Digital Financial Services

Digital Financial Services (DFS)

Question 1

a). The term Digital Financial Services (DFS) are the financial amenities that use digital

technology to provide services to customers.

b). The common facets of DFS are mobile money, platform ecosystem and Application

Programming Interfaces (API). According to Ceyla et al., (2020), mobile money is regarded as

the first wave of DFS services. This network allows customers transact digitally in all parts of

the globe. Platform ecosystems include platforms such as social media and e-commerce. They

allow clients trade for their services in a more diverse and efficient way. API’s enables various

systems exchange consumer data and instructions.

The following conditions are vital for the development of DFS;

i. Need to enhance fair competition

ii. Encourage the demand for DFS. This can be done by building and establishing strong

customer confidence in DFS.

iii. Safeguarding and protecting the needs and interests of DFS consumers.

Question 2

Benefits

DFS play a key role at both micro and macro levels. The following are advantages of DFS at

micro and macro levels (Ceyla et al., 2020).

i. Reduction of poverty

ii. Assist in the allocation and fair distribution of available resources

iii. Promote financial inclusion

iv. Increase the earning capacity thereby improving the lives of the poor women
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v. Promotes economic growth

Risks

Poor governance of customer data. DFS personnel may reveal critical customer information.

Regulatory arbitrage; Various DFS systems such as M-Shwari and KCB M-Pesa are usually

operated by unregulated authorities.

DFS data is also prone to cyber security and operational risks. Such systems also depend on IT

professionals to operate them.

Macro financial risks- Compounded by cyber and operational risks, rapidly growing DFS

systems such as digital lending systems could result to losses for individual institutions

especially if such institutions are not regulated.

Question 3

Demand Side

Removal of geographical constraints. Mobile money allows customers to transact digitally

without accessing the nearest financial service providers. This proves how convenient DFS is to

all customers. DFS also provides special type of accounts to poor families with low income.

Such accounts are convenient since they do not require much maintenance and transaction

charges. In terms of informality and lack of proper documentation, DFS supports the

undocumented poor by coming up with ways of authentication and transaction initiation.

Supply Side

Encourage innovations and fair competition. DFS can also be customized to suit customer needs.

This helps reduce the high operating expenses for remote services.
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Question 4

According to Ceyla et al., (2020), Fintech helps in the development of DFS globally by reducing

costs, increasing security, transactions speed and transparency. It also promotes financial

inclusion.

Question 5

Stage 1: Basic access to transaction accounts.

Stage 2- More intensive usage of transaction accounts for digital transaction.

Stage 3- Moving beyond payments to other DFS products such as credits and insurance services.

Stage 4- Widespread adoption and usage of DFS by persons and corporations.

According to Ceyla et al., (2020), the first stage is cash based while the second and third

stage depicts the increased penetration of and usage of digital financial services. The fourth stage

is digital. These stages have enhanced economic development through;

i. Encouraging the use of mobile phones

ii. Supporting the global broadband connectivity

iii. Coming up with effective and well-functioning payment systems.

iv. Enhancing financial management systems that support intensive shift of G2P payments to

the digital way

v. Ensuring consumer protection

vi. Implementing simplified Customer Due Diligence (CDD).

vii. Establishing comprehensive regulatory framework for all DFS providers

Question 6

a) Financial inclusion means making financial products and services readily available and

affordable to all individuals and corporations regardless of their social class or company size.
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b). According to Ceyla et al., (2020), DFS and Fintechs help in mitigating the problem of

financial inclusion. With the help of Fintech, DFS has the potential to reduce costs, increase

security and transparency to all customers. For instance, the development of mobile money,

allows consumers and business firms conduct transactions in the global market regardless of

their size, location or net worth.

Question 7

In India, the development of DFS enabled the government access and conduct large volumes of

transactions via digital mediums. Besides, it also enhanced digital G2P forms of payment. Since

the introduction of this new payment method, over 300 million adults in India have gained access

to their individual bank accounts (Ceyla et al., 2020).

Risks

With the development of DFS in India, many persons opened their personal bank accounts.

However, low usage remains a challenge in this country. Only 54 % of these accountholders are

transacting. This implies that most accounts are likely to be dormant. Besides, some citizens in

the country are questioning the effectiveness of DFS systems in matters regarding their privacy

and protection of personal data.

Question 8

Ghana

According to Ceyla et al., (2020), the development of DFS in Ghana led to an increase in mobile

money ownership by approximately 200 percent. Most people in the rural areas had shifted to the

digital way of transaction. Various factors led to this success. The key factor is that Ghana

allowed non-banks specifically the mobile network operators to issue e-money to their

customers. The World Bank also permitted mobile networks in Ghana to invent new ways of
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carrying out transactions. Besides, Ghana invested in the appropriate payment system

infrastructure.

Risks

The new Ghana E- Payment Portal (GEPP) that was designed to facilitate payments required

citizens to log in to a portal to make their payments. Besides, a transaction fee was charged

which was mandatory.

Kenya.

M-Pesa services is one of the results of DFS development in Kenya. The service has grown

globally enabling persons and companies conduct digital transactions across the globe.

Risks

The challenge associated with mobile money network in Kenya is that, some digital credit

services such as M-Shwari and KCB M-Pesa have attracted many customers, who are

unregulated Fintech players in the market (Ceyla et al., 2020). This has damaged the reputation

of the mobile money network to potential customers across the globe.

Question 9

 Standout Economies

According to Chakravorti et al., (2020), stand out economies have both high levels of existing

digitalization and strong momentum to keep growing their digital abilities. They include South

Korea, Singapore and Hong Kong. To remain successful, standout economies:

i. Attracts, trains and retains digital talents

ii. Provides fast and universal mobile connectivity

iii. Specialize in the export of digital goods and services

iv. Enhance digital entrepreneurial ventures

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 Break Out Economies

According to Chakravorti et al., (2020), break out economies have limited existing digital

infrastructure but are swiftly improving. A perfect example is China. Successful Break out

economies focus on;

i. Investing in digital enterprise and applications that helps create more job opportunities.

ii. Enhancing mobile internet access and connectivity

iii. Minimize inequalities in access to digital tools across gender, class and ethnic boundaries

 Stall Out Economies

Most of European Union countries are categorized as stall out economies. Such nations have

good digital landscapes but possess less thrust for further growth. Successful stall out economies:

i. Identify new technological gaps and foster friendly environment to innovate in such

areas.

ii. Apply policy tolls and regulations to enhance inclusive access to the available digital

capabilities.

iii. Protect their digital landscapes by investing more in robust institutional foundations.

Watch Out Economies

Watch out economies have limitations in both existing digital capabilities as well as thrust for

further development. According to Chakravorti et al. (2020), successful watch out economies

make long-term investments to address the existing basic infrastructure gaps. Besides, they

promote applications that solve the prevailing digital problems.

Question 10
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The HBR article by discusses about the role of digital technologies in economic growth and

development. The authors group economies based on the digital capacities. The four groupings

of economies are; stand out, stall out, break out and watch out economies. Each of these

economies have been discussed above. The Second article is titled Digital Financial Services

(DFS). It explains what DFS is, its role, development stages and contribution towards the

economic growth of various countries.

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References

Ceyla P, Alfonso G. M, Mahesh U, Harish N., Erik F, and Mathew S. (2020). DIGITAL

FINANCIAL SERVICES, 54.

Chakravorti B, Bhalla A, Ravi S C. (2020). Which Economies Showed the Most Digital Progress

in 2020?.