MICROFINANCE PAPER WRAP-UP: “The Opportunity for Digital and E-commerce Payments in the Pacific Region,” by Chris Statham et al, Published by UNCDF

This paper explores the challenges and opportunities associated with leveraging digital payment structures, including how such structures might promote financial inclusion and improve economic conditions in the Pacific Island region. The study focuses on six of the 14 archipelagic countries in the region that are in “nearly identical stages of development”: Fiji, Papua New Guinea, Samoa, Solomon Islands, Tonga and Vanuatu. Infrastructure in these countries is underdeveloped, and “establishing robust payment infrastructure has remained challenging.” Financial literacy levels are low, and people in the region use financial services at some of the lowest rates in the world. However, new financial technology (fintech) platforms offer the potential for more access to digital payments. With more of the population using smartphones and the internet, digital payments are becoming more feasible.

One major obstacle to digital payments is the lack of high-speed network connections. The region has coverage rates of 96 percent for 2G service and 81 percent for 3G, but only 64 percent for 4G coverage. Meanwhile, the rates of coverage in rural areas are lower than these overall figures. One disincentive for companies to invest more in the region – particularly rural areas – is its relatively small population numbers.

Transaction costs are another challenge. While many banks in the region have been promoting online banking, there only have been limited decreases in transaction fees. However, “the average transaction cost of sending remittances through digital channels has come down” with the entrance of fintechs to the market. Also, some countries in the region have online payment gateways that assist with international remittances, reducing their cost. Interbank transfers remain paper-based, however, and thus slow. Of the six target countries, only Papua New Guinea has a national payments switch for this purpose.

None of the target countries has dedicated policies to regulate mobile money. In many cases, financial laws are over twenty years old, resulting in ambiguity in how to apply them to e-commerce and other online transactions. Meanwhile, most consumer protection policies do not cover online consumers.

Based on data on e-commerce payments, remittances, GDP, population, infrastructure and smartphone adoption, the authors project e-commerce will grow over the next five years by 7.2 percent in Fiji and 9.2 percent in Papua New Guinea. Data was not sufficient to make estimates for the other countries.

To promote digital payment systems, the authors propose the development and usage of: (1) government-led pan-regional central payment infrastructure; (2) open banking practices, including APIs that allow banking applications to interact with each other; (3) interoperable QR codes for making payments; (4) national digital identification systems; and (5) improved regulations addressing a range of issues, including consumer protection and cybersecurity.

This is a summary of a paper by Chris Statham, Konstantin Schroeter, Marius Siebert and Samuel Chari; published by the UN Capital Development Fund; September 2021; 56 pages; available at https://www.findevgateway.org/paper/2021/09/opportunity-digital-and-e-commerce-payments-pacific-region

By Arin Atluri, Research Associate

Additional Resources

UN Capital Development Fund homepage
https://www.uncdf.org/

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