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

2. 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

3. State of Financial Inclusion in Russia 2,83 bank offices per 1 000 sq.km. 13,49 ATMs per 1 000 sq.km. Mobile phone users: 73% Internet users: 52% VS.

4. Retail Financial Services in Russia E-Money Systems (more than 40 mln. users) Payment kiosks 250 000 kiosks (1 600 per 1 mln. people) Payment cards (1.5 cards per capita) Prepaid mobile accounts Approx. 20 mln. users

5. How Digital Financial Services can help? Higher accessibilityHigher competition (i.e. quality)Lower costs

6. 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.

7. Higher Competition ‘Remote’ means ‘accessible’ + ‘competitive’ ‘Competitive’ is more innovative and affordable

8. Decreasing Costs Low operational costsUsage of existing infrastructureLow personnel costs

9. 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

10. Traditional taxi service Traditional taxi = dispatch + cars Taxi ride and Dispatch are bundled services. Customers are limited in choice

11. 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

12. Traditional Financial Services Model LOANS SAVINGSCARDS E-BANK These services are ‘packaged’, i.e. forming ‘vertically integrated monopoly’

13. Moving away from the traditional model New technologies unbundle the sources of funding and interfaces ‘Division of labour’ on the market

14. One interface for different sources of funding E-wallets aggregate different sources of funding: payment cards, bank accounts, airtime, e-money

15. One source of funding for many interfaces Prepaid cards, mobile phones, PCs, etc. are all instruments to access e-wallet

16. 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

17. 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 customer’s account in any bank, without contract with this bank (i.e. implements de-verticalisation of the industry)

18. 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

19. 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

20. 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

21. Pavel Shoust Russian Microfinance Center +7 (906) 271-0450 paul.shoust@gmail.com ENHANCING EFFICIENCY AND FINANCIAL INCLUSION: ROLE OF THE DIGITAL FINANCIAL SERVICES