Enabling Financial Inclusion through E-commerce
E-commerce is a growing feature of local retail ecosystems throughout the Asia-Pacific region. Supported by new convenient and affordable transaction options enabled by internet-based platforms and mobile money, e-commerce is a significant driver of the use of digital financial products and services.
While e-commerce across the region continues to develop, its success in generating demand for digital financial products and services for microenterprises and those at the base of the economy is not great. There is an opportunity for policymakers and regulators to create an enabling environment for innovative e-commerce solutions which promote access and use of digital financial services (DFS) among the poor and in e-commerce markets – and by extension lead to significant gains for financial inclusion.
E-commerce models which target the needs of microenterprises could provide compelling reasons and opportunities to use digital wallets and payment mechanisms, and by extension introduce new financial inclusion opportunities by enabling the poor to access other digitally-enabled services appropriate for their needs, such as credit, savings, insurance or pensions.
As part of the Asia-Pacific Financial Inclusion Forum in 2020, an APEC policy initiative, FDC examined the rise of e-commerce in Asia-Pacific and particularly its growing usage among microenterprises in the informal economy. By analysing different e-commerce models, including both formal and informal platforms, FDC has developed a series of recommendations for policymakers and regulators to assist them in creating new opportunities for financial inclusion at the base of the economy through e-commerce.
These recommendations, including supporting case studies, are explained in detail in FDC’s recent publication: Enabling shared prosperity through inclusive finance: leaving no one behind in an age of disruption. This report was prepared for APEC’s Finance Ministers and other senior officials to support regional efforts to expand the reach of financial services to the underserved. A summary of the recommendations is as follows:
Recommendation 1. Support the establishment and development of e-commerce models which align with the needs of microenterprises at the base of the economy by:
- Improving connectivity by extending physical digital communication infrastructure beyond urban centres into rural and remote areas. Government can lead in building this infrastructure, with private sector partners to enhance sustainability.
- Ensuring that adequate regulations for e-commerce are in place (or as an extension of trade practices legislation) which specifically recognise the needs of the poor and offer appropriate protections, including redress or penalties for fraud.
- Encouraging local government in rural areas to facilitate and coordinate the growth of e-commerce, including development of key infrastructure (e.g. internet connectivity, logistics networks etc.), concessions and reduced administration.
- Leveraging existing public and private infrastructure in regional and remote areas, such as bank branches, post office branches, consumer service centres, market trader stores, and cooperatives, to facilitate e-commerce transactions and logistics.
- Prioritising development of or access to sources of finance to support e-commerce platforms or models designed to reach poor and rural populations and assist microentrepreneurs in reaching economies of scale.
- Establishing programs to promote consumer protections which cover the poor, including financial and digital literacy.
- Developing economy-wide e-commerce strategies to close gaps in digital access, adoption and use, including measures to enhance affordability and increase online safety, as well as targets for extending networks and digital access to rural and remote areas.
- Commissioning an update of the 2017 APEC Internet and Digital Economy Roadmap, specifically focusing on point 10, “Enhancing inclusiveness of Internet and Digital Economy,” to include consumers and microenterprises operating in poor and vulnerable communities.
Recommendation 2. Support the transition from cash towards digital mechanisms for e-commerce platforms by:
- Working with the private sector to explore and develop opportunities to support the digitisation of microenterprise value chains.
- Raising awareness of the risks of fraud and developing mitigation strategies for microenterprises, especially for the poor and most vulnerable, to build confidence in the digital financial system.
Recommendation 3. Drive demand and support the onboarding of micro-merchants onto formal e-commerce platforms by:
- Studying the various types of e-commerce used locally, including formal and informal models to better understand how it contributes to the economy, livelihoods, financial inclusion and gender equality.
- Working with e-commerce market players to promote technology solutions which cater to the poor and enable online business opportunities, through technology incubators and accelerators, training and development of start-up tools.
- Establishing pragmatic regulatory requirements to provide suitable pathways, including appropriate incentives (e.g., simple registration, lower tax thresholds), for microentrepreneurs engaged in e-commerce to formalise their businesses.
- Working towards creating a trustworthy environment for e-commerce, including the establishment of a framework for complaints and dispute resolution to discourage fraud, support better customer service and improve online sales.
Recommendation 4. Support the empowerment of women through e-commerce by:
- Ensuring that women can enjoy a safe internet experience by progressing policies which provide and enforce women’s digital rights, including enhanced information security and protection of intellectual property.
- Increasing opportunities for women’s digital connectivity by prioritising investments and providing incentives which lead to greater access to smartphones and internet connectivity for women entrepreneurs in rural areas, and mechanisms for offline transactions.
- Providing digital and business skills training programs which are tailored to strengthen women’s agency, capabilities and understanding and use of technology in an enterprise context.