Electronic Payment Acceptance Assessment Guide ELECTRONIC PAYMENT ACCEPTANCE PACKAGE ACKNOWLEDGEMENTS This report is a result of a collaborative effort across the World Bank Group’s Finance, Competitiveness, and Innovation Global Practice and the Financial Inclusion Global Initiative’s (FIGI) Electronic Payment Acceptance (EPA) Working Group, funded by the Bill and Melinda Gates Foundation. This report was prepared by a team from the World Bank led by Oya Ardic (EPA Market Research and Incentives Workstream Chair) including Jeffrey Allen (Financial Sector Consultant), Hemant Baijal (Senior Financial Sector Consultant), and Georgina Marin (Program Officer). Additional contributions were provided by Ahmed Faragallah, Dorothee Delort, and Matthew Saal, who kindly reviewed this report in its various stages, and by Asmaa Bennani, Ilka Funke, Peter Jensen and Nilima Ramteke, who used the approaches described in this report in the field for piloting. Debra Naylor designed and provided graphics for the report. The core team thanks Harish Natarajan (Lead Financial Sector Specialist) for his technical guidance and comments during development of the report and Mahesh Uttamchandani (Practice Manager) for provid- ing the overall guidance to the working group. Comprehensive EPA Market Research and Incentives Workstream consultations were undertaken while preparing and finalizing the report. The workstream comprised Daniel Gersten Reiss (Banco Central do Brasil), Jouali Fadwa (Bank Al-Maghrib), Ayse Zoodsma-Sungur (De Nederlandsche Bank), Ashraf Sabry (Fawry), Marwan El Aasar (Network International), Amina Tirana (Visa), Wameek Noor (Visa), Jesse McWaters (MasterCard), Heba Shams (Mastercard), Youssouf Sy (Universal Postal Union), Sergey Dukelskty (Universal Postal Union), Gabriela Jaramillo Gabino (CNBV Mexico), Matthew Saal (IFC), Mohamed Helmy (Central Bank of Egypt), Ma Haoyu (PBoC), Rundong Jiang (PBoC), Xi Sun (Ant Group), Amitabh Saxena (Digital Disruptions), Camilo Tellez (Better than Cash Alliance), and Jeff Allen, Oya Ardic, Hemant Baijal, Ahmed Faragallah and Georgina Marin (World Bank). FINANCE, COMPETITIVENESS & INNOVATION GLOBAL PRACTICE Payment Systems Development Group ©2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org DISCLAIMER The Financial Inclusion Global Initiative led in partnership by the World Bank Group (WBG), International Telecommunication Union (ITU), and the Committee on Payments and Market Infrastructures (CPMI), with the support of Bill & Melinda Gates Foundation (BMGF). The FIGI program funds national implementations in three countries (China, Egypt, and Mexico), supporting topical working groups to tackle 3 sets of out- standing challenges in closing the global financial inclusion gap, and hosting 3 annual symposia to gather the engaged public on topics relevant to the grant and share intermediary learnings from its efforts. This work has been prepared for the Financial Inclusion Global Initiative by the FIGI Electronic Payments Acceptance (EPA) Working Group. The work is a product of the staff of the World Bank with exter- nal contributions prepared for the Financial Inclusion Global Initiative. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Financial Inclusion Global Initiative partners including The World Bank, its Board of Executive Directors, or the governments they represent, or the views of the Committee for Payments and Market Infrastructure, International Telecom- munications Union, or the Bill & Melinda Gates Foundation. The World Bank does not guarantee the accuracy of the data included in this work. 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Table of Contents Acknowledgements  inside cover Acronyms and Abbreviations  iii 1 Introduction  1 2 Qualitative Analysis  4 2.1 Merchant Qualitative Assessment  4 2.2 Consumer Qualitative Assessment  5 2.3 Payment Service Providers  6 3 Quantitative Analysis  7 3.1 Retail Payments Ecosystem  8 3.2 Economics of EPA  17 3.3 Legal, Regulatory and Oversight  23 4 Concluding Remarks  26 ANNEX A: Merchant interview guide  27 ANNEX B: Providers interview guide  32 ANNEX C: Household interview guide  36 ANNEX D: Local data collection summary  40 ANNEX E: Qualitative policy indicator construction methods  45 ANNEX F: Recommended quantitative measures and quantitative assessment summary  49 Glossary  57 References  59 ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • i Figures Figure 1. Summary of Assessment Approaches 3 Boxes Box 1 COVID-19 and Electronic Payment Market Scale 11 Box 2 Overview of the World Bank Fast Payment Systems Toolkit 14 Box 3 Sustaining revenue during COVID-19 through EPA 18 Tables Table 1. EPA policy categories and sub-categories 7 Retail payments ecosystem assessment Table 3.  elements 8 Table 4. Types of merchant accounts necessary for accepting electronic payment instruments 9 Table 5. Consumer financial access assessment indicators 10 Table 6. Types of retail payments 11 Table 7. Economics of EPA assessment elements 17 Table 8. Retail payment costs and calculation approaches 20 Table 9. Legal, regulatory and oversight assessment elements 23 Table D.1. Retail payments ecosystem local data collection summary 41 Table D.2. Economics of EPA local data collection summary 43 Table D.3. Legal, regulatory, and oversight local data collection summary 44 Table E.1. Payment infrastructures indicator construction 46 Table E.2. Legal and regulatory indicator construction 47 Table E.3. Payment system oversight indicator construction38 48 Table E.4. Financial capability commitment indicator construction 48 Table F.1 Financial access assessment 49 Table F.2 Market development assessment 50 Table F.3 Payment infrastructures assessment 51 Table F.4 Other financial and ICT infrastructures assessment 52 Table F.5 Education and perceptions assessment 52 Table F.6 Acceptance benefits and costs assessment 53 Table F.7 Provider costs and risks assessment 54 Table F.8 Consumer behavior assessment 54 Table F.9 Legal and regulatory (general) assessment 54 Table F.10 Legal and regulatory (financial) assessment 55 Table F.11  Provider costs and risks assessment 56 ii • FINANCIAL INCLUSION GLOBAL INITIATIVE Acronyms and Abbreviations ACH Automated clearing house ATM Automated teller machine CDD Customer due diligence EPA Electronic payments acceptance EMV Europay, Mastercard and Visa FAS Financial Access Survey FICP Financial Inclusion and Consumer Protection Survey FIGI Financial Inclusion Global Initiative FPS Fast payment system GPSS Global Payment Systems Survey ICT Information and Communication Technology IF Interchange Fee IMF International Monetary Fund ITU International Telecommunication Union KYC Know Your Customer MDD Merchant due diligence MDR Merchant discount rate MSME Micro, small and medium enterprises MSMR Micro, small and medium retailers NBEI Nonbank e-money issuer NFC Near-field communication NFIS National Financial Inclusion Strategy P2B Person-to-business POS Point-of-sale PSP Payment service provider PSO Payment system operator QR Quick response RBA Risk-based approach RTGS Real-time gross settlement system SDD Simplified Due Diligence STK SIM toolkit UNCTAD United Nations Conference on Trade and Development USSD Unstructured supplementary service data WBG World Bank Group ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • iii I. Introduction and Background Financial inclusion has been in the forefront of the interna- As such, as part of its activities under FIGI, the World tional development agenda in the last couple of decades Bank established the FIGI Electronic Payments Accep- as a means to reducing poverty and increasing shared tance (EPA) Working Group to foster effective practices prosperity. In this regard, having access to a transaction for enabling and encouraging acceptance and use of elec- account which enables safe storage of value and allows tronic payments, with an emphasis on person-to-business for making payments, is considered a first step to further (P2B) payments, both for proximity payments at the financial inclusion. This underpins the World Bank Group’s point of interaction and e-commerce, and on unserved Universal Financial Access goal and the framework for and underserved groups. the Committee for Payments and Market Infrastructures As part of its work on the EPA Working Group, the (CPMI) and the World Bank’s (2016) Payment Aspects of World Bank has developed the EPA Package, a package Financial Inclusion. of guidance notes and technical notes that is intended to Yet, transaction accounts are not always used for mak- guide public and private sector stakeholders in the design ing payments. For example, according to the World Bank and implementation of reforms and programs to increase Global Findex database, 68.5 percent of adults have a electronic payments acceptance.1 This Assessment Guide transaction account, but only 52 percent of adults made is a part of the EPA Package, intended to assist public and or received at least one payment with the account owned. private sector electronic payment ecosystem stakehold- In addition, Global Findex also that a significant propor- ers (collectively, “EPA stakeholders”) in comprehensively tion of accounts remain inactive for at least 12 months. evaluating EPA development and identifying barriers that Moreover, according to a study by the World Economic are stifling EPA uptake. Forum (WEF) and the World Bank Group (2016), only The EPA Package proposes the readers to conduct 37 percent of payments made or received by small mer- an EPA assessment to derive key insights for selecting, chants are made electronically. designing and implementing high-impact EPA reforms, to understand key strengths and weaknesses, and to develop a baseline against which to measure future EPA enhancement reforms and programs. ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 1 The methodology detailed in this Guide includes two The rest of this Guide is, therefore, dedicated to explain- components: (1) qualitative analysis and (2) quantitative ing these two components. Section 2 focuses on the qual- analysis (Figure 1). There are advantages and disadvan- itative analysis while Section 3 focuses on the quantitative tages of these two approaches. For example, qualitative approach. Annexes to this Guide include several question- analysis is usually faster and cheaper, even when consumer naires to help readers in pursuing either approach. and merchant focus group discussions are conducted. • Annexes A–C: Interview Guides—Instrument-neutral2 However, it usually does not allow for comparisons and sample interview guides that stakeholders can lever- benchmarking. Quantitative analysis, on the other hand, age to better understand EPA challenges and oppor- allows for comparisons and benchmarking, however if tunities for merchants, providers, and households. survey data needs to be collected, e.g. household or mer- The sample interview guides are meant to fill gaps in chant surveys, then it can be costly and long. At the same assessment elements for which indicators are not usu- time, there are usually several data gaps which may not ally available or are insufficient. allow for a thorough analysis. The Guide, therefore, rec- ommends a combination of these two approaches for the • Annex D: Local Data Collection Summary—Summa- assessment whenever possible. rizes the proposed indicators that need to be collected The qualitative analysis proposes several discussions locally (Type 3, Table 2) to conduct aspects of the EPA with participants of the EPA ecosystem in a country, assessment. In most cases, these will need to be col- including discussions with different types of payment lected by national authorities. service providers, payment system operators and inter- • Annex E: Qualitative Policy Indicators Construction mediaries as well as focus group discussions with mer- Methods—Details the methods used to generate the chants and consumers. This analysis would focus on the qualitative policy-oriented indicators, which are derived perceptions of the market participants in terms of barriers from World Bank surveys administered to national impeding EPA and potential reforms and programs that authorities. could improve EPA. The quantitative analysis proposes an analysis of several existing indicators relevant for the EPA • Annex F: Recommended Quantitative Measures for ecosystem as well as collection of new quantitative data EPA Assessment and Quantitative Assessment Sum- in the form of merchant surveys if feasible. This analysis mary—Presents the recommended list of indicators for would support the qualitative analysis in analyzing the the quantitative assessment approach. barriers for EPA. 2 • FINANCIAL INCLUSION GLOBAL INITIATIVE FIGURE 1: Summary of Assessment Approaches Focus group discussions with merchants and consumers In-depth In-depth interviews interviews with other Qualitative with merchants stakeholders and consumers In-depth interviews with providers Assessment approaches Publicly available cross-country indicators Consumers Qualitative Surveys with policy- merchants oriented indicators Surveys Quantitative Merchants Surveys with Local data consumers ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 3 2. Qualitative Analysis For the purpose of qualitative assessment, the Guide 2.1 MERCHANT QUALITATIVE ASSESSMENT proposes the EPA stakeholders to conduct several inter- views with different types of providers and focus group To facilitate the merchant qualitative survey, EPA stake- discussions and key informant interviews with merchants holders are recommended to collect information on the and consumers. Annexes A-C include interview guides for following categories: merchant background and demo- merchants, households and key providers of electronic graphics; merchant education and perceptions (regard- payment services. For each interview guide, the emphasis ing the financial sector in general and payment options in is on collecting user-centric feedback on the level of finan- particular), merchant acceptance of person-to-business cial access and usage, drivers and barriers to adoption of payments, merchant payments of salaries to employees, electronic payments including their attitudes and percep- supplier payments. The suggested format for merchant tions towards different types of payment mechanisms, qualitative analysis is focus groups or IDIs. and the role played by incentives and financial literacy For the purposes of the qualitative assessment, EPA campaigns in promoting adoption. The suggested format stakeholders are recommended to interview different for conducting the qualitative analysis for merchants and types of merchants, by splitting merchants into micro, households is by using focus groups or in-depth inter- small, medium and large-sized merchants based on local views (IDIs). Depending on the type of the interview, the guidance, and by splitting merchants into grocery and user is recommended to structure a set of questions fol- non-grocery. Additional splits for urban/rural can also be lowing the Annexes as a guidance. The suggested format useful depending on the local context. for obtaining feedback from service providers is through The following is an overview the recommended infor- individual interviews/meetings with issuing and acquiring mation to be collected. Detailed questions are provided banks, payment service providers, e-money issuers, inter- in Annex A. national and domestic payment schemes. • Merchant background and demographics – Merchant size, location and type of merchant – Merchant registration status 4 • FINANCIAL INCLUSION GLOBAL INITIATIVE – Ownership status (including whether male/female 2.2 CONSUMER QUALITATIVE ASSESSMENT owner) – Number of employees To facilitate the household (consumer) qualitative survey, – Income profile of consumers shopping at merchant the EPA stakeholders are recommended to consider the location following categories: household background and demo- • Merchant financial access graphics, financial access and literacy, payment behavior, and perceptive for incentives. The suggested format for – Access to a business account, a merchant account consumer qualitative analysis is focus groups or IDIs. • Merchant education and perceptions For the purposes of the qualitative assessment, the – Awareness of merchant for different payment types Guide recommends interviewing different types of con- – Merchant’s level of comfort using different payment sumers. For example, consumers can be split into urban/ options rural, by age group, by gender, by income group, by pro- – Awareness on merchant account opening process fession, depending on the local context. – Financial and digital literacy The following summarizes broad categories of points – Attitude toward financial incentives and promotions to be considered in interviews with the consumers. Fur- ther details are provided in Annex C. • Merchant payment behavior • Consumer background and demographics – Merchant acceptance of person-to-business pay- ments – Education, profession, employment status – Management of finances, household budgeting ƒ Use of different payment options offered to cus- – Household spending patterns tomers ƒ Relationship with bank, PSP, etc. for access to • Consumer financial access merchant account – Access to a transaction account ƒ Drivers/barriers for using or not using electronic – Types of financial services used by the household payments (including transaction accounts, savings, credit, ƒ Use of incentives to promote acceptance of elec- insurance, investments) tronic payments – Access to regulated financial service providers vs. ƒ Use of value-added services (e.g., short term the use of informal channels credit) to promote acceptance ƒ Preferences for how they receive educational • Consumer education and perceptions materials from service providers, governments – Overall experience with different types of financial – Payment of salaries to employees services and what are these used for ƒ Current use of payment instrument for payment – Awareness of and willingness to use electronic pay- of merchant’s employees ment alternatives ƒ Openness to electronic payment alternatives – Financial and digital literacy – Supplier payments – Attitude towards financial incentives and promo- ƒ Types of suppliers used by the merchants tions ƒ Current use of payment method with suppliers • Consumer Payment behavior ƒ Access to credit through suppliers – Perceptions towards different payment types – Barriers to switch from cash for different payment In addition, merchant business model, financial manage- needs ment, accounting and inventory management models can also be useful to understand, especially for considerations – Use of payment instrument for bills, utilities and related to value-added services as incentives. government payments ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 5 2.3 PAYMENT SERVICE PROVIDERS – Regulatory/policy barriers to adoption of electronic payments The feedback obtained from service providers is useful • Acquiring of payment cards and digital wallets to understand the current opportunities and challenges – Market development in the development of the EPA ecosystem including the ƒ Competitive landscape and profitability effectiveness of the legal and regulatory frameworks. The ƒ Economics of acceptance suggested format for obtaining feedback from service providers is through individual interviews/meetings with – Acquiring process issuing and acquiring banks, payment service providers, ƒ Merchant acquisition and onboarding processes e-money issuers, international and domestic payment ƒ Level of specialization in acquiring activities schemes. The key categories include: ƒ Use of intermediaries in acquiring activities – Marketing, incentives and promotions • Issuance of payment cards and digital wallets ƒ Merchant segmentation strategies – Market development ƒ Use of innovative merchant acceptance solutions ƒ Competitive landscape and profitability (e.g., QR Code, NFC, etc.) ƒ Types of financial products offered ƒ Use of incentives and promotions ƒ Consumer spending patterns – Regulatory/policy barriers to growing EPA – Marketing, incentives and promotions ƒ Customer segmentation strategies The Guide recommends interviewing several different ƒ Customer onboarding process provider types, including banks and non-bank PSPs, inter- ƒ Use of incentives and promotions mediaries, international and domestic card schemes, and switches. Annex B provides more detailed questions for different types of providers. 6 • FINANCIAL INCLUSION GLOBAL INITIATIVE 3. Quantitative Analysis For the purposes of the quantitative analysis, the Guide TABLE 1. EPA policy categories and sub-categories provides an approach for evaluating a range of eco- Categories Sub-categories system, economic, and legal and regulatory issues that Retail Payments Financial access affect EPA.3 Ecosystem Market development To facilitate the analysis, three thematic policy cate- Payment infrastructures gories are used in what follows: (1) retail payments eco- Other financial and ICT infrastructures system, (2) economics of EPA, and (2) legal, regulatory and oversight. Each of these policy categories is broken Education and perceptions down into a series of sub-categories, which are presented Economics of EPA Acceptance benefits and costs in Table 1. Grouping assessment elements into policy cat- Provider costs and risks egories and sub-categories is meant to help users assess Consumer behavior related EPA policy areas. Legal, Regulatory, Legal and regulatory (general) The rest of this section identifies and discusses the and Oversight Legal and regulatory (financial) nature of the assessment elements within each policy category and how they affect EPA. Further, it proposes Payment system oversight country-level quantitative indicators for measuring EPA barriers and development issues. These indicators consti- tute one of three types, which are described in Table 2. This section, therefore, enables users to evaluate a Type 2 and Type 3 indicators can be sourced from the comprehensive range of EPA assessment elements using interviews and focus group discussions described in sec- quantitative indicators from several sources. EPA stake- tion 2 as well as quantitative surveys with households and holders are recommended to use qualitative assessment merchants.4 In addition, some aspects of the EPA land- elements from section 2 and local knowledge to judge scape may not merit a quantitative analysis. This is when whether some policy categories, sub-categories, or combining the qualitative approach outlined in section 2 assessment elements are more relevant for EPA in their can be combined with the quantitative approach outlined economies than others. in this section for additional depth. ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 7 TABLE 2. Assessment Guide indicator types Indicator Type Indicator Description TYPE 1: Publicly available These indicators can be obtained from publicly available cross-country databases maintained by cross-country metrics international organizations, such as the World Bank and the International Monetary Fund (IMF). The World Bank will make available an excel-based database containing the most recent publicly available data on a country-by-country basis for Type 1 indicators. TYPE 2: Qualitative policy- For a number of qualitative policy-oriented topics that do not have associated publicly available oriented indicators indicators, the Assessment Guide proposes some basic scoring approaches, which are derived from questions contained in the World Bank Global Payment Systems Survey (GPSS) and Finan- cial Inclusion and Consumer Protection (FICP) survey. Even if data from these surveys are not available or local authorities have not responded to these surveys, EPA stakeholders can leverage the questions to construct indicators that capture a wide range of EPA-relevant national payment system characteristics and regulatory approaches. TYPE 3: Local data The majority of proposed indicators will need to be collected locally, either through existing national data or through survey approaches, primarily with merchants and payment service providers. 3.1 RETAIL PAYMENTS ECOSYSTEM TABLE 3. Retail payments ecosystem assessment elements The EPA Assessment focuses on a range of factors that Policy sub-category Assessment elements contribute to the relative efficiency and convenience Financial access Instruments and acceptance channels of EPA under the retail payments ecosystem category. Merchant financial access The category comprises five policy sub-categories: (1) Consumer financial access financial access, (2) market development, (3) payment Financial inclusion commitment infrastructures, (4) other financial and information and Market development Scale communication technology (ICT) infrastructures, and Structure (5) education and perceptions. Table 3 presents the EPA assessment elements associated with each of the retail Payment Interoperability and standardization infrastructures Fast payment system payments ecosystem policy sub-categories. It is important to note that many elements addressed Real time gross settlement in this section affect merchants indirectly. However, the Automated clearing house retail payments ecosystem serves as the foundation for Other financial and Telecommunications EPA. Countries in which the ecosystem is lagging may ICT infrastructures Identification systems find it difficult to generate sustainable EPA advancement. Credit reporting systems A further benefit of improvements to the retail payments Access points ecosystem is they may contribute to the development of E-commerce readiness the broader digital economy. Education and Financial capability perceptions Cash culture 3.1.1 Financial Access The financial access sub-category focuses on access to Electronic Payment Instruments and Acceptance 3.1.1.1  the financial accounts and instruments that are neces- Channels sary for merchants’ ability to accept and consumers’ Electronic payment instruments broadly include three ability to make electronic payments. The Guide proposes categories (CPMI and WBG 2016): that EPA stakeholders first take stock of the electronic • Payment card-based instruments payment instruments and acceptance channels that are available in the country that is being assessed. Then, • Electronic money (e-money)-based instruments5 stakeholders could assess merchant financial access, • Electronic funds transfer (EFT)-based instruments6 consumer financial access, and the country’s financial Historically, payment cards and e-money have been inclusion commitment. more common than EFT instruments for making per- son-to-business (P2B) merchant payments, but the latter are becoming more popular for making such payments. 8 • FINANCIAL INCLUSION GLOBAL INITIATIVE EPA stakeholders would need to evaluate which payment process electronic payments. This involves evaluating instruments are available in the country for making in-per- the merchant account opening process, including under- son and e-commerce P2B merchant payments. writing, business registration requirements, business There are a wide variety of channels that enable accep- account opening process, supporting documentation tance of these payment instruments, and innovation in the requirements (e.g. financial statements, business plan) acceptance channel space is rapid. This section focuses on and compliance requirements (e.g. AML/CFT, PCI-DSS). the channels that are presently most accessible for MSMRs There is usually no quantitative data in the form of com- in developing economies. These broadly include: point- parable indicators to cover this step and EPA stakehold- of-sale (POS) terminal; mobile POS (mPOS); mobile-to- ers are recommended to use qualitative approaches mobile; quick response (QR) code; and Internet. EPA outlined earlier for this purpose, in interviews with mer- stakeholders would need to take stock of which EPA chan- chants and relevant providers. In addition, other compo- nels are available for MSMRs in their country. nents of the EPA Package, e.g. Innovations in Electronic Different technologies govern how payments are exe- Payment Acceptance and Regulatory Aspects of Inter- cuted through these channels. For example, payments at mediaries in Electronic Payments Acceptance provide POS terminals increasingly support both contact and con- additional details and guidance on this point. tactless payments. Contact payments involve using a pay- Merchants generally must have an active account typ- ment card to swipe a magnetic stripe or dip a secure chip. ically but not necessarily with the acquiring PSP to offer Contactless payments are conducted using Near Field EPA. Table 4 describes the types of accounts merchants Communication (NFC). Likewise, there are various meth- typically need to accept each type of payment instrument. ods for conducting mobile-to-mobile payments. Currently, EPA stakeholders could assess the percent of MSMRs the most relevant mobile-to-mobile payment methods for that have an active account necessary for accepting each MSMRs in developing economies leverage unstructured of the payment instruments used in the country for P2B supplementary service data (USSD) or SIM toolkits (STK). merchant payments. Publicly available cross-country indi- QR code payments are also broadly distinguished by static cators are not available for assessing merchants’ access and dynamic variants. The former variant is currently more to accounts with acquirers, acceptance intermediaries, accessible to MSMRs in developing economies. and EMIs. Therefore, EPA stakeholders will need to look to existing local data sources or conduct, and extrapo- 3.1.1.2 Merchant Financial Access late from, a merchant survey to accurately assess these After assessing which types of instruments and accep- elements. tance channels are available in the country for making P2B merchant payments, EPA stakeholders could assess 3.1.1.2.2 Acceptance channel access merchant financial access, which involves evaluating mer- The second component of assessing merchant financial chants’ access to three elements: (1) financial accounts, access relates to acceptance channels. EPA stakeholders (2) acceptance channels, and (3) external financing. could assess the percent of MSMRs that are equipped to accept each type of payment instrument that is available 3.1.1.2.1 Account access in the country for making P2B merchant payments. For As a first step, EPA stakeholders could evaluate mer- additional granularity, EPA stakeholders can evaluate chant account access. A merchant account is a type of the percent of MSMRs that accept payments through business account that allows a business to accept and the primary EPA channels available in the country. As TABLE 4. Types of merchant accounts necessary for accepting electronic payment instruments Payment Instrument Type of Merchant Account Payment card Accepting card payments requires an account with a bank or non-bank acquirer or an acceptance intermediary. Acceptance intermediaries, especially payment facilitators, which are also known as payment (or merchant) aggregators, have been particularly effective in onboarding and process- ing payments on behalf of small merchants through their own merchant accounts.7 Electronic money From an EPA perspective, e-money is similar to a three-party card scheme, in the sense that the issuer and the acquirer are often one and the same. Thus, to accept e-money payments, mer- chants typically need a merchant account with an e-money issuer (EMI).8 Electronic funds transfer To accept account-to-account EFT payments, merchants need a business bank account, depend- ing on the size of the merchant and the scale of the business. All 3 instruments When there is interoperability across multiple instruments, merchants can own a transaction account provided by a bank or a non-bank to receive electronic payments. ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 9 with account access, publicly available data for assessing TABLE 5. Consumer financial access assessment acceptance channel access are limited. EPA stakeholders indicators will generally need to consult local data or conduct a mer- Payment Instrument Global Findex Indicator chant survey to accurately assess this element. Payment card Debit card ownership (% age 15+) The World Bank GPSS includes two indicators that can Credit card ownership (% age 15+) help EPA stakeholders assess acceptance channel access in a comparative context. These are POS terminals and Electronic money Mobile money account (% age 15+) merchants accepting QR code payments, both of which Electronic funds Financial institution account (% age 15+) are measured in terms of 100,000 adults. transfer However, these indicators have some limitations. First, in some cases, merchants may have more than one POS terminal, which is not captured in the data. Further, POS of payment instruments available to consumers. Table 5 terminals and QR codes are not equally relevant for all identifies the Global Findex indicators that can be used to countries. Indeed, many countries have a high concentra- assess consumer financial access. If more recent or more tion of POS terminals or merchants accepting QR code granular data are beneficial, EPA stakeholders can con- payments, but not both. Therefore, EPA stakeholders sult local data or derive these metrics from a consumer would need to judge these indicators in concert with survey. More granularity could be particularly relevant for knowledge of local payment system characteristics. e-money accounts, as Global Findex data only capture mobile money account access. 3.1.1.2.3 Access to external finance MSMRs without access to external finance often use cash 3.1.1.4 Financial Inclusion Commitment revenue to directly fund daily working capital needs to In addition to evaluating merchants’ and consumers’ lev- pay suppliers in cash. As a consequence, such MSMRs may els of financial access, it is important to assess whether perceive that receiving funds electronically, as opposed to national authorities have taken measures to promote in cash, is incompatible with their business model. If reg- financial inclusion in coordination with relevant stakehold- ulation permits (see section 3.3.2.1 for further discussion), ers. Developing and launching a National Financial Inclu- PSPs can help mitigate this barrier by providing MSMRs sion Strategy (NFIS) provides an organized approach for short-term credit in connection with EPA products and pursuing these measures. The World Bank maintains the services. NFIS resource center, which provides extensive guidance Assessing this element involves two steps. First, in and examples for EPA stakeholders looking to develop an order to gain a handle on the potential scope of this bar- NFIS (WB 2019). In addition, having a national retail pay- rier, EPA stakeholders could collect data on how mer- ments strategy has specific relevance for the EPA con- chants pay suppliers, employees, and for other operating text. The World Bank’s national retail payments strategy expenses. Second, stakeholders need to assess access to toolkit (WB 2012) provides guidance for developing such external finance among MSMRs. This could be measured a strategy. as the percent of MSMRs that have a line of credit with a PSP. If these data are not readily available at the coun- 3.1.2 Market Development try-level, EPA stakeholders can include these topics as questions in a merchant survey.9 The market development sub-category focuses on how In addition to interview approaches, the International the scale and structure of the electronic payments market Financial Corporation (IFC)’s MSME Finance Gap Data- affect EPA. base contains a variety of metrics that can help EPA stakeholders measure financial constraint among MSMEs 3.1.2.1 Scale generally and microenterprises specifically, e.g. financially The market for electronic payments is “two-sided:” con- unconstrained micro-enterprises (% of formal micro-en- sumers’ demand for conducting electronic payments terprises). Financially unconstrained microenterprises affects merchants’ demand for accepting electronic pay- “are those that do not appear to have any difficulties ments and vice versa (Rochet and Tirole 2004; Rysman accessing credit or do not need credit.”10 2009; Bounie, Francois and Van Hove 2016; Visa 2021). Limited scale can negatively affect MSMRs’ perceptions 3.1.1.3 Consumer Financial Access of the electronic payments value proposition. If electronic Consumers require access to one or more of the pay- payments are not widespread in a given market, it may ment instruments identified in section 3.1.1.1 to conduct not be clear to MSMRs why accepting electronic pay- P2B electronic payments. World Bank Global Findex data ments offers any sort of competitive advantage. Limited permit a comprehensive assessment of the primary types market scale can also harm the viability of PSPs’ business 10 • FINANCIAL INCLUSION GLOBAL INITIATIVE models. Moreover, sufficient market scale helps various ing, such as groceries and gas, as well as for small ticket payment infrastructures benefit from economies of scale purchases, such as those made at convenience stores and in messaging, clearing, and settlement (CPMI and WBG fast-food restaurants (Govil 2016). 2016). Two additional indicators are useful for measuring the In assessing market scale, EPA stakeholders are recom- market scale barrier, but they have some limitations. The mended to measure the share of retail payments made first is made digital payment in the past year from the electronically in a given economy for each type of retail World Bank Global Findex Database. The indicator rep- payment flow. While this section focuses primarily on P2B resents the percentage of adults (age 15+) in a country retail payments, electronic retail payments of all kinds can who report using mobile money, a debit or credit card, or affect market scale. The availability of a range of different a mobile phone to make a payment from an account, or use cases for electronic payments can induce both the report using the Internet to pay bills or to buy something consumers and the merchants to increase their demand online, in the past 12 months. This shows the propensity to for conducting payments electronically at the point-of- make digital payments, capturing a wide range of types sale.11 Table 7 summarizes the types of retail payments. of electronic payments. One limitation of this indicator It would be useful to further disaggregate the share of is that it does not capture magnitude, since its threshold P2B electronic payments by expenditure category, includ- involves making only one digital payment in a year. ing travel and entertainment, large-ticket purchases, The second indicator is electronic payments per capita everyday spending, small ticket purchases, and bill pay- from the World Bank GPSS. The indicator measures the ments. Research has shown that, to reach the electronic aggregate per capita number of card transactions, credit payments tipping point, it is typically necessary for con- transfers, direct debits, and e-money payments. It is a sumers to use electronic payments for everyday spend- direct measure of electronic payments volume. It comple- ments the made digital payment indicator, which does not address electronic payment market depth, in terms of the TABLE 6. Types of retail payments level and breadth of electronic payment transactions. Payee Payer Person Business Government entity 3.1.2.2 Structure Person P2P P2B P2G The structure of the electronic payments market, in terms Business B2P B2B B2G of the competitive landscape of PSPs, can affect EPA development. Market structure is a complex barrier. On Government entity G2P G2B G2G the one hand, lack of competition or diversity of PSPs P = person, B = business, G = government; note: adapted from CPMI and WBG (2016) BOX 1 COVID-19 AND ELECTRONIC PAYMENT MARKET SCALE Electronic payments have been crucial in sustaining cash more challenging. Finally, where infrastructure economic activity during the COVID-19 pandemic. permits, governments have sought to disburse pan- When measured in terms of the share of payments demic relief payments to households and businesses made electronically, COVID-19 has likely increased through electronic methods. market scale in many economies around the world Measuring the depth of the electronic payments due to at least four factors. First, merchants and market requires both the share of electronic pay- consumers appear more willing to accept and use ments and gross payments. While the former has electronic payments at the point of economic inter- likely increased for the reasons cited above, the action due to the potential health benefit of reducing latter is tied to economic activity and spending. If contact in the payment process. Second, consum- spending is down due to economic malaise owing to ers have relied more on e-commerce during the the health crisis, the depth of electronic payments pandemic, and electronic payments are a popular, market may be down as well. In general, the long- though not universal, method for settling e-com- run effects of COVID-19 on electronic payment mar- merce transactions. Third, the reduced availability of ket scale are still unclear and will likely vary from cash access points in some cases makes obtaining country to country. ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 11 can keep the price of services high, stifle innovation, and To help measure aspects of these payment infrastruc- limit incentives for providers to expand and improve the tures, the Assessment Guide proposes a series of assess- quality and efficiency of electronic payment services. ment metrics that are based on questions posed in the On the other hand, direct and indirect network external- GPSS, where relevant data are available. The construction ities and economies of scale achieved by large providers of these assessment metrics is detailed in Annex E, table can be beneficial for market development. Temporarily E.1. EPA stakeholders can utilize this system to evaluate high prices can also attract new, innovative entrants into payment infrastructures in local economies using local the electronic payments market. Thus, market structure data. needs to be judged in concert with market scale and the state of EPA uptake more generally. 3.1.3.1 Interoperability and Standardization To directly measure the structure of the market for elec- Interoperability and standardization of payment systems tronic payment services, this Guide recommends using reduce fixed costs, promote competition, and support local data to take stock of the level of market concentra- economies of scale, while improving convenience for tion among PSPs on both the acceptance and issuance payment services users (CPMI and WBG 2016). Interop- sides of the market. On the acceptance side, tracking the erability also increases the effective coverage of access share of payments value and volume processed by the points. EPA stakeholders could consider a variety of key top three acquirers in the market would be useful. Addi- infrastructure issues in evaluating interoperability and tionally, many MSMRs globally have an account with a standardization. facilitator in lieu of an account with a traditional acquirer. First, it is useful to understand the landscape of Therefore, it may also be useful to track the value and vol- interoperability arrangements from both a switch and ume of payments processed by the top three facilitators scheme perspective. Multiple switches and schemes in these instances. On the issuance side, EPA stakeholders could co-exist in a country with some being provided could track the same concentration metrics for the top by international card networks as part of their global card issuers and EMIs. processing infrastructure and others being domestic in The structure of the retail market can also greatly affect nature. Further, some might be for-profit or not-for-profit the ease with which providers can reach MSMRs with EPA and some might be consortiums or standalone institu- products and services. An excessively fragmented MSMR tions. From an assessment perspective, the methodology market can raise the cost of providing EPA services. Like- is neutral and does not consider any one type of institu- wise, EPA development is vastly different between urban tional arrangement as better than another. What needs and rural areas in many countries. To this end, it would to be assessed are: whether in aggregate there is a high be useful for EPA stakeholders to track the distribution of level of interoperability in the country; whether the mar- key merchant demographics, including retailer segment, ket is competitive; whether all the arrangements are safe, geography, formality, and size, among other factors. reliable and efficient; and whether all arrangements are Depending on data availability, size can be captured overseen effectively. through employee-based thresholds, turnover-based Focusing first on the interbank card switch, this critical thresholds, or both. Globally, employee-based thresh- element represents the technical transaction processing olds are more common for distinguishing MSMEs than infrastructure that connects payment card issuers and turnover-based thresholds (IFC 2019), due to data avail- acquirers, enabling the clearing of payment card transac- ability, but the latter may be more accurate in the EPA tions between issuing banks’ cardholders and acquiring context, especially when evaluating brick-and-mortar and banks’ merchants. As such, it plays a direct role in EPA effi- e-commerce merchants in the same assessment. Specific ciency, which in turn impacts the merchant and consumer thresholds will generally be locally tailored.12 experience and can influence their decision to use elec- tronic payments. In assessing the payments card switch, 3.1.3 Payment Infrastructures EPA stakeholders could evaluate: the presence of at least one payment card switch; supported transactions; settle- The payment infrastructures sub-category focuses on ment mechanisms; access policies; and fraud prevention. assessing the availability, safety, reliability, and efficiency The switch could either process the transactions domesti- of key infrastructures involved in the exchange of pay- cally or in an international infrastructure; and be domiciled ment information and funds. Specifically, this sub-cate- in the country or be part of the processing infrastructure gory addresses: (1) interoperability and standardization, of international card networks.13 Schemes have been crit- (2) fast payment systems (FPS), (3) automated clearing ical in facilitating interoperability, standardization, and house (ACH), and (4) real time gross settlement system the smooth functioning of EPA, particularly in the case of (RTGS). payment cards.14 A scheme, which is typically associated with a card brand, sets out the operational arrangements 12 • FINANCIAL INCLUSION GLOBAL INITIATIVE for payment card transactions. The scheme governs the development, enhancements, and legal, regulatory, and obligations of relevant parties, including cardholders, governance arrangements (World Bank 2020b, World merchants, acquirers, issuers, and other acceptance inter- Bank 2021a).17 Box 2 provides a high-level overview of the mediaries. Further, scheme rules lay out procedures for key topics addressed in the toolkit. transaction routing, clearing, settlement, chargebacks, While the FPS toolkit provides an in-depth assessment and dispute resolution, among other functions. Certain methodology for the landscape for fast payments devel- international schemes have been successful in promoting opment, this section of the Assessment Guide proposes interoperability and standardization globally. A number of some FPS assessment criteria related to FPS availabil- countries have also introduced domestic schemes to fur- ity and oversight.18 From an availability standpoint, EPA ther facilitate EPA and electronic payments usage by pro- stakeholders could assess whether: viding additional choice. In assessing this element, EPA • An FPS is operational or is being developed. stakeholders could determine whether market schemes are in place for the payment instruments available in the • The FPS applies to a wide range of payment flows, country. including P2B merchant payments. Interoperability of specific payment acceptance chan- • The FPS supports the use of aliases (e.g., phone num- nels is also important. EPA stakeholders are recommended ber, email, national ID) to verify users and/or initiate to evaluate whether regulations impose interoperability fast payments, instead of bank account numbers. standards for the acceptance channels available in the country. The Europay, Mastercard and Visa (EMV) Speci- • QR code standards are in place that enable the use of fications, which are managed by EMVCo, provide a range QR codes for fast payments at the physical point-of- of potential interoperability standards for various accep- sale and at e-merchants. tance technologies. These include standards for contact, contactless, mobile, QR codes, secure remote commerce, Further, EPA stakeholders could assess whether an FPS and 3-D secure.15, 16 Finally, it is important to evaluate infra- oversight framework is in place. Oversight criteria19 should structure dynamism and reliability. To this end, EPA stake- address: holders could evaluate whether the entities operating • Legal Basis: An FPS legal framework should delineate interoperability arrangements periodically introduce inno- the rights and obligations of FPS participants, establish vations and promotions to advance electronic payments. clear rules on payment finality, establish risk-based and Further, it is useful to examine whether interoperability proportional market integrity standards, ensure finan- arrangements are considered robust, through metrics cial consumer protection standards are in place, and such as the rates of downtime and transaction failures. provide for data privacy and integrity. 3.1.3.2 Fast Payment Systems • Governance: The FPS should have transparent, inclu- Fast payment systems (FPS) are those retail payment sys- sive, and effective governance arrangements that pro- tems that enable “the transmission of the payment mes- mote safety and efficiency. sage and the availability of final funds to the payee…in • Risk Management: Standards should compel relevant real time or near-real time” and around the clock (CPMI stakeholders to identify, measure, monitor, and man- 2016: 1). Fast payments are attractive to payees, includ- age risks that arise in or are borne by the FPS. Key risks ing merchants, due to their settlement speed and instant to address include legal, credit, liquidity, operational, availability of funds. These properties can potentially help fraud, and reputational risks. merchants better manage cash flows and reduce reliance on expensive short-term financing to close working cap- • Financial Consumer Protection: FPS-related financial ital gaps. consumer protection standards, including dispute res- Of the 114 respondents to the GPSS, 49 indicate that an olution and complaints handling mechanisms, should FPS is operational in their country, and another 50 indi- be robust.20 cate than an FPS is being planned in the next three years • Efficiency and Effectiveness: The FPS should enable (World Bank 2020c). More recent research indicates that competition between PSPs and promote accessibility, over 60 countries have implemented an FPS (World Bank useability, predictability, and scalability. 2020b). National authorities, FPS operators, and FPS par- ticipants need to ensure that the rapid adoption of FPS 3.1.3.3 Automated Clearing House is met with appropriate safeguards and risk management An ACH serves as a processing hub for interbank transac- standards. tions and plays an important role in clearing and netting The World Bank’s forthcoming FPS toolkit proposes large volume, often low value payments. An ACH gen- FPS assessment approaches and offers guidance for FPS ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 13 BOX 2 OVERVIEW OF THE WORLD BANK FAST PAYMENT SYSTEMS TOOLKIT The World Bank has developed an FPS toolkit that MODULE 3: Customer needs—Covers an assessment includes four primary modules (World Bank 2020b, of customer requirements and determining payment World Bank 2021a). The modules and underlying instruments, payment types, use cases and access topics are outlined below. channels with the goal of driving user uptake. Key Module 3 topics include: MODULE 1: FPS structure—Covers an assessment of FPS objectives and developing structural and pricing Overlay Services and Aliases • components in order to drive collaboration and inno- ayment Instruments, Payment Types • P vation of the system. Key Module 1 topics include: Supported, and Use Cases and Services Motivations for FPS • • Access Channels takeholder Ecosystem and Approach to Setting • S • User Uptake up FPS MODULE 4: Legal and regulatory considerations— Funding and Pricing • Covers an assessment of governance requirements MODULE 2: Technology specifications—Covers an and deciding legal and regulatory frameworks, assessment of technology and designing technical risk management practices and dispute resolution specifications and system development compo- mechanisms in order to enhance safety and security. nents to achieve interoperability. Key Module 2 top- Key Module 4 topics include: ics include: egal, Regulatory, and Governance Consider- • L • Options for System Development ations • T echnical Specifications (including messaging isk Management (including liquidity and settle- • R format, customer authentication, APIs) ment risk, operational and fraud risk, and cyber resilience) • Connectivity Dispute Resolution and Customer Complaints • Clearing and Settlement • • Interoperability erally focuses on EFT-based payments. As discussed in payments (CPMI and WBG 2016).21 When assessing the section 2.1.1, account-to-account EFT-based payments are RTGS within the context of EPA, stakeholders could eval- becoming more common for making P2B merchant pay- uate RTGS usage and access policies. ments. Further, EFT-based payments are important for digitizing other aspects of merchants’ business models, 3.1.4 Other Financial and ICT Infrastructures such as salary, utility, and rent payments. Digitizing these operating expenses can make merchants more willing to This sub-category focuses on the financial and ICT infra- accept electronic payments. In assessing ACH infrastruc- structures that are not directly related to payments clear- tures, the following elements are important: ACH availabil- ing and settlement but are nevertheless important for ity, settlement risk management and controls, settlement efficient and cost-effective EPA. The sub-category com- frequency, access policies, and settlement mechanisms. prises five elements: (1) telecommunications, (2) identi- fication, (3) credit reporting systems, (4) access points, 3.1.3.4 Real Time Gross Settlement System and (5) e-commerce readiness. An RTGS is a large-value interbank settlement system. Though it is not frequently used directly in clearing retail 3.1.4.1 Telecommunications payments, an RTGS serves as a critical foundation for effi- POS terminals and mobile acceptance platforms neces- cient settlement processes. Indeed, in many countries, sary for EPA depend on stable connectivity. Likewise, crit- final settlement of net positions in switch and ACH infra- ical functions, such as authorization, clearing, and funds structures takes place through an RTGS. Thus, an RTGS receipt require consistent access to necessary networks. contributes to the safe and efficient settlement of retail Thus, poor telecommunications infrastructure can hinder 14 • FINANCIAL INCLUSION GLOBAL INITIATIVE EPA. In assessing how telecommunications affect EPA, 3.1.4.3 Credit Reporting Systems stakeholders would need to evaluate whether the degree Credit report systems are important for helping PSPs of connectivity, network coverage and access are inter- assess the credit and fraud risk of potential clients. Credit fering with the functioning of the EPA platforms, such reporting system deficiencies can lessen PSPs’ confi- as POS terminals and mobile acceptance technology, or dence in seeking new merchant customers. In assessing impeding other critical functions, such as authorization, the credit reporting systems barrier, EPA stakeholders clearing, settlement, and receipt of funds. could examine whether the quality or coverage of credit Two publicly available composite indicators are useful reporting systems is preventing PSPs from obtaining new for measuring the telecommunications barrier. The first merchant and consumer customers. includes the access and use sub-indices of the Interna- If local data are available, it would be useful to track tional Telecommunication Union (ITU)’s ICT Development the percent of MSMRs or MSMEs that are covered by a Index. The access sub-index contains five indicators: fixed credit reporting service provider (CRSP). Among CRSPs, telephone subscriptions, mobile-cellular subscriptions, commercial credit reporting companies are active in the international Internet bandwidth per Internet user, house- MSME credit reporting space (World Bank 2014). Global holds with a computer, and households with internet data on credit reporting coverage of MSMEs are limited. access (ITU 2017: 26). The use sub-index includes three Even at the local level, it can be challenging to obtain an indicators: individuals using the Internet, fixed-broadband accurate estimate of the percent of MSMEs covered by subscriptions, and mobile broadband subscriptions (ITU CRSPs, as MSMEs often avoid formally registering in many 2017: 26). economies. The second indicator is the infrastructure component of GSMA’s Mobile Connectivity Index (MCI). The infra- 3.1.4.4 Access Points structure component is made up of a range of indicators Consumers’ take-up of non-cash financial instruments is addressing mobile network coverage, mobile network per- sensitive to access point coverage (CPMI and WBG 2016). formance, spectrum, and other enabling infrastructures.22 Limited access points bolster cash-centric environments by reducing the probability that electronic payment meth- 3.1.4.2 Identification ods are adopted. EPA stakeholders could assess whether Limited identification coverage prevents PSPs from accu- access point coverage deters consumers from adopting rately authenticating or verifying potential customers’ electronic payment methods. identities. When merchants or consumers do not have There are at least three indicators that are useful for requisite identification, PSPs are often unable to com- assessing access points that are publicly available as part ply with Know Your Customer (KYC) requirements, and of the IMF’s Financial Access Survey (FAS). Each is a direct they may forgo serving segments without identification. measure of different types of access points in a country. Thus, identification constraints can affect both consum- These are the number of ATMs, branches of commercial ers’ and merchants’ ability to obtain the accounts that are banks, and mobile money agents per 100,000 adults. necessary to engage in electronic payments. In assessing It is important to emphasize that certain types of access identification coverage as a barrier to EPA, it is important points may have differing levels of importance for various to investigate whether lack of identification is prevent- economies. For example, in some countries either bank ing merchants from obtaining accounts with acquirers, branches or agents are prevalent but not both. Therefore, acceptance intermediaries, or EMIs and consumers from the access points element needs to be judged within the obtaining electronic payment instruments. context of local digital financial services ecosystems. If data are available, EPA stakeholders could track the percent of MSMRs or MSMEs that have a business identi- 3.1.4.5 E-Commerce Readiness fication. As a supplement, the indicator, percent of popu- E-commerce refers to buying and selling goods and ser- lation unregistered, from the World Bank’s ID4D dataset, vices over computer networks (OECD 2011, UNCTAD which measures the share of a country’s population with- 2015). Once the domain of large retailers, MSMRs are out an ID, is a sound measure of identification coverage increasingly adopting e-commerce methods, either by for consumers and a good proxy for identification cov- setting up their own websites or by plugging into exist- erage among MSMRs. Some MSMRs likely use personal ing online marketplaces.23 E-commerce payments often identification for business management purposes. The occur electronically, and purchases are often delivered identification coverage indicator can be paired with indi- physically by a parcel carrier, but neither of these are uni- cators measuring financial access among merchants and versal characteristics of e-commerce. In many developing consumers to gain a more comprehensive understanding economies, cash-on-delivery is a very popular e-com- of this barrier. merce payment method. Additionally, many digital goods (e.g., books, music, videos) and services can be delivered ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 15 online. Alternatively, buyers can pick up purchases at must have their own e-commerce website. This can be retailers or at other locations, such as a designated locker. accomplished by adding an online shopping functional- This Guide does not focus on comprehensively diag- ity to an existing website or developing an online store nosing the range of barriers to e-commerce readiness. from the ground up. Both of these options can typically Successful e-commerce ecosystems require a variety of be accomplished with the help of third-party software important inputs, such as marketing and order fulfillment or developers. To gauge how many merchants are sell- mechanisms, that are beyond the Guide’s scope of focus ing directly online, as a third indicator, EPA stakeholders on EPA. However, it is worth emphasizing that many of could track the number of e-commerce websites in their the EPA barriers discussed throughout the Guide, such economy, if such data are available. as financial access, financial and ICT infrastructures, and Fourth, EPA stakeholders could evaluate e-commerce cash cultures are highly relevant for e-commerce. Like- payment acceptance mechanisms. If data are available, it wise, diagnosing barriers to electronic payments accep- would be useful to track the share of e-commerce pay- tance and usage, the core focus of this Guide, is critical to ments processed by online marketplaces, by third-party developing a successful e-commerce ecosystem. payments processors, and through e-commerce payment E-commerce has been important during the COVID- gateways, as well as the share of e-commerce payments 19 pandemic, as the health crisis has reduced foot traffic made via cash-on-delivery. These data are particularly rel- at brick-and-mortar retailers. In recognition of this, the evant for understanding patterns of EPA in the e-com- World Bank released a discussion note in 2020 (World merce context.25 Bank 2020a) entitled, “Embedding Digital Finance in Finally, it is important to evaluate how the state of e-Commerce Platforms during the COVID-19 Pandemic.” information security affects e-commerce readiness. EPA stakeholders looking to advance e-commerce read- E-commerce transactions are often riskier than typical iness could consider the emerging good practices out- retail transactions. In some economies where the risk of lined in the note for a more in-depth analysis. cybercrime is high, issuers may even default to declin- The Guide recommends that EPA stakeholders eval- ing e-commerce transactions. In these cases, consum- uate some basic issues and data related to merchants’ ers must proactively authorize e-commerce transactions ability to sell goods and accept payments online. First, to prior to carrying them out. EPA stakeholders can gauge examine general e-commerce readiness in a given country, how risky e-commerce transactions are by taking stock stakeholders can consult the United Nations Conference of the frequency of cybercrime incidents in a country per on Trade and Development (UNCTAD)’s B2C E-commerce month. Relatedly, it would be helpful to assess whether Index, which “measures an economy’s preparedness to cybercrime legislation is in place. support online shopping” (UNCTAD 2019, 1). The index is an average of four indicators: account ownership from 3.1.5 Education and Perceptions the World Bank Global Findex database; individuals using The education and perceptions sub-category focuses on the internet from ITU; the postal reliability index from the the financial capability and cash culture elements that Universal Postal Union; and secure internet servers from create frictions for EPA. Netcraft (UNCTAD 2019).24 Second, EPA stakeholders could evaluate whether 3.1.5.1 Financial Capability merchants have access to international, regional, or local Low financial capability can impede EPA to the extent third-party online marketplaces. Access to such platforms that MSMRs and consumers lack a framework for thor- can dramatically lower barriers to e-commerce entry for oughly evaluating the tradeoffs between cash and elec- MSMRs. In addition to providing basic e-commerce infra- tronic payments. For MSMRs, EPA costs are visible and structure and access to a pool of potential buyers, third- frequently immediate, while the costs of cash are often party online marketplaces often offer other services and hidden. Limited financial capability can prevent mer- benefits, including: marketing, payment processing, order chants from thoroughly evaluating the incremental gains fulfillment, shipping, delivery, and customer service. How- that could be achieved with EPA, such as increased rev- ever, MSMRs in developing economies face asymmetric enue and efficiency gains (e.g., time saving, inventory access to these platforms. If local data are available, EPA management). Among individuals, limited understanding stakeholders could evaluate MSMRs’ access to third-party of the benefits of electronic payments or of how to use online marketplaces by tracking the number of merchants payment instruments can lead to neglect or incomplete that are registered as sellers on these platforms. usage of electronic instruments, such as using debit cards A web-presence is a prerequisite for engaging in for cash-out purposes only. Additionally, a lack of com- e-commerce. Therefore, if merchants cannot register as mitment from policymakers to improve financial capabil- sellers on a third-party online marketplace, they typically ity will contribute to the persistence of these deficiencies. 16 • FINANCIAL INCLUSION GLOBAL INITIATIVE In assessing the financial capability barrier, EPA stake- cash only (as a percent of those who paid utility bills). The holders could evaluate whether low financial capabil- second indicator is received wages in cash only (as a per- ity among consumers and merchants is hindering their cent of those receiving wages).These indicators present willingness to engage in electronic payments. The per- measures of cash prevalence in two common payment cent of adults who are financially literate from the S&P settings, one with individuals as the payer and the other Global Financial Literacy Survey can help measure finan- with individuals as the payee. cial capability in a country, though the survey does not address all issues central to electronic payments. The S&P Global Financial Literacy Survey evaluates adults’ 3.2 ECONOMICS OF EPA financial literacy in four areas: risk diversification, numer- acy, inflation, and interest compounding.26 A respondent The economics of EPA category highlights the factors is defined as “financially literate” if they address three of that most directly affect the supply of and demand for the four topics correctly. The merchant and household EPA, by focusing on incremental gains from EPA, the interview guides contained in Annexes A and C, respec- costs and risks faced by MSMRs and providers, and the tively, provide EPA stakeholders with topical guidance influence of consumer behavior. The category comprises for evaluating the financial capability barrier in interview three policy sub-categories: (1) acceptance benefits and settings. On the merchant side, the interview guide sug- costs, (2) provider costs and risks, and (3) consumer gests investigating merchants’ preferred payment types, behavior. Table 12 presents the EPA assessment ele- reasons for preferring certain payment types, reasons ments associated with each of the economics of EPA for not accepting payment types, and considerations of policy sub-categories. the indirect costs of cash, among other topics. On the The economics of EPA should be understood within household side, the interview guides recommend inves- the context of the two-sided market that characterizes tigating awareness of electronic payment products and electronic payments. Rochet and Tirole define such mar- services, confidence in electronic payment instrument kets as those in which “one or several platforms enable usage, evaluation of the tradeoffs between carrying cash interactions between end-users, and try to get the two and using electronic payments, and access to financial (or multiple) sides ‘on board’ by appropriately charging education resources. While these guides are provided as each side” (Rochet and Tirole 2004: 2). In the present a guidance for focus groups or IDIs, similar questions can context, PSPs and payment system operators (PSOs) be adopted in household or merchant surveys for col- must work to bring consumers and merchants together lecting quantitative data. in a network, and both sides gain from greater participa- EPA stakeholders could further consider whether pub- tion by the other. Indeed, merchants’ demand for accept- lic and private actors are committed to enhancing finan- ing electronic payments depends on consumers’ demand cial capability. To evaluate this, stakeholders can construct for using electronic payments and vice versa (Rysman a financial capability commitment score, which measures 2009; Bounie, Francois and Van Hove 2016; Visa 2021). whether a financial capability strategy has been launched Thus, the economics of EPA are complex. Pricing, in par- or is in development and whether a dedicated, national, ticular, involves a multidimensional set of considerations multi-stakeholder structure exists to promote and coor- and must strike the right balance of incentives between dinate financial education. Annex E (table E.4) proposes issuance and acceptance PSPs in order to create value a methodology for the financial capability commitment for consumers and merchants and support a competitive score, based on questions in the World Bank’s FICP survey. marketplace. 3.1.5.2 Cash Culture TABLE 7. Economics of EPA assessment elements A cash-centric ecosystem can indirectly impede the Policy sub-category Assessment element usage and acceptance of electronic P2B payments. If cash is predominant for paying utilities, receiving wages, and Acceptance Revenue gains from EPA adoption benefits and Relative costs of EPA and cash acceptance other payments outside of the merchant realm, it is more costs likely to be used for P2B merchant payments. Beyond Tax liability access and convenience issues addressed elsewhere in Provider costs Customer acquisition and service costs the Assessment Guide, markets and societies may be and risks Subsidization more inclined to cash use for a variety of cultural, reli- Customer loss, fraud, and cybersecurity gious, trust, and other institutional reasons.27 Incentives and innovation Two indicators from the World Bank’s Global Findex Consumer Digital usage database are useful for assessing the centrality of cash behavior Ticket value in a country. The first indicator is paid utility bills using ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 17 3.2.1 Acceptance Benefits and Costs Estimating revenue gains from EPA adoption at the merchant-level could be accomplished through two gen- Evaluating electronic payment acceptance benefits and eral methods: (1) a discontinuity-based approach or (2) costs is an important aspect of an EPA assessment. This a comparative approach. With good data, the former is sub-category involves assessing: (1) revenue gains from more reliable, but it is likely more difficult to implement. EPA adoption, (2) the relative costs of EPA and cash Therefore, the comparative approach will often be a more acceptance, and (3) tax liabilities. Sections 3.1.1-3.1.3 dis- practical alternative. These methods are discussed further cuss these elements’ relevance for EPA and assessment below. Both would likely require merchant surveys. approaches. Section 3.1.4 summarizes the assessment approaches. Publicly available data are limited for assess- • Discontinuity-based approach: This involves comparing ing acceptance benefits and costs. As discussed through- merchants’ revenue before and after adopting EPA.28 If out these sections, a merchant survey is likely necessary revenue history is available, it could be recorded before to develop relevant assessment metrics. Annex A recom- adoption and after adoption. Otherwise, a survey could mends approaches for merchant-centric interviews. If sur- ask merchants to estimate the effects of EPA adoption veys are representative, the results can be extrapolated to from the various revenue sources discussed above. The the larger economy or for segments of merchants. dynamic component to this approach could be difficult to implement in a survey context. Further, since mer- 3.2.1.1 Revenue Gains from EPA Adoption chants in a given economy have likely adopted EPA at Revenue gains are a potentially significant benefit of EPA different times, the approach would require appropri- adoption for merchants (Adhikary et al. 2021; WBG and ately normalizing data. WEF 2016; Visa 2021). They come from a variety of poten- • Comparative approach: The comparative approach to tial sources. First, by accepting electronic payments, estimating revenue gains involves measuring the differ- merchants can gain new customers who primarily or ence in revenue between merchants who have adopted exclusively use electronic payments. Additionally, though EPA and those who have not but are otherwise similar. not required for e-commerce in all economies, EPA sig- If a survey captures revenue data, EPA status, and a nificantly facilitates e-commerce. If merchants choose to range of business demographics, such as size, loca- participate in e-commerce, they can bring online shoppers tion, and retailer segment, it is fairly straightforward to into their customer base. Revenue gains can also derive implement the comparative approach through statisti- from more frequent purchases by customers or larger cal methods by evaluating the impact of EPA on reve- ticket sizes. Further, PSPs often bundle value-added ser- nue, while controlling for appropriate factors. vices, such as revenue generating services, client relation- ship management solutions, or credit, with EPA products 3.2.1.2 Relative Costs of EPA and Cash Acceptance and services. These value-added services can enable mer- Assessing the relative costs of EPA and cash acceptance chants to expand their business, attract new customers, allows EPA stakeholders to simultaneously evaluate some and enhance the loyalty of existing customers. key elements that could be holding merchants back from BOX 3 SUSTAINING REVENUE DURING COVID-19 THROUGH EPA Electronic payments have been important for sup- Merchants who have lost revenue due to reduced porting merchant sales during the COVID-19 pan- foot traffic are better able to recoup some of these demic. Merchants who have adopted EPA are more losses through the combination of EPA and e-com- likely to sustain revenue during the crisis than those merce. Finally, cash access points may be operating who have not for a few key reasons. First, for brick- at a reduced capacity. Therefore, merchants who and-mortar retailers, maintaining an EPA channel rely more heavily on electronic payments for var- gives consumers who would prefer to reduce con- ious payment flows (ie, P2B, B2P, B2B) likely face tact in the payment process a reliable way to make fewer business model disruptions. Likewise, EPA- purchases. Second, though not necessary for e-com- equipped merchants are better able to serve cus- merce, electronic payments facilitate e-commerce. tomers who have reduced access to cash. 18 • FINANCIAL INCLUSION GLOBAL INITIATIVE adopting EPA, while also measuring the incremental for consumers and merchants in these alternative con- savings from EPA over cash. The methodology outlined texts. Though the Assessment Guide focuses on relative below is adapted from the World Bank’s Guide for Mea- costs from the perspective of merchants as payees, EPA suring Retail Payment Costs (“Cost methodology”) (WBG stakeholders may also find it useful to leverage the Cost 2016b). Specifically, it draws in the most relevant elements methodology to study relative costs in other contexts. from the Cost methodology for merchants as payees. As In assessing the relative costs of EPA and cash accep- with assessing revenue gains, measuring relative costs tance, time costs, logistic costs, infrastructure costs, likely requires deploying a merchant survey. damage costs, service costs, and cost of funds for both Importantly, the Cost methodology facilitates studying EPA and cash acceptance need to be measured as well the cost of various payment methods for consumers and as differences between them. Table 8 outlines these cost for merchants as payers. The incremental savings of elec- categories, their constituent elements, and how the Cost tronic payments over cash payments are likely significant methodology proposes measuring them.29 TABLE 8. Retail payment costs and calculation approaches Cost category Cost element Cost calculation approach Definitions Time costs Waiting time Wage per minute in currency The amount of time merchants’ customers typically stand in line to unit + Time in minutes + make a purchase. Waiting time will generally be higher with cash number of transactions per acceptance. However, some electronic payment methods, espe- annum cially customer-initiated methods that require entering account numbers and payment totals, can extend waiting time. Transaction Wage per minute in currency The amount of direct interaction time between a merchant and a time unit + Time in minutes + payer or between the merchant’s EPA mechanism and the payer. number of transactions per Transaction time will generally be higher with cash acceptance. How- annum ever, as with waiting time, some electronic payment methods, such as customer-initiated methods that require entering account num- bers and payment totals, are comparable to or take more time than cash transactions. Reconcilia- Wage per minute in currency The amount of time a merchant spends reconciling payments with tion time unit + Time in minutes + receipts. Reconciliation time will generally be higher with cash accep- number of business days tance. Operations Wage per minute in currency Typical elements include the amount of time preparing and closing time unit + Time in minutes + cash registers, preparing cash revenue for deposit, installing and number of business days maintaining EPA tools, and handling exceptions (e.g., chargebacks, counterfeit notes). Operations time will generally be higher with cash acceptance. Labor cost should be used as a proxy for the opportunity cost of time. For practical purposes, the national minimum wage could serve as a labor cost proxy. Logistic Travel costs (Distance in linear dimension The distance traveled to deposit cash revenues. Travel costs will costs unit + mileage allowance) + generally be higher with cash acceptance. After evaluating mer- 2 (directions) + number of chants’ typical travel patterns, assessors can use official mileage transactions per annum allowances as a good proxy for the monetary value of such costs. Communica- Costs in currency unit (per Primarily data transmission costs. These include the cost of internet tion costs transaction) + number of connectivity, mobile data, or fixed telephone lines. Communication transactions per annum costs will generally be higher with EPA. After taking stock of which communication costs merchants incur, assessors could use country averages to quantify these costs. Infrastruc- Deprecation Costs in currency unit (per Includes depreciation expenses of acceptance hardware, such as ture costs costs period) + number of periods POS terminals, and cash registers. The relative intensity of depre- per annum ciation costs between EPA and cash acceptance will be context dependent. For example, while depreciation associated with a tra- ditional POS terminal is non-trivial, depreciation could be small or negligible for other EPA mechanisms (e.g., a QR code print out). Maintenance Costs in currency unit (per Cost of maintaining acceptance tools, such as cash registers and costs period) + number of periods EPA mechanisms, and ensuring they function on an ongoing basis. per annum Maintenance costs are likely to be higher for EPA, as electronic pay- ments are more technology-intensive. continued ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 19 TABLE 8, continued Cost category Cost element Cost calculation approach Definitions Damage Error costs Costs in currency unit (for the Losses due to discrepancies between cash or merchant account costs last month) + 12 (months) balances and sales receipts. Error costs are typically higher with cash acceptance. However, certain electronic payment mecha- nisms, especially customer-initiated methods that require entering account numbers and payment totals, are also quite error prone. Theft costs Costs in currency unit (for the Losses due to the extraction of merchant funds without consent. last month) + 12 (months) Theft can be from internal or external sources. Theft costs are gen- erally more associated with cash acceptance. They can be mitigated by insurance. Damage Fraud costs Costs in currency unit (per Losses of various forms due to the misrepresentation of identities, costs, period) + number of periods transaction details, payment methods, and other factors. The rela- continued per annum tive intensity of fraud costs is context dependent. They can be mit- igated by insurance or fraud protection services. Insurance Costs in currency unit (per Premiums paid against losses associated with various acceptance costs period) + number of periods methods. Insurance costs are typically higher for merchants who per annum maintain a significant amount of cash on hand or are more prone to fraudulent transactions. Service Periodic Costs in currency unit (per Periodic fees: Fees for services and infrastructure components. Peri- costs fees period) + number of periods odic fees include deposit fees for cash revenues. They also include per annum the cost of acquiring technology necessary for EPA. For card pay- ments, this often involves the cost of a POS terminal. The physical infrastructure required for accepting mobile money, QR code pay- ments, or cards via mPOS is fairly minimal, but merchants typically need a device to confirm payment receipt on their end, such as a mobile phone, smartphone, computer, or a POS terminal that is inte- grated with these alternative payment methods. Per Costs in currency unit + Fees that occur any time a merchant accepts payment. Per trans- transaction number of transactions per action fees are primarily the transaction fees merchants pay to fees annum PSPs. One type of fee is the merchant discount rate (MDR) that or merchants pay to bank and nonbank acquirers. The MDR is usu- ally a fixed fee and/or a percentage of the value of an electronic Percentage + average value payment transaction. Similar to MDR, MSMRs that have an account (per transaction) + number of with an acceptance intermediary, such as a payment facilitator, transactions per annum instead of an acquirer, pay merchant fees. It is important to note that fees often differ by processing type (e.g., card-present, man- ual key-in, card on file, etc.), payment amount, merchant type, payment instrument, and scheme/switch. They are typically higher for transactions that present greater risk of fraud and loss. For example, card-present transactions are generally lower risk than card-not-present transactions. Cost of Holding Amount of average cash Interest forgone from not holding funds in an interest-bearing funds costs and e-money holding + account. Holding costs are typically more associated with cash average interest rate for sight acceptance. deposits per annum Float costs Time between debiting Interest forgone during the settlement period, the time between payment initiation by payer when the payment is made and when the funds are available to the and the credit date of the merchant. Float costs are associated with EPA. amount + average interest rate for sight deposits per annum Source: WBG (2016b) 20 • FINANCIAL INCLUSION GLOBAL INITIATIVE The cost of EPA should ideally be broken down by rel- evasion is based on experts’ assessment of the relevant evant payment instrument and/or acceptance channel, topic on a scale from 0-4. In this case, 0 and 4 repre- as the cost of EPA will vary based on these dimensions. sent weak and strong perceived ability of public admin- Relevant payment instruments and acceptance channels istrators to limit tax evasion, respectively. As such, the are identified in section 3.1.1.1. Breaking EPA down into its indicator is subjective and is an indirect measure of the constituent elements can be complicated, yet there are severity of tax evasion in a country. Figure 20 depicts the legitimate differences in payment approaches that affect mean level of this indicator at the global, income group, cost. For example, a card payment can often be made at and regional levels. The indicator covers 64 percent of a POS terminal by swiping a magnetic stripe, dipping an global economies. EMV chip, and, increasingly, tapping through NFC tech- Relatedly, low levels of transparency and/or high lev- nology. Among these, time costs are likely to be lowest els of corruption can perpetuate tax evasion and harm for NFC-based payments. There are similar tradeoffs in MSMRs’ confidence in the tax system. As a complement variations on other payment methods—for example, with to the IPD tax evasion indicator, EPA stakeholders may static and dynamic QR code payments. Moreover, some find it useful to gauge corruption levels. Useful indica- subtleties may be imperceptible to merchants at the point tors in this regard include the percent of firms identifying of interaction. For example, the source of funds for a QR corruption as a major constraint from the World Bank code payment could be a bank account, a payment card, Enterprise Surveys and the control of corruption indica- or e-money. tor from the Worldwide Governance Indicators. 3.2.1.3 Tax Liability 3.2.2 Provider Costs and Risks The potential tax liability merchants face from accepting The provider costs and risks sub-category addresses electronic payments is a complicated EPA barrier and is select economic impediments that PSPs face in providing closely related to the size of informal economy. Cash’s electronic payment products and services to merchants limited traceability allows merchants in many jurisdic- and consumers, focusing on: (1) customer acquisition and tions to forgo reporting earnings to revenue authori- service costs, (2) hardware and fee subsidization, (3) cus- ties. The tax liability that could result from migrating to tomer fraud, loss, and cybersecurity, and (4) incentives a traceable payment form deters many merchants from and innovation. engaging in EPA. Direct measures of provider costs and risks are limited. The most direct way to examine the role of the tax This is an area where the qualitative approach can be very liability in governing EPA decisions is to interview mer- useful. The provider interview guide (see: Annex B) rec- chants about this issue. The merchant interview guide ommends a variety of topical areas EPA stakeholders can (see: Annex A) suggests that Guide users explore the incorporate in interviews with providers to better assess deterrent effect of the tax liability on EPA decisions and the costs and risk they face. In addition to addressing the how tax rates and compliance burdens have changed specific costs discussed above, the interview guide rec- among those merchants who have adopted EPA. ommends evaluating a range of other factors that could There are two publicly available indicators that are hinder providers’ ability to obtain and serve merchant useful for measuring the tax liability barrier. The first and consumer clients, such as merchant engagement, indicator can help EPA stakeholders gain a handle on physical, financial, and ICT infrastructures, data sharing the scale of the issue. As discussed above, the tax lia- platforms, electronic payments market scale, legal and bility barrier is closely linked to the level of informality regulatory ambiguity, and KYC compliance, among other in a given economy. Indeed, one of the primary motiva- issues. Annex B also addresses costs and risks faced by tions for remaining informal is to evade taxes. To mea- payment system operators (PSOs). sure informality, the Guide proposes to use the multiple indicators multiple causes (MIMIC) measure of the infor- 3.2.2.1 Customer Acquisition and Service Costs mal economy. This indirect method of estimating the size Bank acquirers, nonbank acquirers, acceptance inter- of the informal economy was developed by Schneider, mediaries, and EMIs face customer acquisition and cus- Buehn, and Montenegro (2010) and updated by Elgin et tomer service costs that can pose barriers to obtaining al. (2021) through 2018. It uses six cause variables and MSMR clients. Select costs include sales and marketing, three indicators to estimate informality.30 The second setup, onboarding, and servicing. These costs are gener- indicator addresses a state’s capacity to address tax ally higher for remote and hard to reach clients. Though evasion. The indicator is, ability to limit tax evasion, from acceptance-focused providers can leverage certain the Institutional Profile Database (IPD), which measures technologies for reach, human interaction for guidance, perceptions regarding a government’s ability to limit tax support, and coaching is important for small merchant evasion.31 As with all IPD indicators, the ability to limit tax ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 21 acquisition. Card issuers and EMIs face similar customer 3.2.3 Consumer Behavior acquisition and service costs in obtaining consumer cus- tomers. To evaluate the extent of these costs, EPA stake- The consumer behavior sub-category focuses consum- holders could work with local PSPs to track the level and ers’ propensity to use electronic instruments for P2B trend in sales and marketing, setup, onboarding, and ser- merchant payments. As discussed in the introduction vicing costs. to section 3, the market for electronic payments is two- sided. Therefore, consumers’ propensity to use electronic 3.2.2.2 Subsidization instruments for P2B payments will affect merchants’ PSPs may subsidize acceptance technology and/or fees demand for EPA (Rochet and Tirole 2004; Bounie, Fran- for a period of time in select markets in order to reach cois and Van Hove 2016; Visa 2021). scale. For example, PSPs may subsidize traditional POS Consumer behavior can be assessed through an indi- terminals, mPOS, and other mobile acceptance technol- cator derived from World Bank Global Findex data, made ogies for merchants. On the fee side, PSPs may subsidize digital payment as a percent of account holders. The MDR, transaction fees, or interchange fees for limited denominator for this indicator differs from the indicator periods of time. It is important to emphasize that while employed for the market scale barrier, which is the per- fee subsidization may be a short-term solution, it is not cent of the adult population (see: 2.2.1). The denominator viable in the long run. EPA stakeholders could track adjustment allows for a more direct measure of digital whether and to what extent PSPs subsidize acceptance payments usage. Additionally, the merchant (see: Annex technology and fees. A) and household (see: Annex C) interview guides recom- mend interview approaches for assessing this element. 3.2.2.3 Customer Loss, Fraud, and Cybersecurity The merchant interview guide suggests asking merchants PSPs on the acceptance side of the market often bear the about daily customer traffic, customers’ preferred meth- cost of loss and fraud among their MSMR clients. A com- ods of payment, and whether merchants consider cus- mon barrier to merchant acquisition revolves around mer- tomers’ transaction behavior in evaluating EPA options. chants’ ability to remain compliant with the Payment Card The household interview guide recommends asking con- Industry Data Security Standard (PCI-DSS) and protect sumers about their preferred methods of payment, rea- the integrity of transactions. Further, issuers’ perceptions sons for preferring certain payment methods, types of of merchants’ risk profiles can deter them from approv- payment instruments accepted at their local retail estab- ing transactions for MSMRs, especially in the case of lishments, and their experience with merchants’ payment e-commerce. Similarly, an increasingly important cost for preferences, among other topics. Table 16 summarizes an PSPs on both sides of the market revolves around cyber- approach for assessing consumer behavior. security. Providers bear the ongoing costs of protecting It is important to highlight that the COVID-19 pandemic electronic payment systems against security breaches, has likely affected consumers’ payment preferences in including financial misappropriation, system disruption, many markets, due to the potential health benefits of and data corruption and appropriation. It is recommended reducing contact in the payment process, increasing reli- to track the risk of loss and fraud through local indicators, ance on e-commerce, and reduced operations of cash such as fraud to sales ratios, chargebacks as a percent of access points. EPA stakeholders could consider gener- sales, and the MSMR failure rate, if such data are available. ating new data through interview approaches to assess Likewise, stakeholders could assess the average level of how COVID-19 has affected consumer behavior in their resources providers allocate to ensuring cyber resilience. local markets. 3.2.2.4 Incentives and Innovation PSPs on the acceptance side of the market often offer 3.3 LEGAL, REGULATORY AND OVERSIGHT value-added services, such as credit, productivity solu- tions, client relationship management solutions, and rev- The legal, regulatory and oversight category focuses on enue generating services to merchants to incentivize EPA the aspects of a country’s laws, regulations, and oversight uptake. Further, PSPs on both the acceptance and issu- framework that have implications for EPA. The category ance sides of the markets often have loyalty rewards pro- comprises three policy sub-categories: (1) legal and reg- grams to incentivize usage. PSPs must also continually ulatory (general), (2) legal and regulatory (financial), and invest in new products and services to reach unserved (3) payment system oversight. Table 17 presents the EPA segments and improve customer service among existing assessment elements associated with each of the legal, customers. EPA stakeholders could work with PSPs to regulatory, and oversight policy sub-categories. track the level and trend in the cost of value-added ser- vices and product innovations. 22 • FINANCIAL INCLUSION GLOBAL INITIATIVE 3.3.1 Legal and Regulatory: General The publicly available indicator, a country’s percentile rank for Rule of Law from the Worldwide Governance This sub-category focuses on the general characteristics Indicators can be used to measure the strength of a coun- of a country’s legal and regulatory environment that can try’s contractual relations and enforceability framework. influence merchants’ and providers’ willingness to partici- The Rule of Law indicator “captures perceptions of the pate in the electronic payments market. The sub-category extent to which agents have confidence in and abide by comprises two elements: (1) soundness and predictability the rules of society, and in particular the quality of con- and (2) contractual relations and enforceability. tract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence” 3.3.1.1 Soundness and Predictability (Kaufmann, Kraay and Mastruzzi 2010: 4). Soundness and predictability refer to the clarity and comprehensiveness of the legal and regulatory frame- 3.3.2 Legal and Regulatory: Financial work businesses face. A burdensome, erratic, outdated or otherwise deficient legal and regulatory framework can This sub-category focuses on the elements of a country’s deter MSMRs and providers from engaging in electronic financial sector legal and regulatory framework that have payments. The sample interview guides recommend top- implications for electronic payments. The sub-category ics EPA stakeholders can explore in interview settings for comprises three elements: (1) neutrality and proportion- the qualitative assessment, particularly with providers, to ality, (2) financial consumer protection, and (3) system better understand the effect of the legal and regulatory integrity. To help measure various legal and regulatory environment on EPA. elements addressed in this sub-category, the Guide pro- EPA stakeholders can also use the publicly available poses assessment metrics that are based on questions Regulatory Quality indicator from the Worldwide Gover- posed in the World Bank GPSS and Global FICP Survey. nance Indicators to measure soundness and predictability. The construction of these assessment metrics is detailed The Regulatory Quality indicator “captures perceptions of in Annex E, table E.2. the ability of the government to formulate and implement sound policies and regulations that permit and promote 3.3.2.1 Neutrality and Proportionality private sector development” (Kaufmann, Kraay and Mas- Neutrality refers to whether a country’s legal and regula- truzzi 2010: 4). tory policy framework confers an advantage on or is dis- criminatory toward certain electronic payment providers. 3.3.1.2 Contractual Relations and Enforceability Regulation by activity, rather than by institution type, is an In the course of providing payment services, PSPs strike emerging global regulatory good practice. Proportionality business contracts with customers and a range of other refers to the degree of risk-based calibration in legal and entities involved in the electronic payments chain. As regulatory standards. Proportionality is a cross-cutting such, a weak contract enforcement system can deter issue, having relevance for system integrity and payment PSPs from providing electronic payment services. system oversight as well. Taken together, the degree of neutrality and proportionality in a country’s legal and reg- ulatory framework contributes to the level of competition TABLE 9. Legal, regulatory and oversight assessment and innovation in the market for electronic payments. In elements general, authorities should strive for a legal and regulatory framework that is “fair and balanced for all stakeholders, Policy sub-category Assessment element addresses risks and promotes innovation” (CPMI and WBG Legal and regula- Soundness and predictability 2016: 24). tory (general) Contractual relations and enforceability In assessing neutrality and proportionality, EPA stake- Legal and Neutrality and proportionality holders could evaluate whether the legal and regulatory regulatory Financial consumer protection framework for retail payments is risk-based, provider- (financial) System integrity and instrument-neutral, and forward-looking. The Guide Payment Central bank legal powers proposes a supplemental neutrality and proportionality system oversight indicator based on some specific criteria that are mea- Organizational arrangements sured in the World Bank GPSS. The proposed indicator Payment system oversight objectives covers whether: legal provisions cover fair and competi- Scope of payment system oversight tive practices; legal provisions cover electronic money; a Cooperation with relevant authorities variety of nonbank entities are permitted to provide pay- Cooperation with other stakeholders ment services on the acceptance and issuance sides of Risk-based approach to oversight the market; and agent-based models are permitted. This ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 23 indicator should supplement but not replace the more if merchants are unregistered or do not have requisite general assessment of legal and regulatory neutrality and identification. On the other hand, a deficient CDD frame- proportionality. work can deter acquirers, acceptance intermediaries, and Further, it is important to evaluate whether legal and issuers from providing electronic payment products and regulatory gaps exist with respect to acquirers’, accep- services for fear of contravening AML/CFT standards. tance intermediaries’, and EMIs’ ability to responsibly The Financial Action Task Force (FATF) has made clear cross-sell other products and services, especially credit, to that preserving system integrity and supporting financial merchant clients. Credit is a major EPA incentive for small inclusion are reinforcing, rather than conflicting, goals merchants who face capital constraints. While the provi- (FATF 2007). sion of credit is typically addressed through prudential The best policy enabler in this regard is a comprehen- regulatory frameworks for bank acquirers, the situation sive but proportional AML/CFT regime that reflects a risk- is generally more complex for nonbank acquirers, accep- based approach (RBA) to merchant due diligence (MDD). tance intermediaries, and non-bank EMIs. EPA stakehold- In assessing this element, EPA stakeholders could eval- ers could assess whether a level playing field exists for the uate whether an RBA for MDD exists and whether sim- provision of credit among acceptance PSPs. Often, this plified MDD measures are in place for small and/or low necessitates a transparent process for nonbank PSPs to risk merchants. The EPA Innovations Report outlines prin- obtain a credit license directly or indirectly through a sub- ciples for developing an RBA to MDD and a model for sidiary entity that focuses on credit extension. simplified MDD. Two more general indicators can help EPA stakehold- 3.3.2.2 Financial Consumer Protection ers evaluate system integrity. The first indicator captures Electronic payment instruments’ suitability for and whether a country is compliant or largely compliant with uptake among consumers is affected by the existence FATF Recommendations 1 and 10.33 Recommendation 1 of good financial consumer protection (FCP) practices. deals with assessing risks and applying an RBA, while Rec- Protecting consumers from abusive financial practices ommendation 10 deals with CDD (FATF 2012).34 The sec- has become a central goal of financial public policymak- ond indicator deals with simplified due diligence (SDD) ers worldwide. The Global Financial Crisis revealed that for consumers, which captures whether simplifications the quality of a jurisdiction’s consumer protection prac- or exceptions exist for the documentation requirements tices has direct implications for financial stability and associated with certain types of low-risk applicants or economic health. accounts (Annex E, table E.2). The Guide focuses on the FCP provisions most relevant for the electronic payments market. In assessing FCP, EPA 3.3.3 Payment System Oversight stakeholders could evaluate: FCP legal provisions; trans- This sub-category summarizes payment system over- parency on terms, conditions, fees, and customer rights; sight elements that are crucial for the safety and sound- liability for unauthorized transactions; customer support, ness of the payment system and for EPA. The Guide recourse, and dispute resolution; the privacy of customer recommends evaluating six specific payment system transactional and/or personal data; and protection against oversight features and the overarching approach to third-party claims (the proposed indicator for FCP is in oversight: (1) central bank legal powers, (2) organiza- Annex E, table E.2). For more comprehensive guidance tional arrangements, (3) objectives of payment system on appropriate FCP measures, EPA stakeholders could oversight, (4) scope of payment system oversight, (5) consult the World Bank’s Good Practices for Financial cooperation with relevant authorities, and (6) coopera- Consumer Protection (World Bank 2017), particularly the tion with other stakeholders. annex addressing FCP with respect to retail payments.32 To help measure these payment system oversight ele- ments, the Guide proposes a series of metrics that are 3.2.2.3 System Integrity based on questions posed in the GPSS. The construction Preserving payment system integrity involves a care- of these assessment metrics is detailed in Annex E, table ful balance between a sound Anti-Money Laundering E.3. Even if GPSS data are not available, stakeholders (AML) and combatting the financing of terrorism (CFT) can leverage this system to evaluate payment system regime and financial inclusion imperatives. On the one oversight. hand, excessive documentation requirements can pre- Finally, EPA stakeholders are recommended to eval- vent MSMRs and consumers from accessing the finan- uate a seventh overarching aspect of payment system cial products and services necessary for participating in oversight: the approach to oversight should flow directly the electronic payments market. Providers consistently from a neutral and proportional legal and regulatory indicate that strenuous Customer Due Diligence (CDD) framework.35 This means whether oversight reflects a pro- requirements make acquiring merchant clients difficult 24 • FINANCIAL INCLUSION GLOBAL INITIATIVE portional, risk-based, provider-neutral, instrument-neu- 3.3.3.4 Scope of Payment System Oversight tral, and forward-looking approach. Scope of payment system oversight concerns the sys- tems, services, instruments, and entities covered by a 3.3.3.1 Central Bank Legal Powers country’s oversight function. In assessing this element, Central bank legal powers refer to the presence and clar- EPA stakeholders could evaluate whether payment sys- ity of a central bank’s authority to conduct payment sys- tem oversight is performed over retail payment systems, tem oversight. In assessing central bank legal powers, EPA payment services, and payment instruments. Additionally, stakeholders could evaluate whether the central bank has EPA stakeholders could evaluate whether payment sys- formal powers to perform payment system oversight and tem oversight is performed over all payment systems and whether empowerment is explicit, granting it powers to services operated by commercial banks and nonbanks. operate, regulate, and oversee payment systems (see: Stakeholders could further ensure that payment system Annex E, table E.3). oversight is performed over non-bank PSPs, including FinTech companies, which have played an important 3.3.3.2 Organizational Arrangements role in many markets. Finally, stakeholders could exam- Organizational arrangements concern the nature and ine whether relevant competent authorities (e.g., central independence of the unit within the central bank that bank, banking supervision authority, ministry of finance, conducts payment system oversight. In assessing orga- etc.) are legally empowered to regulate and supervise on nizational arrangements, EPA stakeholders could evalu- an ongoing basis entities operating payment card net- ate the regularity of payment system oversight, whether works or switches and entities operating mobile money there is a specific unit or department within the central platforms (see: Annex E, table E.3). bank responsible for oversight, and whether the over- sight function is segregated from payment system oper- 3.3.3.5 Cooperation with Relevant Authorities ational tasks, either through organizational means or via In evaluating cooperation with relevant authorities, EPA independent reporting lines (see: Annex E, table E.3). stakeholders could assess the presence, formality, and regularity of cooperation the central bank pursues with 3.3.3.3 Objectives of Payment System Oversight relevant authorities in conducting its payment system Objectives of payment system oversight refers to the clar- oversight responsibilities (see: Annex E, table E.3). ity, transparency, and content of a central bank’s payment system oversight objectives. In assessing this element, 3.3.3.6 Cooperation with Other Stakeholders EPA stakeholders could consider whether the central In assessing cooperation with other stakeholders, EPA bank has made its payment system oversight objectives stakeholders could consider whether a National Payments public through an official regulatory or policy document. Council exists. In the absence of such a council, stakehold- Additionally, the objectives should generally address the ers could assess the formality and regularity of consul- safety and efficiency of the payment system, market tation the central bank pursues with other stakeholders competitiveness, and consumer protection (see: Annex E, (see: Annex E, table E.3). table E.3). ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 25 4. Concluding Remarks Developing EPA is a multidimensional process in which two approaches for the assessment whenever possible. each stakeholder has a role to play. Making informed The outcome of the process outlined in this Guide is policy and program decisions to structure a roadmap envisioned as an assessment report, which would point for EPA reforms can help put efforts in perspective and out to the strengths and weaknesses in a country’s EPA allocate resources efficiently. This Guide aims to provide landscape. inputs to the readers on how to conduct an EPA assess- Based on the assessment results, the users are envi- ment to derive key insights for selecting, designing, and sioned to develop a roadmap using the other compo- implementing high-impact EPA reforms, to understand nents of the EPA Package: Innovations, Intermediaries and key strengths and weaknesses, and to develop a base- Incentives. As described in the EPA Innovations Report, line against which to measure future EPA enhancement innovations in EPA come at all stages of the EPA process reforms and programs. using diversified tools, technologies, and business models. During the preparation of this report, the world was One of the major success factors for these innovations is struck by the COVID-19 pandemic. The pandemic under- how they add value to all stakeholders participating in the lined the importance of electronic payments, as social-dis- EPA value chain. The EPA Innovations Report, therefore, tancing measures and lockdowns were implemented. It provides guidance to the users on how to use innovations became necessary to shop and pay remotely. Many coun- to overcome some of the barriers identified via the assess- tries took measures to ensure the smooth flow of goods ment. At the same time, the EPA Intermediaries Report and services and promoted electronic payments via describes the important role intermediaries play in expand- temporary (or in some instances, permanent) measures. ing EPA while underlining the potential risks and providing In addition, the private sector also responded to ensure regulatory approaches. Upon identifying the gaps via the development of EPA. Along with the developments during assessment methodologies described in this Guide, the the pandemic, the World Bank team also piloted the EPA users can consult the EPA Intermediaries Report for fur- assessment approaches outlined in this Guide in several ther action. Lastly, the EPA Innovations Report provides countries. This report, therefore, includes the findings and case studies and statistical analysis of several EPA-related outcomes of the pandemic period as well as the EPA Pilots. interventions around the world and distills policy recom- The methodology detailed in this Guide includes two mendations. Again, depending on the assessment results, components: (1) qualitative analysis and (2) quantitative the users can refer to the EPA Incentives Report for incen- analysis. The Guide recommends a combination of these tive policies and programs that can further EPA. 26 • FINANCIAL INCLUSION GLOBAL INITIATIVE ANNEX A Merchant Interview Guide The merchant interview guide presents suggested topics (2) merchant financial access; (3) payments; (4) prefer- for a merchant-centric interview that can be adapted to ences and perceptions; (5) relative costs of EPA and cash; a specific local context or instrument, such as a survey or (6) e-commerce; (7) other relevant infrastructures; (8) focus group discussions. The suggested topics are orga- incentives; and (9) COVID-19 impact. nized into nine categories: (1) merchant demographics; Merchant demographics Suggested topics: • Size of business (employee-based or turnover-based thresholds) • Annual revenue and profit • Retailer segment • Geography (region, urban or rural) • Formal or informal • Female manager • Number of years in business • Customer demographics (income level, age) • Number of branches of retailer chain Merchant financial access Suggested topics: • Account access (with: bank acquirer, non-bank acquirer, acceptance intermediary, e-money issuer, bank for a business checking account) • Acceptance channel access (POS terminal, mPOS, mobile-to-mobile, QR code, Internet) [based on relevant acceptance channels in country] • Access to a line of credit from a PSP continued ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 27 Payments Suggested topics: • Which electronic payment instruments does merchant accept (payment card, e-money, EFT) • Percent of sales (volume / value) made by cash, cheque, and each relevant electronic payment method • Paying suppliers: frequency, payment instrument used (% of payments) • Paying employees: frequency, payment instrument used (% of payments) Preferences and perceptions Suggested topics: • Preferred payment acceptance methods • Reasons for payment acceptance method preferences • Reasons for certain payment methods not being accepted • Role of tax burden in governing EPA decisions • Awareness of payment products and services offered by financial institutions • Perception of customers’ preferred payment methods • Perception of suppliers’ preferred payment methods • Perception of employees’ preferred payment methods Relative costs of EPA and cash acceptance Notes: • Should be broken down for cash and relevant electronic payment methods • To be estimated by merchants and/or recorded via field observations • See section 3.1.2 for calculation details Suggested topics: • Time costs: waiting time, transaction time, reconciliation time, operations time • Logistic costs: travel, communication • Infrastructure costs: depreciation, maintenance • Damage costs: error, theft, fraud, insurance • Service costs: periodic fees, per transaction fees • Cost of funds: holding costs, float costs E-commerce Suggested topics: • E-commerce presence • Access to third-party online marketplace (international, regional, local) • Online shopping website (dedicated, add-on to existing website) • E-commerce payment processing (online marketplace, third-party gateway or payment processor, merchant account-linked services, cash-on-delivery) Other relevant infrastructures Suggested topics: • Access to a business identification • Registered with credit reporting service provider • Access to Internet, mobile phone, fixed line phone Incentives Suggested topics: • Have payment service providers or public authorities provided any incentives for accepting electronic payments? (e.g., hardware subsidies, fee reductions, tax breaks, credit, value-added services, loyalty rewards, other incentives) • [If yes] Impact of incentives on EPA • [If no] Merchants’ perceptions of whether programs would incentivize EPA COVID-19 impact Suggested topics: • Impact of COVID-19 pandemic on merchant payment acceptance preferences • Impact of COVID-19 pandemic on merchants’ customers’ payment preferences 28 • FINANCIAL INCLUSION GLOBAL INITIATIVE Below are selected questions used in focus group discus- 3. Merchant Education and Perceptions sions and merchant interviews during the EPA Pilots. PURPOSE: Review understanding and perception of mer- chants for different types of financial services. 1. Merchant Background • Review different payment products (transaction PURPOSE: to get basic data on the merchant to help account—bank or non-bank, mobile wallet, payment with merchant classification cards) with the merchant and gauge the understand- • Type of merchant ing and perceptions of the merchant for each prod- – Grocery; Non-grocery (specify) or Mixed uct including how comfortable they are using it, and whether they make use of it in their personal life. • How long in business? • Review different payment options (bank transfer, • Name of city / village cheque, payment cards, P2P transfers via mobile wal- • Classification of location lets, QR code payments using voucher or mobile wal- let). Like the previous question, probe if they have heard – Urban; Peri-urban; Rural about this option before, how comfortable they would • Type of location feel to use this option, and whether they actually make – Shopping mall; Main street of city / village; Side use of it in their personal life. street / Outskirts • Review different payment instruments (a bank account, • Estimated size of the shop payment card, mobile account, etc.) for buying supplies and services for the store. Ask if the merchant uses these • Does the shop have a cash register? instruments for business purposes. Ask if the instrument is in the name of the business or the name of the owner. 2. Merchant Demographics Ask for the exact use: paying the supplier, paying the PURPOSE: to obtain high level data on merchant’s busi- employees, paying utilities, receiving or sending money, ness operations accepting payments, saving. • What is the interviewee’s job position? • If merchant answered “No” above, ask for the reasons: – Owner; Manager of branch; Other – Don’t know enough about it • Is the owner and/or manager of the store a female? – Business is too small – Account is too expensive • Do you have a bank account? – Bank / Financial service access point is too far away • What kind of phone do you have? (Smartphone, fea- – Don’t need one ture phone) – Don’t trust financial institutions • Do you use any banking app on your phone? – Lack necessary documentation (including being • How many employees do you have in this store loca- informal) tion? – Other (Please specify): • Are there any other branches of the store in city, prov- ince or country? Merchant acceptance for person to business (P2B) 4.  – What is the average number of employees in the payments other branches of your store? PURPOSE: Obtain information of types of payments that the merchant accepts including the costs associated • What is the typical income profile of your customers? with them and barriers to their usage. – Low income, middle income, high income, all income groups • Review the list of payment options with the merchant (cash, cheque, payment card, bank or mobile transfer, • How many customers do you have on a typical day? QR code, NFC, purchase on credit, etc.). For each of • What percentage of your customers would you say these payment options, inquire if the merchant offers it are repeat visitors (i.e., customers coming back to buy to their customers. Also inquire for each of the options daily or on a weekly basis)? if there is any particular reason why they offer or don’t offer it, and what has been their experience with the • What is the average value of goods / merchandises respective payment option if they offer it. that a typical customer buys? ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 29 • Are there any payment methods the merchant prefers? • If you were provided the following value add services, If so, why? then would it be interesting for you to accept elec- – Cost; Ease / Simplicity; Transparency; Immediacy; tronic payments? Trust – Linking the merchant to his suppliers through digital payments, • Do customers ever walk away if their preferred pay- ment type not available (e.g., card or wallet). – Providing credit (example working capital loan) to him by the suppliers or financial institutions • Has the COVID-19 pandemic changed your preferred – Providing facilities on purchased goods payment method? – Immediate settlement of cash on his account • How do your customers usually pay for their pur- – A system to manage his accounting and inventory chases? Cash; cheque; payment card; mobile wallet; bank transfer; other electronic. – No need to register or not linked to taxes • What are the triggers and barriers to adopting elec- Additional questions for Merchants accepting cash and tronic payments for a merchant like you? cashless payments • How many merchants around you have adopted elec- • What do you think the payment options will be in the tronic payments methods? next 5 years? • Are you aware of the benefits of electronic payments • What types of cashless payments do you accept now? to you? – Cards; Wallets; NFC; QR code; other • How ready are your customers in making electronic • If they accept cards, the type of POS device: Traditional payments? POS; mPOS (mobile POS); other (e.g., Tap to pay, don- gle, etc.) Additional questions for CASH ONLY, Informal and micro • Does the POS terminal support contactless payments? and small merchants If yes, do customers use it? • Have you accepted electronic payments before (cards, wallets, etc.)? If not, why? • For QR Code, is it posted on a cardboard (static QR) or via the merchant’s mobile phone or other device to • What are all the challenges associated with using cash generate/scan the code (dynamic QR)? for you/your customers? • What are all the challenges/disadvantages associated • Have you been approached by a bank or other service with using cash/debit card/credit card/QR codes/digi- provider for accepting electronic payments? Or have tal wallets for you/ your business? you tried to approach them to explore acceptance of electronic payments? • Who is the provider of your merchant account (for wal- let and/or cards)? • Do you feel customers will adopt electronic payments eventually? What needs to happen for customers to – Bank; Mobile wallet provider; Merchant aggregator; adopt cashless transactions? What could be the barri- other ers for customers to switch from cash? • How did you get this account? Did you approach them, • Which payment option do you think would be better or they approached you? Was the signup process easy? for customers? What do they find easy? Is the account management satisfactory? • If a new electronic payment solution comes out in the • Were you provided with educational materials by market, would you be willing to use that? Why? the providers—about benefits of electronic payment acceptance, rates, and other value-added services? • What type of incentives you think are needed to start accepting electronic payments? • Are you aware of any incentives offered by national or local authorities or financial institutions to use cards, – Tax breaks; Subsidized POS terminals from provid- QR codes, digital wallets or other types of non-cash ers; Reduction or waiver of merchant fees; Value payments? What types of incentives are you aware of? added services like data on consumers, etc.; Other Incentives • How do you usually learn about the different options for making payments? Mark all that applies: – Friends; Family; TV; Radio; Other merchants; Busi- ness association; Financial service provider 30 • FINANCIAL INCLUSION GLOBAL INITIATIVE • Which of the just mentioned sources of information • In a normal month, how many times do you pay for do you trust the most to learn about a new financial supplies? service? • What would you say is the average value of payment you make to your suppliers? Business to Person Payments (employee salaries, 5.  etc.) • How do you usually pay your suppliers? • How do you pay your employees? – Cash; cheque; payment card; bank transfer (in per- – Cash; Cheque; Debit card; Payment card; Bank son); online banking/mobile transfer; other elec- transfer/direct deposit; Mobile money; other tronic. • Can you please explain why you usually use this option? • Who determines the payment option, the supplier or you? • Did you already try any other option for paying sala- ries? If yes, did you have a positive experience? • How do you finance this business? Have you taken any loan for this business? • Would you like to learn more about alternative options for paying salaries (e.g., prepaid cards, bank transfer, • Do your suppliers provide any short-term credit for mobile wallets, other)? your purchases? • Do you use the same payment method for making your Business to Business Payments (supplier payments, 6.  utility payments? etc.) • If no, why do you use a different payment method for • How many suppliers do you have approximately? your utilities? Which method do you use? • Are any of your suppliers an international chain / or from another country? ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 31 ANNEX B Providers Interview Guide The providers interview guide presents suggested topics can be bank or nonbank entities. PSOs are entities that for a provider-centric interview that can be adapted to operate payment infrastructures and/or networks. The a specific local context or instrument, such as key infor- most relevant PSOs in this context are domestic and inter- mant interviews or a supply-side survey. Relevant inter- national card switch operators, mobile money interopera- viewees include, but are not limited to, acceptance-side bility platforms, and payment card networks. payment service providers (PSPs), issuance-side PSPs, Seeking responses from a diversity of types of provid- and payment system operators (PSOs). Acceptance-side ers, as well as their outsourcing partners, will enrich the PSPs generally include bank acquirers, nonbank acquirers, analysis. EPA stakeholders would try to obtain responses and acceptance intermediaries. Acceptance intermediar- from banks, nonbanks, and other specialized providers, ies include payment facilitators, which are also known as ideally in proportions that approximate the country’s pay- payment or merchant aggregators, third-party payment ment market structure. The interview guide covers four processors, payment gateways, and bill aggregators. areas: (1) customers and transactions, (2) costs and risks, Issuance-side PSPs generally include card issuers and (4) ecosystem, and (3) legal, regulatory, and oversight e-money issuers (EMIs). EMIs can also play a role on the issues. acceptance side for e-money acceptance services. Issuers Customers and transactions Suggested topics: • Number of merchants serviced by the acceptance PSP in the country (potentially broken down by retailer segment and/or region) • Number of merchant customers of the PSP who have a line of credit with the PSP • Number of payment instruments issued by the issuance PSP in the country (cards, e-money, EFT-based) • Number of active payment instruments issued by the issuance PSP • Transactions (volume / value) processed by the PSP for each available payment instrument continued 32 • FINANCIAL INCLUSION GLOBAL INITIATIVE Costs and risks Suggested topics: • Customer acquisition and service costs: sales and marketing, setup, onboarding, servicing • Acceptance technology subsidization (POS, mPOS, mobile technology) • Temporary fee subsidization (MDR, IF, transaction) • Market intervention (e.g., regulation of MDR, IF, payment network pricing) • Risk of customer loss and fraud (e.g., fraud to sales ratio, chargebacks as a percent of sales) • Merchant survival rate • Cybersecurity costs • Cost of value-added services and incentives (e.g., credit, productivity solutions, revenue generating solutions, client relation- ship management, loyalty rewards) • Investments in new products and services Ecosystem Suggested topics: • Electronic payments market scale • Competition landscape • Merchant and consumer payment preferences • Infrastructure: financial, ICT, physical • Merchant engagement • Financial capability Legal, regulatory, and oversight Suggested topics: • Perception of legal and regulatory framework soundness, predictability, neutrality, and proportionality • Experience with merchant due diligence and customer identification requirements • Experience with country’s payment system oversight framework Below are selected questions used in interviews with the • Does the bank pursue an active consumer segmenta- providers during the EPA Pilots. tion strategy? Please explain. • Does the bank have a special focus on unbanked or 1. Issuing Banks (for payment cards and digital wallets) underserved segments? If yes, what types of products • Provide an overview of uptake of digital financial ser- and services are provided by the bank? vices in your country and the role played by the bank. – Is credit transfer, instant payments (using bank • Who are your primary clients for banking services account, cards, wallets) available to banked cus- offered by the bank? tomers? – Consumers; Businesses; Government; Other – Does your bank use financial incentives or promo- tions to improve usage of cards, wallets and other • What types of digital financial services are provided to products? Describe how effective such measures are. your retail banking clients (specifically in reference to the consumer segments)? – What is the process for customer onboarding? How easy or difficult is it to onboard unbanked/ under- – Current/savings accounts served segments in your country? – Payment cards (credit and debit cards) • What are the barriers to adoption of electronic pay- – Digital wallets (linked to bank account) ments faced by your customers (bank account, cards – E-money products (prepaid cards and prefunded and wallets)? Elaborate on the following digital/mobile wallets) – Electronic payments market scale – Internet/mobile banking – Adverse competition landscape (e.g., market – Remittance transfers concentration) – Other – Customer credit risk ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 33 – Customer fraud risk – Physical infrastructure – Legal and regulatory ambiguity – Financial infrastructure – Legal and regulatory inconsistency – ICT infrastructure – Cash preference among target customers – Data sharing platforms – KYC and customer identification – Merchant financial access • What needs to be done on the policy/regulatory front – Regulation of merchant discount rates / service fees to improve the existing environment for uptake of dig- – Merchant financial capability ital financial services and displacement of cash-based o the existing AML/CFT regulations act as impedi- • D activities? ment or enabler for merchant onboarding? • What is the activation rate for merchants? How many Acquiring Banks (for payment cards and digital 2.  merchants in your portfolio considered dormant or wallets) inactive accounts? • Provide an overview of electronic payments accep- • To promote onboarding activities and improve acti- tance (EPA) landscape in the country. What merchant vation rates what incentives are provided to the mer- segments are well covered and where is EPA lacking? chants? Does the bank monitor the impact of these • What are the commonly observed challenges and incentives on a regular basis? opportunities in growing EPA among the underserved • Does the bank provide short term credit to merchants merchant segments (including but not limited to micro (especially micro and small merchants) to promote and small merchants)? acceptance? If yes, how many merchants avail such • How big is your merchant acquiring business and what credit arrangements? is your market share? Do you acquire merchants for • If the bank provides QR code acceptance for digital cards, wallets or both? wallets, then please explain if it uses its proprietary QR code standard for acceptance or an interoperable stan- • Does your bank specialize in the acquiring business? dard enforced by the regulator or provided by a pay- Or is this done as part of the retail/merchant banking ment scheme. portfolio? hat are the top three recommendations for improving • W • Is merchant acquiring considered profitable? Are the the policy/regulatory landscape to expand EPA in your acquiring margins sufficient to allow reinvestment in country? merchant acceptance growth? • Provide an overview of the economics of the acquiring 3. International Payment Schemes business. What are the typical merchant discount rates • What are the challenges and opportunities in growing (MDRs) and other fees that are charged for card and EPA in the country? Provide an overview from the pay- wallet transactions for merchants? ment scheme’s perspective. • Do you consider micro and small merchant segment as • In terms of the enabling environment (policies and reg- profitable? What is the bank’s view on improving EPA ulations) what is working well and what is not working within this segment? well to promote growth of EPA in the country. Highlight the main barriers. • Does the bank use merchant aggregators or payment facilitators to target the micro and small merchants, • Using the data monitored by the scheme, how many e-commerce merchants? merchant acceptance points are there in the country? How many of these are active/dormant acceptance • How does the bank carry out end to end merchant points? onboarding activities including merchant segmenta- tion (if applicable), merchant account opening, mar- • What are the top 5 merchant category codes (MCCs)? keting and merchant education? • What is the typical merchant profile—e.g., large volume, • What is the average cost for merchant acquisition multi-lane, etc. including sales and marketing, setup, POS/acceptance • What is the landscape for micro and small merchants— device, onboarding, and servicing? what are their challenges in accepting card payments. • What are the barriers to merchant acquisition? • Provide an overview of challenges and opportunities with – Merchant engagement the e-commerce landscape—spend, merchant types, platforms, challenges and opportunities. 34 • FINANCIAL INCLUSION GLOBAL INITIATIVE • What is the payment scheme doing in the market in • What are your views on merchant onboarding process terms of introducing innovative EPA solutions in the by the acquiring banks? Are the existing due diligence market (e.g., NFC, QR Code, others)? Are there any procedures an obstacle to onboarding small mer- barriers to introducing these solutions in the market? chants? Is there simplified due diligence? • Card issuing landscape • What incentives are provided (to merchants with a focus on micro and small merchants) by the payment – How many issuers participate in your network and network and its acquiring member banks to grow who are the main ones? incentives? – What are the dynamics for card issuance—what drives profitability for issuers? • What can be done differently in the market to enhance adoption and usage of card payments? – What types of products are commonly used in the market—credit, debit, prepaid • What are the top three recommendations for improv- – Provide data on card activation rates and the rea- ing the policy/regulatory landscape to expand EPA in sons for low activation rates (if applicable). your country? – What are the major spend categories for consum- 4. Domestic switch (if applicable) ers? What proportion of personal consumption expenditure is on cards (if data is available)? • Provide an overview of the role played in the retail pay- ment ecosystem by the switch. What types of services – Why do (or don’t) consumers like to use cards. are provided to the participating banks? – What kind of incentives (issuer given or other types) work for consumers to drive usage of cards? Does • Provide an overview of how the switch establishes con- the payment scheme also have promotions/incen- nectivity between different schemes and the banks. tives to grow usage? Does it act like a payment gateway and provide addi- tional services? • Card acquiring landscape – Provide an overview of acquiring activity in the • Does the switch play a role in acquiring activities or is it country—pros and cons from the scheme’s perspec- just on the issuance side? Provide details. tive. • What is the general view of the retail payments market – Is acquiring a profitable business for member banks? in terms of opportunities and challenges? How are revenues shared between banks and other • What is your view of the enabling policy environment stakeholders in the acquiring value chain? in the country and if the switch can provide feedback – How well developed is the e-commerce acquiring on what works and what doesn’t in relation to your landscape? Who are the key players? What are the business activities? main barriers to its growth? • What are the top three recommendations for improv- – Can acquiring be considered a specialized activity ing the policy/regulatory landscape to expand EPA in and is it likely to become more specialized as a result your country? of new market entrants? – What role do intermediaries play in the market (pay- ment facilitators, gateways etc.)? What is the regula- tory landscape for such providers in country? ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 35 ANNEX C Household Interview Guide The household interview guide presents suggested top- organized into four categories: (1) financial access; (2) ics for a household-centric interview that can be adapted payment behavior; (3) education and perceptions; (4) to a specific local context or instrument, such as focus Incentives, and (5) financial consumer protection. group discussions or a survey. The suggested topics are Financial access Suggested topics: • Access to electronic payment instruments (payment cards, e-money, EFT-based) • [If no access] Primary reasons for not having electronic payment method • Experience with electronic payments instruments Payment behavior Suggested topics: • Frequency of making payments at retail establishments • Average ticket size • Typical payment methods and instruments used • Preferred payment methods and instruments • Reasons for payment method and instrument preferences • Reasons for not using certain types of payment methods and instruments • Types of payment methods and instruments accepted at local retail establishments • Experience with merchants’ payment preferences • Has the COVID-19 pandemic changed payment preferences and/or behavior? continued 36 • FINANCIAL INCLUSION GLOBAL INITIATIVE Education and perceptions Suggested topics: • Confidence in understanding how to use electronic payment instruments / methods • Trust in electronic payment instruments / methods • Evaluation of tradeoffs between carrying cash and relying on electronic payments • Access to financial education resources Financial consumer protection Suggested topics: • [If access] Perceptions of information adequacy regarding how electronic payment instruments work • [If access] Clarity of information on terms and conditions • [If access] Clarity on complaints management process and points of contact • [If access] Confidence in protection against unfair or deceptive acts by financial institutions • [If no access] Role of trust in financial institutions • [If no access] Awareness of FCP protections or recourse mechanisms Below are selected questions used in focus groups and 2. Financial access and infrastructure interviews during the EPA Pilots. • Inquire about financial services used by respondents. Are there any financial service providers (including 1. Household/consumer background money transfer and bill payment agents) in the direct • Obtain household/consumer information on age, gen- neighborhood or in a location that you are aware of? der, location, number of people in the household, level • How often do you visit the bank? For what purposes? of education, and profession. Do you feel comfortable going to bank for any services? • Before starting to talk about how they make payments for goods and services, inquire who in the household Transaction account: oversees managing the finances, and who carries out • How did you find the process of signing up for an financial transactions. account? Was it easy/difficult? – Who in the household is in charge of making the • Did you face any problems? If yes, what were they? purchases? • What do you generally use it for? – Does someone in the family have a transaction • Do you pay bill /taxes through account? Why? account? • Do you feel that you understand the costs for making • Do you have a transaction account? If yes, in your own a payment with your account, and where to find this name or jointly with your spouse/other? information if you need it? • Do you have a debit card? • And how easy is it to obtain cash from your account? • Do you have a mobile phone? A smartphone? Do you usually go to the bank branch itself, use an ATM • Have you already made a payment using your mobile or an agent? phone? By using internet or payment/wallet/bank • Did you receive information on the cost of opening and app? maintaining the account and cost of different types of • What type of retail shops are in your direct neighbor- transactions at account opening stage? hood? And how often do you go there? • Are there other merchants you regularly go to that are Savings account: not in your direct vicinity? If so, where are they, and • Do you have a savings account at a financial institution? what type of stores are these? And what do you generally use it for? • How many of you are also using the internet to make • What has your overall experience been with the savings purchases? If so, do you use your phone or your com- account? When did you open it? For what purpose? puter to do this? ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 37 Debit cards: – If the customer is the one to decide, what are the fac- • Do you have a debit card? When did you get it? tors that make a person use that payment method? • What do you use your card for? – Have any of the merchants encouraged a participant to use electronic payment for their purchase, or do id any of you ever experience a problem with a trans- • D merchants generally encourage the use of cash? action on an account, or with a card? If so, was your problem resolved? Are you familiar with your rights as • Payments at other retailers (i.e., outside your neighbor- a consumer of financial services? hood): – Do you use a different payment method at other To those without an account: retailers such as clothing stores, petrol stations, fast • W ould you be interested in having one? And if so, what food restaurants, or pharmacies, or always use the would you use it for? same method? • W ould you also like to have a card or/and a wallet for the – Were you ever encouraged by a merchant to use a account? And if so, what would you mostly use it for? card or mobile payment? Did you consider this help- ful? or those that do not want to have an account, can you • F briefly explain why? – Did you ever have the situation that a merchant pro- moted the use of a card or mobile payment? Mobile/digital Wallets: – Only if people indicated they do online-shopping: • H ave you already heard about this type of financial ser- Some of you indicated that they are occasionally vice? doing purchases over the Internet. How do you pay for those purchases? If has a wallet] When did you open it? For what pur- • [ pose? Was it easy/difficult to sign up for an account? • Has the COVID-19 pandemic affected the way you make your payments? If so, what has changed? What do you generally use your wallet for? • • Finally, inquire about how they pay your utilities (elec- tricity, water, postpaid phone, etc.) or internet / phone 3. Payment Behavior top ups (for younger generation). Do they pay this in Which among cash, card, cheque, mobile wallet is: • cash, or do you use another payment method? And – Less time consuming for payment where do they usually pay their bills? – Economical for me as a consumer 4. Incentives and disincentives – Has rewards and benefits for me as a consumer – Convenient • If the merchant would offer you a discount for using your card or mobile wallet to pay, would this make you hat could be the barriers for customers to switch • W consider changing the way you make your payments? from cash? Why / why not? – Delay in confirmation of the payments • If you were given this discount or other cash/financial – Availability of the internet/ network incentive, would you feel comfortable to actually use an – Understanding of the usability electronic transaction at the merchant? – Unavailability of the mobile wallet or banking wallet – Would you prefer to first have some guidance on – Lack of need how this works? eview the payment options available at local retailers. • R – If people express that they would not be comfort- In the shops in your direct neighborhood, what pay- able, what information would they like to have? ments options other than cash do you usually have? – What would be the best way to provide this guid- – Are there any differences in the payment meth- ance to you? ods accepted in grocery stores versus non-grocery – What would be the best way to provide educational stores? information to them? Radio, TV, from the merchant – In their opinion, are there differences in available / family member or friend? Would a flyer be help- payment options by size of merchant? ful for them, or would they prefer a direct training? – What payment method do you typically use at your Should the financial institution be the one to reach neighborhood merchants, and why? out to them? 38 • FINANCIAL INCLUSION GLOBAL INITIATIVE • Are you aware of any restrictions from merchants on discounts or promotions, lotteries rewarding the use the use of cash? If so, what types are you aware of? of electronic payment methods, cashback, etc. What types of incentives are you aware of? • Are you aware of any incentives offered by national or local authorities or financial institutions to use cards • Are there any recommendations/learnings that you or mobile wallets? For example, tax breaks, purchase would like to share to make the experience better? ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 39 ANNEX D Local data collection summary This annex summarizes the indicators that the Guide maintained by national authorities. In many cases, proposes for local collection. These are the “Type 3” though, generating these data will likely require survey indicators discussed in the report. In some cases, the approaches. Tables D.1-D.3 capture the local indicators indicators could be aggregated from existing sources by EPA policy category. 40 • FINANCIAL INCLUSION GLOBAL INITIATIVE TABLE D.1. Retail payments ecosystem local data collection summary Policy sub-category Assessment element Indicators Financial access Electronic payment Electronic payment instruments available in the country for making instruments and access P2B payments: channels • Payment cards (0-1) • Electronic money (0-1) • Electronic funds transfer (0-1) EPA channels available to MSMRs in the country: • POS (0-1) • mPOS (0-1) • Mobile-to-mobile (0-1) • QR Code (0-1) • Internet (0-1) Merchant financial access Account access (% of MSMRs) with: • Bank acquirers • Non-bank acquirers • Acceptance intermediaries • E-money issuers • Banks (for business checking) Acceptance channel access (% of MSMRs): • POS terminal • mPOS • Mobile-to-mobile • QR code • Internet Percent of B2B and B2P payments made electronically by MSMRs Percent of MSMRs with a line of credit from a PSP Consumer financial access Payment instrument access (% age 15+): (as needed to supplement • Payment card Findex data) • E-money account • Financial institution account Financial inclusion commitment National financial inclusion or retail payments strategy has been developed and launched (0-1) Market development Market scale Share of retail payments made electronically by retail payment type: P2P, P2B, P2G, B2P, B2B, B2G, G2P, G2B, G2G Share of P2B payments made electronically by expenditure cat- egory: travel & entertainment, large-ticket purchases, everyday spending, small ticket purchases, bill payments Market structure Share of payments (value / volume) processed by top 3: • Bank acquirers • Non-bank acquirers • Facilitators / aggregators • Card issuers • E-money issuers Distribution of MSMRs by: • Size (employee- or turnover-based threshold) • Retailer segment • Geography (region, urban vs. rural) • Formal vs. informal • Number of branches of parent or chain continued ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 41 Policy sub-category Assessment element Indicators Payment infrastructures Interoperability and Market schemes exist for payment instruments available in the standardization country (0-1) Regulations enforce interoperability standards for the acceptance channels available in the country (0-1) Interoperability arrangements reliability: • Downtime (%) • Transaction failures (%) Entities operating interoperability arrangements periodically intro- duce innovations and promotions to advance electronic payments (0-1) Fast payment systems Fast payment system (FPS) indicator (0-6): • An FPS is operational or is in development • FPS is available for P2B merchant payments • FPS supports the use of aliases • QR code standards are in place that enable the use of QR codes for fast payments • An FPS oversight framework is in place • FPS oversight criteria cover legal basis, governance, risk man- agement, financial consumer protection, including dispute reso- lution and complaints handling, and efficiency and effectiveness Other financial and ICT Identification Percent of MSMRs that have a business infrastructures Credit reporting systems Percent of MSMRs covered by credit reporting service provider E-commerce readiness Number of e-commerce aggregators or gateways operating in the country Percent of merchants who are registered as sellers on third-party online marketplaces Number of e-commerce websites Share of e-commerce payments processed by: • Online marketplaces • Third-party payment processors • Payment gateways • Cash-on-delivery Frequency of cyber-crime incidents 42 • FINANCIAL INCLUSION GLOBAL INITIATIVE TABLE D.2. Economics of EPA local data collection summary Policy sub-category Assessment element Indicators Acceptance benefits Revenue gains from EPA Discontinuity-based metric and costs Comparative metric (see section 3.1.1 for description) Relative costs of EPA and cash Time costs acceptance • Waiting time (see section 3.1.2 for calculation • Transaction time details) • Reconciliation time (note: EPA costs should be • Operations time broken down by most relevant pay- Logistic costs ment methods) • Travel • Communication Infrastructure costs • Depreciation • Maintenance Damage costs • Error • Theft • Fraud • Insurance Service costs • Periodic fees • Per transaction fees Cost of funds • Holding costs • Float costs Provider costs and Customer acquisition and service • Average cost by PSP type of: risks costs • Sales and marketing • Setup • Onboarding • Servicing Financial inclusion commitment Acceptance technology subsidization (POS, mPOS, mobile technology) Temporary fee subsidization (MDR, IF, transaction fees) Subsidization Fraud to sales ratio Chargebacks (% of sales) MSMR failure rate Cybersecurity costs Customer loss, fraud, and Average cost by PSP type of: cybersecurity • Credit • Other value-added services • Loyalty rewards • Investment in new products and services Incentives and innovation Consumers’ preferred payment methods Reasons for payment preferences Experiences with various payment methods Merchants’ perceptions of customers’ preferred payment methods Consumer behavior Payment preferences Consumers’ preferred payment methods Reasons for payment preferences Experiences with various payment methods Merchants’ perceptions of customers’ preferred payment methods ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 43 TABLE D.3. Legal, regulatory, and oversight local data collection summary Policy sub-category Assessment element Indicators Legal and regulatory Neutrality and proportionality The legal and regulatory framework for retail payments is risk- (financial) based, provider- and instrument-neutral, and forward-looking (0-1) Transparent process exists for non-bank PSPs to obtain a credit license directly or indirectly through a subsidiary entity (0-1) System integrity Risk-based approach to merchant due diligence is permitted (0-1) Payment system Risk-based approach to oversight Payment system oversight reflects a risk-based, proportional, pro- oversight vider-neutral, instrument-neutral, and forward-looking approach (0-1) 44 • FINANCIAL INCLUSION GLOBAL INITIATIVE ANNEX E Qualitative policy indicator construction methods Annex E proposes indicators that EPA stakeholders can It is worth emphasizing that a higher point total for a build to assess a variety of qualitative elements related given indicator will not translate to a higher weight for to payment infrastructure and legal, regulatory, and that indicator in the index methods presented in Annex oversight issues. Many of the criteria are derived from G because indicators are normalized to a common unit questions posed in the World Bank Global Payment Sys- between 0-1. However, EPA stakeholders may elect to tem Survey (GPSS) and World Bank Financial Inclusion give more or less weight to certain elements that make and Consumer Protection (FICP) survey using existing up an indicator, depending on the relative importance of indicator construction methodologies.36 Even if data that indicator to local circumstances. from these surveys are not available, the criteria can be used as a guide to construct the proposed indicators. ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 45 TABLE E.1. Payment infrastructures indicator construction Category Criteria Points 1.1) Card switch (0-5) A) There is at least one payment card switch operating in the country 1 B) Wide range of transactions supported by payment card switch 1 Settlement of net positions takes place through RTGS or central bank money if C)  1 there is no RTGS Diversified set of participants are allowed to access (directly/indirectly) payment D)  1 card switch (Other banks, supervised NBFIs, MNOs) Card fraud prevention: 1) industry-led standards; 2) common efforts by the banking E)  If > 1 and #3 is industry and merchants’ associations; 3) legal requirements applicable to payment included (1) service providers/user POS Interoperability 1.2)  POS terminals have good or full interoperability 1 (0-1) Mobile money 1.3)  Mobile money has good or full interoperability 1 Interoperability (0-1) QR Code 1.4)  Regulations enforce the EMV or another Interoperability standard for QR Code 1 Interoperability (0-1) Real time gross 1.5)  The percentage of total volume of large-value payments channeled through the A)  1 settlement system RTGS is more than 80 percent (0-2) Access to the RTGS is granted on the basis of the fulfillment of a set of objective cri- B)  1 teria to ensure a safe and sound operation of the system (e.g. capital requirements, technological capacity, internal risk controls, appropriate management, etc.) 1.6) Automated A) ACH for credit transfers and/or direct debits is available 1 clearing houses (0-5) B) Net balances are calculated and settled multiple times a day 1 Final settlement takes place through RTGS or central bank money if there is no C)  1 RTGS D) ACH has a settlement risk management framework 1 Diversified set of actors have direct/indirect access to ACH services (Other banks, E)  If 1 type (0.5) supervised NBFIs, MNOs, MTOs) If > 1 (1) 46 • FINANCIAL INCLUSION GLOBAL INITIATIVE TABLE E.2. Legal and regulatory indicator construction Category Criteria Points Neutrality & 2.1)  Legal provisions cover fair and competitive practices in the provision of payment A)  1 Proportionality (0-6)37 services B) Legal provisions cover electronic money 1 Regulation allows non-bank direct provision of payment services and holding C)  1 customer funds D) Regulation allows agent-based models 1 Variety of non-bank PSPs are permitted to provide acceptance services: Payment E)  1 Card Acquirers AND Aggregators/Facilitators AND Payment Card Processors AND Gateways AND Bill Payment Aggregators Variety of non-bank PSPs are permitted to provide issuance services: MNOs AND F)  1 E-Money Issuers AND Payment Card Issuing/Personalization Financial consumer 2.2)  (A) Legal provisions cover consumer protection for retail payment services 1 protection (0-6) Terms, conditions, fees, and customer rights have to be disclosed prior to the (B)  1 customer entering into a contract / performing a transaction Customers are protected against unauthorized transactions in the form of (limited) (C)  1 customer liability Recourse and dispute resolution mechanisms are clearly articulated and easily (D)  1 available to the public Admissible disclosure of transactional and/or personal data is clearly articulated (E)  1 and easily available to the public (F) Customers are protected against third-party claims on customers’ funds 1 Simplified due 2.3)  Simplifications or exceptions to the documentation requirements for certain types of If A, 1 diligence applicants (e.g. low income) or deposit account products (e.g. small-value, low-risk If A and transactions or basic accounts) exist: (A) Commercial banks; (B) Other banks; (C) B or C or Financial cooperatives; (D) Other deposit taking institutions D, 2 ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 47 TABLE E.3. Payment system oversight indicator construction38 Category Criteria Points Central bank 3.1)  (A) Central bank has formal powers to perform payment oversight If A, 1 legal powers (B) Empowerment is general If B, 2 (0-3) Empowerment is explicit, granting it powers to operate, regulate, and oversee payment (C)  If C, 3 systems 3.2) Organizational The Central Bank’s payment system oversight function has been established and this is A)  2 arrangements performed regularly and on an on-going basis (0-4) There is a specific unit or department within the Central Bank responsible for payment B)  1 system oversight The payment system oversight function is segregated from payment system operational C)  1 tasks either through organizational means or via independent reporting lines Objectives of 3.3)  The Central Bank has set down its objectives in carrying out the payment system oversight A)  1 payment system function in a regulatory or policy document oversight (0-5) B) The regulatory or policy is publicly available 1 C) Objectives address the safety and efficiency of the payment system 1 D) Objectives address market competitiveness 1 E) Objectives address consumer protection 1 Scope of 3.4)  A) Payment system oversight is performed over retail payment systems 1 payment system B) Payment system oversight is performed over payment services 1 oversight (0-7) C) Payment system oversight is performed over payment instruments 1 Payment system oversight is performed over commercial bank operated payment systems D)  1 and services Payment system oversight is performed over all relevant payment systems and services E)  1 in the country even if the operator is a non-bank (e.g. card network operators, money transfer operators) Competent authorities are legally empowered to regulate and supervise on an ongoing F)  1 basis entities operating payment card networks or switches Competent authorities are legally empowered to regulate and supervise on an ongoing G)  1 basis entities operating mobile money platforms 3.5) Cooperation A) Cooperation with other relevant authorities occurs mostly in an informal/ad-hoc basis If A and with other C, 0.5 Cooperation with other relevant authorities is ensured through a formal mechanism, such B)  relevant If A and as a memorandum of understanding (MOU) or is required by law authorities (0-2) D, 1 C) Cooperation involves mostly regular meetings and exchange of opinions and views If B and Besides regular meetings and exchange of opinions and views, cooperation also involves D)  C, 1.5 regular information exchanges, prior notice of regulatory action, joint inspection If B and D, 2 3.6) Cooperation A) A formal National Payments Council is in place If A or with other B, 2. Although not formalized, the Central Bank holds regular meetings with stakeholders to B)  stakeholders If C, 1. discuss strategic issues for the payment system (0-2) C)  The Central Bank consults stakeholders only at the operational level (i.e. on particular Otherwise, operational issues). These consultations are regular and sometimes include the creation of 0. an ad-hoc task force. TABLE E.4. Financial capability commitment indicator construction Question / indicator Points Has a national financial capability/literacy/education strategy (NFCS/NFLS/NFES) already been launched, or is one in 1 development? Does a dedicated, national, multi-stakeholder structure exist to promote and coordinate provision of financial educa- 1 tion? 48 • FINANCIAL INCLUSION GLOBAL INITIATIVE ANNEX F Recommended quantitative measures and quantitative assessment summary Annex F summarizes the quantitative assessment indicators proposed in section 3. RETAIL PAYMENTS ECOSYSTEM TABLE F.1 Financial access assessment Assessment Element Assessment Questions Potential Indicator(s) Indicator Sources Electronic Payment Which electronic payment Payment cards (0-1) Local data Instruments and instruments are available in Electronic money (0-1) Access Channels the country for making P2B Electronic funds transfer (0-1) merchant payments? Which EPA channels are POS (0-1) Local data available for MSMRs in the mPOS (0-1) country? Mobile-to-mobile (0-1) QR Code (0-1) Internet (0-1) Merchant Financial Do MSMRs have access to the Account access (% of MSMRs) with: Local data /Merchant Access accounts that are necessary for Bank acquirers survey accepting electronic Non-bank acquirers payments? Acceptance intermediaries E-money issuers Banks (business checking) Acceptance channel access (% of MSMRs): Local data /Merchant POS terminal survey mPOS Mobile-to-mobile QR Code Internet Acceptance channels per 100,000 adults: WBG GPSS POS terminals Merchants accepting QR code payments continued ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 49 TABLE F.1, continued Assessment Element Assessment Questions Potential Indicator(s) Indicator Sources Merchant Financial How do MSMRs pay their sup- Percent of B2B and B2P Local data /Merchant Access, continued pliers, employees, and for other payments made electronically by MSMRs survey operating expenses? Do MSMRs have access to Percent of MSMRs with a line of credit from Local data / Merchant external financing? a PSP survey IFC MSME Financially unconstrained micro-enterprises finance gap database (% of formal micro-enterprises) Consumer Financial Do consumers have access Instrument access (% age 15+): WBG Global Findex Access to electronic payment Debit card Database instruments available in the Credit card country? Mobile money account Financial institution account Electronic money account Local data Financial Inclusion Has a national financial National financial inclusion or retail payments Local data Commitment inclusion and/or retail strategy (0-1) payments strategy been developed and launched? TABLE F.2 Market development assessment Assessment Element Assessment Questions Potential Indicator(s) Indicator Sources Market scale What is the scale of the electronic Share of retail payments made electronically Local data payments market in terms of the (by payment flow, see Table 6) propensity to make such payments and the depth of the market? To what extent have electronic Share of P2B payments made electronically Local data payments penetrated everyday by expenditure category spending and small ticket purchases? Made digital payment in the past year WBG Findex (% age 15+) Database Electronic payments per capita WBG GPSS Market structure What is the level of competition Share of payments (value/volume) process by Local data and/or diversity of players involved top 3: in the electronic payments market? Bank acquirers Nonbank acquirers Facilitators/Aggregators Card issuers E-money issuers What are the characteristics of the Distribution of MSMRs by: Local data MSMR market in terms of the Size (employee- or turnover-based thresholds) distribution by size, segment, Retailer segment geography, formality, and other Urban vs. rural factors? Formal vs. informal No. of branches of parent 50 • FINANCIAL INCLUSION GLOBAL INITIATIVE TABLE F.3 Payment infrastructures assessment Assessment Element Assessment Questions Potential Indicator(s) Indicator Sources Interoperability and Is there at least one payment card switch operating in Card switch (0-5) See: Annex E Standardization the country? table E.1, 1.1 Are a wide range of transactions supported by the payment card switch? Do a diversified set of participants have direct or indirect access to the payment card switch? Are card fraud prevention standards in place? Does settlement of net positions take place through RTGS or central bank money if there is no RTGS? Do market schemes exist for the payment Market schemes (0-1) Local data instruments available in the country? Do regulations enforce interoperability standards for Acceptance channel Local data the acceptance channelsavailable in the country? interoperability (0-1) Do POS terminals have good or full interoperability? POS interoperability (0-1) See: Annex E, table E.1, 1.2 Does mobile money have good or full Mobile money See: Annex E, interoperability? interoperability (0-1) table E.1, 1.3 Is an interoperability standard in place for QR codes? QR code See: Annex E, interoperability (0-1) table E.1, 1.4 Are interoperability measures consideredrobust? Downtime (%) Local data Transaction failures (%) Do entities operating interoperability arrangements Innovations (0-1) Local data periodically introduce innovations and promotions to advance electronic payments? Fast Payment Is a Fast Payment System (FPS) operational or in FPS (0-6) Local data Systems development? Is the FPS available for P2B merchant payments? Does the FPS support the use of aliases? Are QR code standards in place that enable the use of QR codes for fast payments at the physical point-of- sale and at e-merchants? Is an FPS oversight framework in place? Do FPS oversight criteria cover legal basis, gover- nance, risk management, financial consumer pro- tection, including dispute resolution and complaints handling, and efficiency and effectiveness? Automated Is an ACH for credit transfers and/or direct debits ACH (0-5) See: Annex E, Clearing House available? table E.1, 1.6 Are net balances calculated and settled multiple times a day? Does final settlement take place through RTGS or central bank money if there is no RTGS? Does the ACH have a settlement risk management framework? Do a diversified set of actors have direct or indirect access to ACH services? Real Time Gross Are most large-value payments channeled through the RTGS (0-2) See: Annex E, Settlement RTGS? table E.1, 1.5 Is access to the RTGS granted on the basis of objec- tive criteria to ensure safe and sound operation of the system? ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 51 TABLE F.4 Other financial and ICT infrastructures assessment Assessment Element Assessment Questions Potential Indicator(s) Indicator Sources Telecommunications Does the degree of stable connectivity, network ICT Development Index: Access and ITU coverage, and access interfere with EPA platforms Use components (e.g., POS, mobile) or critical functions (e.g., Mobile Connectivity Index: GSMA authorization, clearing, settlement, funds receipt)? Infrastructure component Identification Does access to identification constrain merchants’ Percent of MSMRs that have a busi- Local data and consumers’ ability to open the accounts that ness identification are necessary for accepting and making electronic Percent of population unregistered WBG, ID4D payments? Dataset Credit reporting Does the coverage or quality of credit reporting Percent of MSMRs covered by credit Local data systems systems deter PSPs from seeking new merchant reporting service provider customers? Access points39 How widespread are physical access points? Does Access points (per 100,000 adults) access point coverage affect consumers’ take-up ATMs IMF, FAS of non-cash financial instruments? Branches IMF, FAS Mobile agent outlets IMF, FAS E-commerce Are ICT, payments, and shipping infrastructures UNCTAD E-commerce Index UNCTAD readiness adequate for meeting e-commerce demand? Does the market have e-commerce aggregators Number of e-commerce Local data or gateways that provide specialized services to aggregators or gateways merchants? Do merchants have access to international, Percent of merchants who are Local data regional, or local third-party online marketplaces? registered as sellers on third-party If so, do these provide financial or technical online marketplaces assistance to merchants? Do merchants have access to website Number of e-commerce websites Local data development resources? How are e-commerce payments processed? Share of e-commerce payments Local data processed by (%): • Online marketplaces • Third-party payment processors • Payment gateways • Cash-on-delivery Does the level of information security impede Frequency of cyber-crime incidents Local data e-commerce? TABLE F.5 Education and perceptions assessment Assessment Element Assessment Questions Potential Indicator(s) Indicator Sources Financial capability Are merchants and consumers equipped to weigh Adults who are financially literate (%) S&P, Global the costs and benefits of cash versus electronic Finlit Survey payments? Has a national financial capability / literacy / Financial capability commitment WBG, FICP education strategy been launched, or is one in score (0-2) Survey development? Does a dedicated multi-stakeholder (Annex E) structure exist to promote and coordinate the provision of financialeducation? Cash culture How prevalent is the use of cash outside of the Paid utility bills: using cash only (% WBG, Global P2B merchant setting? paying utility bills, age 15+) Findex Received wages: in cash only (% Database wage recipients, age 15+) 52 • FINANCIAL INCLUSION GLOBAL INITIATIVE ECONOMICS OF EPA TABLE F.6 Acceptance benefits and costs assessment Assessment Element Assessment Questions Potential Indicator(s) Indicator Sources Revenue Gains What are merchants’ revenue gains from EPA Discontinuity-based metric Local data / adoption? Comparative metric (see 3.1.1) Merchant survey Relative Costs What are the costs of electronic payment Time costs Local data/Merchant of EPA and Cash acceptance? • Waiting time survey Acceptance What are the costs of cash acceptance? • Transaction time (see section 3.1.2 for • Reconciliation time calculation details) How do the costs of electronic payment • Operations time acceptance compare to the costs of cash acceptance? Logistic costs • Travel • Communication Infrastructure costs • Deprecation • Maintenance Damage costs • Error • Theft • Fraud • Insurance Service costs • Periodic fees • Per transaction fees Cost of funds • Holding costs • Float costs Tax Liability How large is the informal economy? Informal output (% of official GDP) Elgin et al. (2021) For merchants who have adopted EPA, how Ability to limit tax evasion Institutional Profiles do their pre- and post-EPA tax rates and tax Percent of firms identifying Database compliance burdens compare? corruption as a major constraint WBG Enterprise Do transparency and/or corruption levels Surveys harm confidence in the tax system? Worldwide Control of corruption Governance Indicators ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 53 TABLE F.7 Provider costs and risks assessment Assessment Element Assessment Questions Potential Indicator(s) Indicator Sources Customer How costly is it for PSPs to obtain and Average costs by PSP type of: Local data / Acquisition and serve merchant and consumer clients? Sales and marketing Provider interviews Service Costs Setup Onboarding Servicing Subsidization To what extent do PSPs subsidize Acceptance technology subsidization Local data / acceptance technology and fees to (POS, mPOS, mobile technology) Provider interviews achieve scale? Temporary fee subsidization (MDR, IF, transaction fees) Customer Loss, How costly are the risks of customer Fraud to sales ratio Local data / Fraud, and loss, fraud, and the need to ensure Chargebacks (% of sales) Provider interviews Cybersecurity cyber resilience for PSPs? MSMR failure rate Cybersecurity costs Incentives and How much do PSPs invest in incentive Access points (per 100,000 adults) Local data / Innovation programs and innovation in new prod- ATMs Provider interviews ucts and services? Branches Mobile agent outlets TABLE F.8 Consumer behavior assessment Assessment Element Assessment Questions Indicator Sources How high is the propensity to make electronic Made digital payment in the past year (% of account WBG Findex Database payments among consumers? holders) Which payment methods do consumers prefer? Consumers’ preferred payment methods Household interview Reasons for payment preferences Experiences with various payment methods Merchant survey Merchants’ perceptions of customers’ preferred payment methods LEGAL, REGULATORY AND OVERSIGHT TABLE F.9 Legal and regulatory (general) assessment Assessment Element Assessment Questions Potential indicator(s) Indicator Sources Soundness and Predictability Does legal or regulatory ambiguity or incon- Regulatory Quality: Worldwide Governance sistency deter providers and Percentile Rank Indicators merchants from engaging in EPA? Contractual Relations and Does the strength of contract enforcement Rule of Law: Worldwide Governance Enforceability affect PSPs’ willingness to provide Percentile Rank Indicators electronic payment services? 54 • FINANCIAL INCLUSION GLOBAL INITIATIVE TABLE F.10 Legal and regulatory (financial) assessment Assessment Element Assessment Questions Potential Indicator(s) Indicator Sources Soundness and Is the legal and regulatory framework for retail payments risk- Overall assessment Local data Predictability based, provider- and instrument-neutral, and forward-looking? [0-1] Do legal provisions cover fair and competitive practices in the Specific criteria See: Annex E, table provision of payment services? score [0-6] E.2 Do legal provisions cover electronic money? Are agent-based models permitted? Are a variety of nonbank entities permitted to offer payment services on the acceptance side of the market? Are a variety of nonbank entities permitted to offer payment services on the issuance side of the market? Does a transparent process exist for nonbank PSPs to obtain a Credit neutrality Local data credit license directly or indirectly through a subsidiary entity? [0-1] Financial Do legal provisions cover consumer protection for retail FCP Score [0-6] See: Annex E, table consumer payment services? E.2 protection Do terms, conditions, fees, and customer rights have to be disclosed prior to the customer entering into a contract? Are customers protected against unauthorized transactions in the form of (limited) customer liability? Are recourse and dispute resolution mechanisms clearly articulated and easily available to the public? Is admissible disclosure of transactional and/or personal data is clearly articulated and easily available to the public? Are customers protected against third-party claims on their funds? System integrity Is a risk-based approach in place for merchant due diligence? RBA to MDD [0-1] Local data Is the AML/CFT regime compliant or largely compliant with FATF: RBA and FATF Consolidated FATF recommendations on a risk-based approach and customer CDD [0-2] Assessment Ratings due diligence? ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 55 TABLE F.11  Provider costs and risks assessment Assessment Element Assessment Questions Potential Indicator(s) Indicator Sources Central bank legal Does the central bank have formal powers to perform Score [0-3] See: Annex E, table powers payment oversight? E.3 Does empowerment grant the central bank the power to operate, regulate, and oversee payment systems? Organizational Is the central bank’s payment system oversight function Score [0-4] See: Annex E, table arrangements established and performed on an on-going basis? E.3 Is there a specific unit or department within the Central Bank responsible for payment system oversight? Is the payment system oversight function segregated from payment system operational tasks? Objectives of Has the central bank set down its objectives in carrying out Score [0-5] See: Annex E, table payment system the payment system oversight function in a regulatory or E.3 oversight policy document? Is the regulatory policy publicly available? Do the objectives address the safety and efficiency of pay- ment systems? Do the objectives address market competitiveness? Do the objectives address consumer protection? Scope of payment Is oversight performed over retail payment systems? Score [0-7] See: Annex E, table system oversight Is oversight performed over payment services and instru- E.3 ments? Is oversight performed over commercial bank operated pay- ment systems and services? Is oversight performed over all relevant payment systems and services in the country even if the operator is a non- bank? Are competent authorities legally empowered to regu- late and supervise on an ongoing basis entities operating payment card networks or switches and entities operating mobile money platforms? Cooperation Is cooperation with other relevant authorities ensured Score [0-2] See: Annex E, table with relevant through a formal mechanism, such as a memorandum of E.3 authorities understanding or a legal requirement? Does cooperation involve regular meetings, information exchanges, prior notice of regulatory action, and joint inspection? Cooperation Is a formal National Payments Council in place, or does the Score [0-2] See: Annex E, table with other central bank hold regular meetings with stakeholders to E.3 stakeholders discuss strategic issues for the payment system? Risk-based Does payment system oversight reflect a risk-based, propor- Score [0-1] Local data approach to tional, provider- and instrument-neutral, and forward-look- oversight ing approach? 56 • FINANCIAL INCLUSION GLOBAL INITIATIVE Glossary Term Definition (Source: CPMI and World Bank) Automated clearing An electronic clearing system in which payment orders are exchanged among financial institutions, house (ACH) primarily via magnetic media or telecommunications networks, and then cleared amongst the participants. All operations are handled by a data processing center. An ACH typically clears credit transfers and debit transfers, and in some cases also cheques. Agent-based models Bank/PSP partnerships with non-banks, typically retail commercial outlets, in order for the latter to provide a range of banking and other financial services Basic payment account A bank account that is typically focused on payment services and characterized by low-cost and no-frill features. These accounts are often offered in combination with a debit card. E-money or electronic E-money is a record of funds or value available to a consumer stored on a payment device such as chip, money prepaid cards, mobile phones or on computer systems as a non-traditional account with a banking or non-banking entity. Final settlement The irrevocable and unconditional transfer of an asset or financial instrument, or the discharge of an obligation by the FMI or its participants in accordance with the terms of the underlying contract. Final settlement is a legally defined moment. Mobile money E-money product where the record of funds is stored on the mobile phone or a central computer system, and which can be drawn down through specific payment instructions to be issued from the bearers’ mobile phone. Also known as m-money. National Payments A National Payments Council gathers the very senior representatives (in some cases even the top-level Council authority) of the major stakeholders to discuss the current situation of, and potential improvements to, the national payments system from a strategic perspective. A formal National Payments Council typically has a defined organizational structure and operational rules that facilitate dialogue and decision-making. Netting The offsetting of obligations between or among participants in the netting arrangement, thereby reducing the number and value of payments or deliveries needed to settle a set of transactions ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 57 Term Definition (Source: CPMI and World Bank) Payment card switch A payment card switch is defined as a mechanism that connects various institutions allowing inter- change of payment cards transactions of participating institution cardholders at other participating institution merchants, ATMs and other card acceptance devices. A payment card switch is typically used for routing authorization and authentication-related messages between participating institutions, and can also generate and distribute clearing and settlement files. In some settings, the individual insti- tutions could themselves have payment card switches to connect their own ATMs and POS terminals to their own internal card processing systems, and these payment card switches are then connected to a central inter-institution payment card switch. Payment card switches are also beginning to be used for processing of card transactions initiated through other channels like internet and mobile phones. This is often used interchangeably with payment card network but there are important differences. A payment card switch in general refers to the technical infrastructure whereas a payment card network encom- passes operational arrangements, payment products, rules, procedures, acceptance brands etc. and essentially is a payment system. Payment service An entity that provides payment services, including remittances. Payment service providers include provider (PSP) banks and other deposit-taking institutions, as well as specialized entities such as money transfer operators and e-money issuers. Payment system An entity that operates a payment network and/or other payment infrastructures. operator (PSO) Real-time gross The real-time settlement of payments, transfer instructions, or other obligations individually on a settlement (RTGS) transaction-by-transaction basis. 58 • FINANCIAL INCLUSION GLOBAL INITIATIVE References Adhikary, A., K.S. Diatha, S.B. Borah, and A. Sharma. 2021. Committee on Payments and Market Infrastructure (CPMI) How does the adoption of digital payment technologies and World Bank (WB). 2020. Payment Aspects of Financial influence unorganized retailers’ revenue performance? Inclusion: Application Tools, September. An investigation in an emerging market. Journal of the Committee on Payments and Market Infrastructure (CPMI). 2016. Academy of Marketing Science. 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Summary Outcomes of the Fifth Global Payment Systems United Nations Conference on Trade and Development Survey. June. http://documents1.worldbank.org/curated/ (UNCTAD). 2015. Information Economy Report 2015: en/115211594375402373/pdf/A-Snapshot.pdf. Unlocking the Potential of E-commerce for Developing Countries. World Bank. 2021a. Considerations and Lessons for the Development and Implementation of Fast Payment Systems. United Nations Conference on Trade and Development September. https://fastpayments.worldbank.org/ (UNCTAD). 2019. UNCTAD B2C E-Commerce Index 2019. World Bank. 2021b. Risks in Fast Payments Systems and Visa. 2016. Small Merchants, Big Opportunity: The Forgotten Implications for National Payments System Oversight, Path to Financial Inclusion. Focus Note, September. Visa. 2020a. Visa Core Rules and Visa Product and Service World Bank. 2021c. Consumer Risks in Fintech: New Rules. Public Version 1.2 (1 June). https://usa.visa.com/dam/ Manifestations of Consumer Risks and Emerging Regulatory VCOM/download/about-visa/visa-rules-public.pdf. Approaches, Policy Research Paper, April. Visa. 2020b. Visa Inc. Reports Fiscal Third Quarter 2020 Results. World Economic Forum and World Bank Group (WEF and https://s1.q4cdn.com/050606653/files/doc_financials/2020/ WBG). 2016. Innovation in Electronic Payment Adoption: q3/Visa-Inc.-Q3-2020-Earnings-Release.pdf. The case of small retailers. Visa. 2020c. Visa Inc. Reports Fiscal Fourth Quarter and Full-Year 2020 Results. https://s1.q4cdn.com/050606653/ files/doc_financials/2020/q4/Visa-Inc.-Q4-2020-Earnings- Release.pdf. 60 • FINANCIAL INCLUSION GLOBAL INITIATIVE Notes 1. World Bank (2022). Guidance for the Implementation of 10. See: MSME Finance Gap, Definitions, https://www. Electronic Payments Acceptance Reforms. smefinanceforum.org/data-sites/msme-finance-gap 2. Instrument-neutrality means that the guides can be 11. The EPA Incentives Report, a part of the EPA Package, adapted to any type of interview approach, such as surveys provides further empirical evidence for these relations. or focus group discussions. 12. The most common employee-based size thresholds for 3. The “assessment elements” presented in the Assessment MSMEs are: micro (1-9 employees); small (10-49 employees); Guide include EPA barriers, enablers, and other and medium (50-250 employees) (IFC 2019). development considerations. The assessment elements 13. The proposed card switch indicator is described in Annex E, have been derived from literature addressing EPA and retail table E.1. payment system development, as well as inputs and vetting 14. Thus far, schemes have not been as integral to other from experts on the FIGI EPA Working Group electronic payment instruments, such as mobile money, 4. As part of the EPA Package, the World Bank published the but providers of these payment instruments are beginning quantitative merchant survey questionnaires used as part of to develop scheme-like arrangements to manage risk and the EPA Pilots. establish standard operational arrangements. 5. E-money instruments generally include mobile money, 15. See: EMVCo, https://www.emvco.com/. online money, and prepaid cards. 16. Data from the GPSS permit developing cross-country 6. EFT refers to account-to-account direct credit and direct measures of interoperability for POS terminals, mobile debit transfers. money, and QR codes. For POS terminals and mobile money, 7. Acceptance intermediaries include a range of entities the indicators reflect whether these channels have good that facilitate merchant acceptance, including payment or full interoperability. For QR codes, the indicator reflects facilitators/aggregators, third-party processors, payment whether regulations enforce the EMV Specification or gateways, and bill aggregators, among others. The FIGI EPA another interoperability standard for QR codes. As defined Intermediaries report addresses these entities and activities in the GPSS, “full (good) interoperability of POS terminals” in more depth. means that all (most) payment cards issued by banks in 8. This configuration is most applicable for mobile money the country can be used seamlessly in any POS terminal in acceptance. An example is the Lipa Na M-Pesa account, the country. “Full (good) interoperability of mobile money” which enables merchants in Kenya to accept P2B M-Pesa means that all (most) payments between mobile money mobile money payments. services can be made seamlessly, at least for person-to- person transfers. 9. Access to finance among MSMRs can be approximated using data on MSMEs, more broadly. 17. Also see https://fastpayments.worldbank.org/ ELECTRONIC PAYMENT ACCEPTANCE ASSESSMENT GUIDE • 61 18. The next iteration of the GPSS will also include detailed 28. A popular research design for analyzing before-and-after questions on FPS that will enable the development of an effects is the difference-in-differences estimation approach. FPS indicator. 29. For a more in-depth description of these cost elements, 19. The oversight criteria are adapted from World Bank please see WBG 2016b. (2021b). 30. See Elgin et al. (2021), Annex 2A, pg. 70 for the full list of 20. For further guidance on assessing financial consumer variables. protection standards for retail payments, see section 31. The IPD comprises 127 indicators of 144 countries’ 3.3.2.2. institutional patterns. The indicators are based on 21. In some limited cases (e.g., Mexico and Saudi Arabia), the perceptions interviews conducted by France’s Ministry for RTGS plays a more direct role in retail payments (CPMI and the Economy and Finance and the Centre for Prospective WBG 2016). Studies and International Information. See: Institutional 22. See, GSMA Mobile Connectivity Index, Profiles Database, http://www.cepii.fr/institutions/EN/ipd. http://www.mobileconnectivityindex. asp com/#year=2018&dataSet=dimension 32. In addition, please see World Bank (2021c) for consumer There is minimal overlap in the indicators included in the risks in the fintech era and examples of emerging regulatory MCI and the ICT Development Index, as the MCI focuses approaches. more on mobile infrastructure. Of the 12 indicators 33. The FATF issues compliance ratings through its underlying the MCI’s Infrastructure component, only Secure Consolidated Assessment Ratings. See: https://www. Internet Servers per 1 million people overlaps with the ICT fatf-gafi.org/publications/mutualevaluations/documents/ Development Index. assessment-ratings.html. 23. More recently, the COVID-19 pandemic has compelled many 34. Using Recommendations 1 and 10 for this indicator is not MSMRs to develop e-commerce strategies, as customer meant to minimize the importance of the other FATF foot traffic has taken a hit. Recommendations. Rather, Recommendations 1 and 10 are 24. It is worth pointing out that the individuals using the most relevant for EPA. internet and secure internet servers indicators are reflected 35. For more on the features of a neutral and proportional legal elsewhere in the Assessment Guide, which reinforces the and regulatory framework, see section 3.3.2.1. notion that barriers to e-commerce and EPA more broadly 36. See, for example, World Bank (2008), the G20 Financial overlap. Inclusion Indicators, and PAFI Application Tools (CPMI and 25. The World Bank Global Findex Indicator, Used the internet WB, 2020). to buy something online in the past year (% age 15+), can 37. See Annex D, Table D.3 for more general assessment also shed light on the scale of e-commerce in a given criteria to be evaluated at the local level regarding legal and country. This indicator is subsumed in the Made digital regulatory neutrality and proportionality. payment indicator, which is reflected elsewhere in the 38. See Annex D, Table D.3 for more general assessment criteria Assessment Guide. to be evaluated at the local level regarding a risk-based 26. See: S&P Global Finlit Survey – Methodology, https://gflec. approach to oversight. org///sp-global-finlit-survey-methodology/. One drawback 39. For the access points assessment element, it is especially of this indicator is that it was developed in 2014, and it is important to consider local context. Certain types of access unclear whether the survey will be conducted in the future. points may not be relevant for a country, given the country’s 27. This assessment element differs from the consumer payment system features and broader ecosystem. behavior element discussed later (see: 3.4) in that it focuses on the centrality of cash in the broader economy, whereas consumer behavior focuses on P2B payments. 62 • FINANCIAL INCLUSION GLOBAL INITIATIVE