Towards a Stronger Digital Financial Ecosystem in Peru

Even though Peru has 33,609 banking agents and 10.6 million debit cards for a population of approximately 31 million, its unique topography prevents poor people living in remote areas from accessing financial services. Until now, to gain access to services, many people had to walk long distances to a point of sale or a financial intermediary. More than 10 million Peruvian adults do not use any financial services at all due to high transaction costs and financial illiteracy, as well as remoteness. These barriers make it extremely difficult for the government of Peru to reach low income people with social payments.

Blazing new trails for digital inclusion

To improve access to financial services for its people, Peru is blazing new trails. In 2013, it became one of the first countries in Latin America to pass a new law to promote the use of electronic money. “We introduced specific simplified regimes for digital accounts with small amounts, and obliged telecom providers to offer the required services. We want to make sure that digital payments can take place and that prevailing conditions favour this type of payment,” explains Carolina Trivelli, Peru’s former Minister of Development and Social Inclusion and now Manager of the Asociación de Bancos del Perú (ASBANC) Electronic Payments Initiative.

Peru will further advance financial inclusion with the launch of a unique initiative by ASBANC that will reach out to 5 million clients in five years. A common mobile payments platform is being developed across major financial institutions such as Banco de Crédito del Perú (BCP), Interbank, BBVA Continental, and Scotiabank but also serving the largest public bank, Banco de la Nación and several non-banking formal financial institutions, as well as telecommunications operators including Movistar and Claro.

“The ASBANC initiative is based on creating a shared infrastructure to build a new transactional channel that will allow us to improve the lives of millions of unbanked Peruvians and help them to know the financial system better. Through this system, the financial intermediaries will get to know these clients and offer them new products and services. We expect that 2.1 million will be frequent users of the new channel. The final objective of ASBANC’s initiative is to help and speed the ongoing process of financial inclusion,” adds Ms. Trivelli.

With interoperability at its core, the platform has been designed to help users of the service access a mobile money bank account from their devices to save funds, issue payments, and receive transfers. “Through interoperability, users will be able to transact with all other bank accounts in the country, regardless of the issuing bank, telecommunications services, or type of account. By committing to interoperability, the new service will be fully integrated into the existing national infrastructure and will encourage broad national use,” explains Jeffrey Bower, Programme Management Consultant, BTCA.

Miguel Arce, Director of Channels and Innovations of Scotiabank Peru, and Head of ASBANC’s Committee on Electronic Payments, says: “Participating players will create the necessary demand and the market to compete on the basis of a common platform. A multi-banking agent network for cash-in and cash-out will enable thousands of merchants to accept payments through a point of sale. These processes will progressively substitute the use of cash.”

Support from the Better Than Cash Alliance

The Better Than Cash Alliance (BTCA) stepped in following a request from the Government of Peru to provide technical assistance for its moving from cash to electronic payments. BTCA responded by undertaking an electronic payments ecosystem assessment in partnership with the government of Peru. “The assessment set out to identify the status of the industry and highlight gaps, challenges, and opportunities to support the promotion of electronic payments in Peru,” says Chris Dooley, Technical Assistance Facility Manager, BTCA.

Of the many activities identified as needed, the ASBANC initiative was one of the key national priorities for multiple actors, including the government. “Our assessment found a number of areas where Peru is well advanced as there is increasing cooperation amongst all the actors, comprehension of the value of electronic payments, and an open regulatory environment that allows products to come to the market. There are still, however, major challenges including ongoing coordination, financial education, and acceptance infrastructure, that will need to be overcome to fully transition to electronic payments,” adds Mr. Bower.

To ensure that the platform starts operating as soon as possible, BTCA will provide short-term technical assistance. The Alliance is funding three short-term consultants to assist with the integration of the technical aspects of the platform across all banks and operators. “Since the initiative is still at the design stage, it’s very important to have the right technical design and that is where BTCA is helping the initiative by providing strong technical expertise,” says Mr. Dooley.

Technical expertise is not the only support BTCA has provided. “BTCA is supporting our initiative in several ways. It keeps us updated of new developments, innovations, and good practices that are being developed around the globe. They also help us to engage in dialogues with specialists, other institutions facing similar challenges, experts, researchers and research, and policymakers,” adds Ms. Trivelli.

According to her, BTCA’s support has “solved short-term problems by helping ASBANC to hire highly competitive consultants and share our work with others so we can receive more inputs and ideas for improvement”.

More than anything, Ms. Trivelli hopes that Peru’s initiative will bring lessons on how to build a new payments platform for a financial sector initiative, and reach out to specific groups in society. She says: “What are the challenges and opportunities this specific initiative can offer to reach financial inclusion goals? We are experimenting, we will make a lot of mistakes, and generate a lot of answers to those mistakes. We like to think of ourselves as part of a global community trying to identify the easier and best way to move forward!”

If successful, the shared platform will not only change the payments landscape in Peru, but it will serve as a meaningful example of the value of interoperability in mobile payments systems.

Peru is a founding member of the Better Than Cash Alliance and this is just one example of BTCA’s Technical Assistance Facility.