaviour and attitudes NOT  …NOT technological wizardry  Limited room for new entrants  Respect the incumbents !

GEF Geneva, October 23, E-payments: second wave  B2C  Diversity of approaches  Loyalty  P2P  Most successful -Paypal  EBPP  Wholesale systems  Core initiative  SWIFTNET Interoperable Cross company Applications Secure Cross company Communication IP Connectivity Network Security Traffic Priority Traffic Priority Value InterAct FileAct swiftML Standards Transport protocols Secure IP Network Common IP network SWIFT IP Network PKI security Service Levels Non Repudiation Closed User Groups Flow Priorities Messages Standards Content Based Processing

GEF Geneva, October 23, Financial business services  Electronic trade finance  Bolero  TradeCard High potential Early days  Credit information and management  Dun and Bradstreet High barriers to entry Incumbents dominate Innovative approaches

GEF Geneva, October 23, E-payments  Radical value shift Traditional payment services Internet Closed networkOpen network Private infrastructurePublic infrastructure Bundled securityUnbundled security Mono-industryCross-industry

GEF Geneva, October 23, Cyberfinance  Lessons of experience  Four common misconceptions  Cost reduction potential  Iceberg costs  Ease of implementation  Complexity  Revolutionary impact  Systemic evolution  Disintermediation  Growing demand for intermediation  Leapfrogging potential  Selective  Complex framework conditions

GEF Geneva, October 23, Cyberfinance  Lessons of experience  E-finance is only beginning  Blurring boundaries  Finance Technology  Information Transaction  Financial institutions Technology provides  Technological integration imperative All finance is becoming e-finance Smart Card Mobiles Internet