September 8, 2016
By Mark Flaming
Banks and mobile phone companies in the South Pacific began innovating with digital finance technology long before “fintech” gave the field a catchy name. Since 2010, banks and network operators have used digital finance channels to double the share of the population in Papua New Guinea, Fiji and the Solomon Islands participating in the formal financial systems.
Such innovation is still in its early phases, but several of the innovators are doubling down on efforts to make digital financial services work for the region’s remote populations.
Digicel launched Cellmoni in Papua New Guinea in 2011, and that same year Bank South Pacific began building an extensive network of rural bank agents. Over the following two years, Australia and New Zealand Banking Group and Westpac Banking developed and launched mobile banking platforms and agent networks in the region as well. By 2013, the major mobile network operators and banks were all competing with their own platforms in PNG, Fiji and Solomon Islands.
Historically, bank branches and ATM networks have been limited to a few population centers on the islands. Dispersed populations and a lack of infrastructure have made expansion of brick-and-mortar service channels commercially unviable.
Recent innovations with payment technology and mobile phone networks have enabled customers to transact remotely. This has opened up the mass market to service providers for the first time. This is also likely why established banks in the South Pacific have been quicker to build out their own bank agent networks than counterparts in Africa and South Asia.
The region’s policymakers also deserve credit for their enabling role in this first wave of fintech innovation. Bank regulators have embraced financial inclusion as a policy objective and have created regulatory “sandboxes” to enable these initial experiments to proceed without risk to the wider financial system.
Governments have begun digitizing payments to encourage the use of the emerging payment channels. The recent national payments law in Papua New Guinea is an example of the authorities creating a permanent regulatory framework for fintech innovation. The alignment of public policy and private commercial initiatives runs deeper and wider than in most countries of the world and that explains a good deal of the momentum in South Pacific markets.
The Pacific Financial Inclusion Programme has been a funding and technical partner for many of the first-generation service providers and regulators in the region. We see these initial innovations as promising but still in their infancy. Banks and mobile network operators have built impressive digital finance channels, but the typical mass-market customer in the South Pacific is only beginning to use these services to sort out their daily finances.
Early stories of adoption point the way forward. The first international remittance customers of new players like KlickEx have shown a significant appetite for cheaper and more convenient money transfer services. Customers are buying prepaid electricity top-ups through Vodafone’s M-Paisa mobile wallet in Fiji and remote customers in Papua New Guinea use pay-as-you-go meters that can be topped up the same way for solar power. A quarter of a million remote PNG customers are paying premiums on policies from mobile-focused insurer BIMA through their Digicel mobile phones.
More work is needed before these channels can work for all mass-market customers in the South Pacific. Fortunately, the major first-generation providers are starting to adapt their channels and services with a renewed focus on the customer.
Like the rest of the fintech industry around the world, there is work to be done to build value for customers and yet provide a commercially scalable model for companies. But South Pacific providers are leaning into this challenge with significant digital channels in place and collective market momentum. We predict some significant breakthroughs in the coming years.
Mark Flaming is based in Suva, Fiji as the manager of the Pacific Financial Inclusion Programme, a U.N.-administered center which promotes innovation in digital finance.
Commentary published in Asian Nikkei Review