Can digital payments be used, as cash is, to pay anyone and be paid by anyone? There are two factors that define this: transaction account penetration and interoperability.
Are there enough accounts?
- How many people in the country or region hold a transaction account and can be reached by a digital payment?
- At what point does the penetration of accounts create cash-like ubiquity?
- Account penetration by adults in emerging markets ranges from as low as 20% to 30% to about 80% .
Is Interoperability in Place?
- Is interoperability among DFSPs in place?
- Can a person easily make a payment to another person—or a business—with an account at another financial institution? What if that person or business holds an account at a non-bank?
- Note that in some countries (China, Kenya) market dominance or near-market-dominance by one or two DFSPs results in a similar effect. Level One prefers the interoperable model in order to stimulate competition and innovation among DFSPs.
Is the Perceived Cost Appropriate?
- Is the cost of using digital payments perceived to be equal to or lower than the cost of using cash? This question needs to be looked at from both the payer and the payee’s perspective.
- The answer will vary by use case. Domestic Person-to-Person (P2P), for example, is successful when priced to the sender, as cash alternatives can be costly. Government-to-Person (G2P) and Business-to-Person (B2P) payments are important for a Level One implementation—here, the cost to receive needs to be zero for the consumer, but the payer agency or business may be willing to pay a small transaction cost.
- In G2P/B2P payments, the consumer’s cost of cashing-out needs to be factored in as well.
Are the Perceived Risks Acceptable?
- Consumers need to trust that their money will not be stolen through, for example, account take-over, and that they have some type of protection if errors occur.
- Protection from merchant fraud is an issue still actively debated; card networks normally provide this protection to consumers, but at a cost which is embedded in a merchant discount fee. Providing protection in the system may make payment unacceptably costly to the merchant.
Next Topic in this Section: Are Volumes High Enough?