Keynote address by Loi. M. Bakani, CMG, the Governor of Bank of Papua New Guinea at the Improving Digital Financial Literacy Workshop An APEC Capacity-Building Initiative for Papua New Guinea 20-21 June 2018 The Stanley Hotel, Port Moresby

Acknowledgements

• Ms. Caitlin Wilson, Deputy High Commissioner, Australian High Commission;

• Australian Department of Foreign Affairs and Trade Officials;

• Other VIPs;

• Invited International Speakers and Facilitators;

• Representatives of Financial Institutions; and

• Representatives of relevant Papua New Guinea Government Agencies;

• Ladies and Gentlemen.

Good morning.

Let me begin by thanking the Australian Government for partnering with us to organising this very vital workshop that reflects one of our Key Priority areas on our National Financial Inclusion Strategy 2016-2020 and that is Digital Financial Services and supports current priorities in the Finance Ministers’ Process, and the Cebu Action Plan.

Digital financial inclusion (DFI) is defined as digital access to and use of formal financial services by excluded and underserved population; this phenomenon has emerged as a new wave in the hope that it will reach the last mile consumer in the most convenient and affordable manner. Given low levels of adult financial literacy in Papua New Guinea, particularly amongst women, there is a need to strengthen consumer digital financial literacy and awareness in the country. With the high illiteracy rates and low technology innovation and penetration, financial literacy and consumer awareness must be improved to drive usage of digital financial services and products.

Globally, financial sector policymakers recognize the “game-changing” potential of digital financial inclusion. Institutions and financial regulators have the opportunity – and indeed the responsibility – to prepare consumers for both the risks and the rewards of the digitization of financial services.

The existing “bricks and mortar” banking system does not work for poor people. This is partly because most of their transactions are conducted in cash. Handling cash transactions is costly for banks, utility companies and other institutions, which pass along the costs to their customers. This takes the services beyond the financial reach of consumers.

I see this capacity building workshop as critical for government officials and policy makers in this room in understanding and mitigating risks as key to achieving the game changing potential rewards of digital financial inclusion.

Towards digital financial inclusion

The global revolution in mobile communications, along with rapid advances in digital payment systems, is creating opportunities to connect poor households to affordable and reliable financial tools through mobile phones, and other digital interfaces.

Digital financial services should be suited to customers’ needs, and delivered responsibly, at a cost both affordable to customers and sustainable for providers. The three key components of any such digital financial services are: a digital transactional platform, retail agents, and the use by customers and agents of a device – most commonly a mobile phone – to transact via the platform.

What is happening?

New digital transactional offer convenient and vastly less expensive ways to make payments and transfer funds, more often, providing a safe place for our people to store value especially for those that rely on the proverbial mattress. These platforms accommodate the very small and unpredictable cash flows of the poor, allowing them to transact affordably in tiny amounts whenever they wish, subject to the vagaries of sometimes unpredictable or unreliable connections and other risks.

With the implementation of PNG’s 2nd National Financial Inclusion Strategy, our first quarter (March 2018) statistics show that there has been an increase of 55% of users with mobile financial services accounts and a 62.75% increase of women with mobile financial service accounts.

Digital transactional platforms yield further benefits for financial inclusion by providing both a means to access additional financial services, such as interest-bearing savings, credit, insurance and even investment products. They also generate data that financial providers and regulators can use to design financial products tailored to the repayment capacity and financial needs of the specific poor and low-income customer segments.

Digital financial literacy

In a digital world, safety and security are the top priorities for everyone. Remaining safe is an individual’s own responsibility which has to be taken seriously. Payment providers can put in the most fool proof systems in the world but the human element of payments, and hence actions resulting in fraud, cannot be emphasised enough. Whether it is reducing risk, improving uptake and usage, enhancing consumer protection or avoiding over-indebtedness, digital financial literacy is the (convenient) marriage of all three paradigms: digital, finances and literacy.

Simply, Digital financial literacy is having the knowledge, acquired skills and necessary habits to effectively use digital devices for financial transactions. This intersects with an individual’s basic literacy levels and their ability to use digital devices/technology.

Challenges

Low literacy and distrust: Although digital technology is opening new vistas, challenges persist. Sparse populations, inconsistent network coverage, insufficient capital for building new business models, lack of trust and low technical literacy of consumers can stand in the way of success, particularly in connecting remote or underserved communities.

For us here in PNG, an early and quick transition may not seem plausible because of the magnitude of the geographical and cultural divide. People’s aversion to digital finance has more to do with their aversion to everything that has to do with technology. And this stems from their lack of trust in it. It is also partly on account of lack of comfort with technology and literacy needed to fully use these services.

Women often face additional barriers: less access to mobile phone, lower literacy levels, less confidence in using technology and restrictions on travel or social interaction.

The spike in cyber-attacks: The push for digitisation has escalated risks relating to cybercrime. Cyber-attacks are the third most likely global risk for 2018, behind extreme weather conditions and natural disasters, that’s according to findings from the World Economic Forum’s Global Risk Report 2018.

PNG has earlier this year launched the National Computer Emergency Response team (CERT), formed to assess internet security risks and to provide assistance to online systems that become victims of hacker attacks. A team of experts from the Government, banks, internet service providers and the University of Technology has been set up to protect businesses and the general public from cybercrime. CERT is also working on creating a policy framework to regulate cyber security in Papua New Guinea.

Impact of financial education programmes: It has been found that financial education programmes that focus only on imparting knowledge rarely deliver impact unless they are backed by a suitable product and its usage support. A recent UNDP survey on financial literacy programmes in India revealed that in areas where a service provider was involved in the programmes, the participants had a better understanding of products and used them regularly.

Some banks use a decision tree to help customers open saving accounts that match their needs. Going through the decision tree in itself leads to an understanding of improved product features. Similarly, in one model, a bank undertook a project to deliver financial education training to young women in rural communities through a cascade training model where core trainers trained peer educators, who in turn trained community members. These examples show that there is a need to approach financial education using a model that involves experiential learning and use of products, rather than theoretical approaches.

To use financial services to their full potential, to protect their families and improve their lives, the low-income people need products well suited to their needs. They also need appropriate training and education for adapting to these financial services. All this requires attention to human and institutional issues such as quality of access, affordability of products, familiarity and comfort in use, sustainability for the provider of these services, and outreach to the most excluded populations.

What is on the horizon for policy makers?

Digital financial inclusion introduces new market participants and allocates roles and risks (both new and well-known) in different ways compared to traditional approaches to retail financial service delivery. The new parties and arrangements involved in the digital transactional platform, and specifically in the management and storage of account data and the holding of customer funds; the technology used by the device and the digital transactional platform; and the use of agents as the principal customer interface triggers, as well as the typical profile of the financially excluded or underserved customers in question, introduce operational risks, consumer-related risks, and financial crime risks, among others. Understanding and mitigating these risks will be key to achieving the game-changing potential rewards of digital financial inclusion in PNG.

Conclusion:

In the next two days, you will gain a stronger understanding of the characteristics, advantages and risks of digital financial services and a stronger knowledge of the activities and channels that can be used to improve consumers’ digital financial literacy drawing from case studies and best practices from other APEC economies.

I look forward to your strategies and action plan to improve digital financial literacy in Papua New Guinea and I wish you well in the next two days of workshop.

Thank you.