Hello, and welcome to Section 1.5,
this is in Part B of Module One,
and we're looking at the
Digital Financial Services Ecosystem.
So a system within the system.
And so in the study guide,
it's listed as the key components step-by-step,
but I'm actually going about it a slightly different way.
And I want to show you how they sit on top of each other
as a type of framework.
So the first thing is your bedrock, your foundation stones,
without good policies, laws, regulations,
to make sure that digital services,
for example, are accessible, affordable,
but also safe, you're protected in terms of privacy
and ransomware items like that.
We need a foundation stone set in place by governments.
So that's the first item.
Okay and then we have our infrastructure,
our financial infrastructures,
so our banking rules and regulations,
as well as our technical,
computers and the systems talking to each other.
Then what comes next?
We've got the providers
in the digital financial services system.
So based on that, which of these do you think
meet the requirement as providers, banks, businesses,
government agencies, non for profit groups.
So we see here banks, non-banks,
licenced financial institutions are our providers.
And from there we've got our users.
So as I said in the study guide, it starts with the users,
providers then infrastructure policy, but
visualising this way shows you how each layer
sits on top of its foundations.
So our users our consumers and businesses,
not for profits government agencies
are all going to be part of this
digital financial services ecosystem.
Now taking from the theoretical to the practical
Airwallex is an example of a company operating
within this system.
They provide a single platform
for international business accounts.
Now, if you've in the last five or 10 or 20 years
had to do an international buying or selling,
you have to obtain foreign exchange.
You often have to have bank accounts
in other countries it's incredibly complicated and tiresome
and lots of steps to follow
and often delays and frustration.
So simplifying these areas
is incredibly valuable to businesses.
Not only that, you know, that this single platform,
the future integrations are becoming more powerful,
they currently already
integrate with your accounting software,
which makes it quick and fast, you know
copying data from one system to another and reconciling,
and then in the future invoicing quoting.
Expense management, 'cause if you use your Airwallex card
for payments, that should translate straight into
what your employees are doing and spending that money on
payroll and even a payment gateway for e-commerce.
So, we have our digital financial services.
We have an ecosystem, but what's the goal?
What is it trying to achieve?
So the key always goes back to that infrastructure
of the financial realm,
and you have your providers of capital or money
they want to invest on one side or lend.
And on the other, you have the users, the borrowers
who want that money.
And we need intermediaries to bring those two together
because they never normally have matching needs
and it creates liquidity problems.
So our overarching goal,
the providers want to allocate savings.
The users want access to the lowest cost of funding.
And if it works smoothly we'll balance risk
and liquidity and return
because problems arise when there is not a perfect match.
That's why we have banks in the middle, for example.
So if you're a lender and you've got 10,000 to lend,
and then there's a borrower on the other side,
but they want 350,000 to buy a house.
You actually need to find 35 different lenders.
Now they all want to lend for 35 years,
maybe 10 years, maybe 15.
So it's very, very hard to get that to mesh together.
And so peer-to-peer lending, for example,
has a problem with liquidity and that perfect matching.
But as we go down the digital realm,
it gets easier and easier to piece these places together.
So, I've got a task for you.
As you read through the goals of the DFS
and making that ecosystem work.
We see one of the key components
or issues is financial inclusion,
and that's broken down too into a bunch of dot points.
Then I want you to stop for a minute.
Don't just skim, read those.
I want you to see if you can work through this slide
without opening the study guide
and think about financial inclusion
from each of these six areas.
Describe what this section means,
what potential obstacles might exist
and strategies to overcome it.
So that way, firstly, it's good for your exam
because you've really thought carefully about
what financial inclusion is of how to get around it.
But secondly, in your workplace,
if you want to be looking at developing products,
strategy systems and integrating this DFS into your work,
then what are you going to do
to make sure of financial inclusion?
If you've thought about this,
you'll be prepared to include this into your analysis.
So complete that task.
And it's a better way than just reading the study guide.
It forces you to think test,
to see if your memory is activated
and you really know your content.
So what we've got, an example.
So we start with theory and now we're looking at example,
financial inclusion and interestingly,
the technology developments here
have happened in the lesser developed countries,
often in Africa, Asia Pacific as an example,
rather than in Western countries,
because they didn't have an issue.
They didn't need any innovation
'cause they had banks and credit cards
and everyone has a bank account.
So mobile phone payments via text message
became incredibly powerful over the last couple of decades.
And not only that with mobile phones,
you get data about what the prices are in the city
and overseas, so if you're selling coffee
and you previously only knew the price
that the person who came to your farm gate
was willing to pay,
you would often get exploited and get a very low price.
But if you know that coffee is really popular at the moment
and the market price is much higher,
you can demand more money.
So better data, more knowledge of the market
gives you higher crop prices.
The other benefit is when you only can trade
with people you directly interact with,
you've got cash constraints
and you can't transact with people further away,
but now you can message.
You can buy and sell across the country
and you can also start developing other things,
you're not just selling farm goods,
but off-farm activities like handicrafts,
things that you've made.
So you can grow your income, grow your wealth,
improve your welfare.
But there's always issues and obstacles to face.
And this happened six years ago now,
and that's been resolved.
But if a phone company starts allowing for payments,
does that make them a phone company
or does it make them a bank and how are they regulated?
And then of course banks might not be too keen on the idea.
So they try and squish it.
So you will also face those regulatory legal obstacles
unless you've resolved them.
And so mobile money for example,
was outlawed for a while and called illegal.
So these are the factors,
whenever you develop a new product or service,
you have to think about, not only the technical side,
but the regulatory side as well.
So I have another task for you and in this case,
it's taken from a figure in the study guide,
but I want you to see if you can fill in the key components
and how they flow
because you can't just memorise,
you can't just read it, oh yeah, I think I get that.
You actually have to deeply think about
how this ecosystem
interacts how the pieces of the puzzle flow together
so that your analysis and understanding keeps growing.
So have a look at this.
See if you just write out into the headings
and list the concepts of each area
and how they interrelate.
So, and it comes back to that foundation stone pyramid
we looked at earlier,
the policies, laws and regulations support this ecosystem,
and on top of that the infrastructure.
So what do we mean by infrastructure?
Well, we need payment systems.
We need to be able to pay.
And when you think about how simple it is, these days,
you just tap and off you go.
But in the old days you had to take cash
or you could take several minutes to write a check.
If you paid by credit card,
you have to use one of those machines,
it took a very long time.
There was a lot of P...
If you wrote a check,
people would write down your driver's licence number
to make sure it was valid.
So that ties in with those identity systems.
And we need the internet working.
We need voice and data networks.
So we need a lot of infrastructure
if we're going to build this
digital financial services ecosystem.
We also need to our regulators, our governments,
our policies, and even standard bodies
to decide how the data will move,
how it interacts, how will it cross borders,
where will it be hosted, items like that.
So, we want to achieve digital liquidity.
And if you think of liquidity,
as things moving smoothly versus friction,
if we go back in time to like barter events.
In the old days, you would have someone have products,
they might have a cow and someone else might have chickens
or some crops and they want to trade.
And it's very hard to work out the exact value of one cow
versus how many chickens.
So the power of turning that into cash
helps give us liquidity we can buy and sell
and you can receive money for your cow now
and put that cash away
and buy something in three months time,
rather than trading immediately.
So digital liquidity allows us to buy and trade
and sell and act much more smoothly with a lot less
friction.
So a closed loop system,
you know, like the Apple system, Apple Pay,
you're you're within that system,
so if you've got money in your Apple accounts,
you can use it for Apple type products,
but it doesn't allow you to just go to the supermarket
and purchase in an immediate sense.
So proprietary company based systems are closed.
On the other side, there's open loop systems.
So we think of banks.
So if you have a bank card, you can buy at the supermarket.
then you can put petrol in your car.
You can go to a retail outlet,
you can withdraw cash from a machine or a bank,
and you can go to the ANZ bank
or you can go to the Commonwealth bank and it will work.
Those systems are much more open.
And we're trying to bring these loops together,
and an example is Amazon Pay.
So Amazon Pay starts closed loop,
but now all of a sudden
companies that aren't even in the Amazon network
can accept cash via Amazon Pay,
just like they could accept cash from ANZ bank
or another bank.
So it's morphing towards that idea of a bank in place.
So the more we have these open loops where you don't have to
be tied to just Apple or just Amazon or just Google
whatever it might be and it works anywhere,
the more likely we'll get to liquidity quickly.
So I mentioned earlier this idea of the barter system
making it difficult.
So as we move towards cash,
you can buy trade and sell and store value much more easily.
In the same way to have digital liquidity now
we need first of all the payments
to be able to go into digital wallets.
So each week or each month people's payroll gets done,
you might be involved in doing that.
Cash gets put into someone's bank account.
Now, this is the importance of financial inclusion.
What if you don't have a bank account?
Well, in the old days you used to literally get an envelope
filled with cash.
Of course that's tricky, time-consuming, risky,
it could be stolen.
And so it's great to do electronic transfers,
but how do we get them into digital wallets
that will start the digital process,
because without the money in your wallet,
you've got nothing to spend.
The second thing is how easy is it to spend
from your digital wallet?
Because if you go to a merchant,
if you go to a business and you want to buy stuff,
will they accept it from your digital wallet?
If you can't convert your cash
in your digital wallet into a payment,
it's not very liquid, there's a lot of friction there.
So we need everyone accepting these payments.
Now, go back 20 years and people used to take cash
and bigger businesses would accept credit cards.
But as the technology gets quicker, more efficient,
even very, very small businesses,
you can just tap and you can just pay.
So there's interoperability is that open
instead of closed network.
So, you know, is it Apple?
Is it Google is it Android, who cares,
when you go to the supermarket, when you buy online,
the more that they interrelate,
the easier it'll be to turn your digital wallet,
money into expenditure.
Now we start off with payments and receiving payments.
That's great, that's the starting point.
But until we add to savings, lending and investing,
we don't really have digital liquidity.
So these are the key components.
And who does this, who drives this?
Well, the government, the regulators, by setting up
the systems and laws and rules to protect things.
Then the next step up is the ICT infrastructure.
We need to build infrastructure
that allows wallets to work safely.
Do you feel comfortable?
What if it could get hacked or stolen?
What if you lose the USB that it's sitting on
or the password, do you lose all your cash?
That terrifies people, so how do we create
safe systems that people can use?
Now, we also have to consider a bunch of risks,
issues and challenges.
Firstly, and this comes back to that financial inclusion,
the digital divide.
If you can't get on the internet,
you don't have that phone or that device or that mobile,
you don't have the knowledge or the ability.
Then you are going to have problems.
People are going to be excluded from this system.
The second thing is user data is so valuable
and it's really hard to comply
with all those terms and conditions or read them.
They're so long.
And so your data can be sold,
even if there's a privacy policy and items like that.
So we are exposed to greater and greater risks.
Risk including identity theft,
but also you sometimes hear about this
when people have their cryptocurrency
wallets hacked or stolen,
there are some serious issues to be resolved here.
The quality of work for people working in this ecosystem is
sometimes available for exploitation.
They're not always protected employees.
They are often treated as contractors,
not employees. They don't get leave entitlements.
So the quality of work for employees is sometimes subpar.
And one of the final issues is competition.
In normal, the normal world, the real world,
the physical world.
Competition, you normally have a winner,
somebody come second, third, fourth,
but you have a long tail of competitors.
So if you think of the soft drink market,
Coca Cola has a major chunk.
Pepsi has a slightly smaller chunk,
then there's Schweppes and there's other beverage companies,
but there's space for many, many to compete.
Now, when you go online,
what tends to happen is only one or two,
maybe three major competitors dominate the whole market.
Think Google for search or think
Apple and Android for phones.
These are Cloud services is going to be Amazon
and as Microsoft as you are.
The scale required to make it work is so big
that it really concentrates the market.
And once one or two players own the market,
it's very, very hard for someone else to crack it,
which opens it up to exploitation
and abuse when there's only a duopoly or an oligopoly.
Now to conclude Module One Part B Section 1.6 is very brief
and we're now diving even deeper into the ecosystem
we're looking only at digital payments.
So I've got another task for you.
And this is where I want you to not just
read the table, skim and do nothing.
I want you to look at this table,
without looking at the study guide
and see how many providers you can list, fill in the gaps.
And also if you come across a component,
you don't really know.
So what if do you know what an in e-wallet platform is?
If not, do a bit of online reading.
Do you know what a tablet POS provider is?
So for point of sale.
who are they, how is that helpful?
Because then you can take that back to your own business
where you work or for the clients you help out.
They might not have set up these point of sale,
these systems, these very quick opportunities.
So go through this list and say,
should our organisation have these?
Would it be helpful?
How much do I need to know across these areas to properly be
understanding the digital finance realm.
So quiz to take us towards the end of this,
which of the following, if you've read through example, 1.6,
our components of Apple's digital payments ecosystem?
Take a moment to have a look at that.
And we will see that A, C, D and E are all components
that are listed, now ICT infrastructure
will be necessary at some point,
but it's not listed as a key component,
probably a sub component, I guess, of making it work.
So I want you to go through example 1.6
and then there's this
final reflection to bring you to the end.
Do you think digital payments will play a role
in your business that you work in
or the client's businesses?
So if you're an accounting firm,
do your clients need to think closely about digital payments
and could you help them explain what the products are?
List the technology requirements and help them implement it?
That's the key part of doing the study guide,
the knowledge of digital finance and how to implement it.
And we'll use it for B2C, which is business to consumer
or B2B business to business, or even both.
So take a moment to think about
how your organisation may do digital payments.
I hope you found that tour of a Part B, useful.
Once again, always try and tie it back to the objectives,
especially objective two, in this case
where we're looking at complexity associated
with practical implementation of these technologies
and that finance ecosystem, thank you.